<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED PRICE(2) REGISTRATION FEE
<S> <C> <C>
Common shares, par value $2.00 per share(1)................. $200,000,000 $52,800
</TABLE>
(1) Includes (i) shares that are to be offered in the form of shares or American
Depositary Shares, (ii) shares that the Underwriters may purchase in the
form of shares or American Depositary Shares to cover over-allotments, if
any, and (iii) shares that are to be offered and sold to persons outside the
United States but that may be resold from time to time in the United States.
The shares are not being registered hereby for purposes of sale outside the
United States. The American Depositary Shares (each representing
shares) evidenced by American Depositary Receipts upon deposit of the shares
registered hereby are being registered under a separate registration
statement on Form F-6.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933.
------------------------------
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 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 JANUARY 12, 2000
SHARES
[LOGO]
IN THE FORM OF SHARES OR AMERICAN DEPOSITARY SHARES
-----------------
CARRIER1 INTERNATIONAL S.A. IS OFFERING ITS COMMON SHARES, PAR VALUE $2.00 PER
SHARE. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS
FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN AND PER SHARE.
-------------------
OF THE SHARES THAT ARE BEING OFFERED, SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND SHARES ARE BEING
OFFERED OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS.
THE FINAL ALLOCATION OF SHARES AMONG THE U.S. AND INTERNATIONAL UNDERWRITERS MAY
DIFFER FROM THESE AMOUNTS. 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 SHARES. THE ADSS
WILL BE EVIDENCED BY AMERICAN DEPOSITARY RECEIPTS.
-------------------
WE INTEND TO APPLY TO HAVE THE ADSS QUOTED ON THE NASDAQ NATIONAL MARKET UNDER
THE SYMBOL "CONE."
-------------------
INVESTING IN THE SHARES OR ADSS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 12.
-----------------
PRICE $ A SHARE AND $ AN AMERICAN DEPOSITARY SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS CARRIER1
-------- ------------- -----------
<S> <C> <C> <C>
PER SHARE................................ $ $ $
PER ADS.................................. $ $ $
TOTAL (3)................................ $ $ $
</TABLE>
-------------------
WE HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP TO AN ADDITIONAL
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
-----------------
WARBURG DILLON READ
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
JANUARY , 2000
<PAGE>
[Map showing Carrier1's existing and planned 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 Shareholders................ 81
Description of Certain Indebtedness... 85
Description of Share Capital.......... 87
Description of American Depositary
Receipts............................ 92
Shares Eligible for Future Sale....... 98
Taxation.............................. 99
Underwriters.......................... 104
Legal Matters......................... 108
Experts............................... 108
Where You Can Find More Information... 108
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.
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 (a) to persons whose ordinary activities
involve them in 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 (b) in respect of the shares only, to employees of the Company
(or its group companies) falling within regulation 7(2)(o) of the POS
Regulations or otherwise in circumstances that do not constitute an offer to the
public in the United Kingdom.
3
<PAGE>
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.
This prospectus is being delivered in Belgium to investors for their
personal use only and exclusively for the purpose of the directed share program.
Accordingly, this document may not be passed on to any other person in Belgium
nor may any other action be taken which would constitute or result in a public
offer of the shares or ADSs in Belgium under Belgium law.
No prospectus has been published pursuant to the Austrian Capital Markets
Act, which requires the publication of a German language prospectus in
accordance with its regulations. Sales of shares to a restricted circle of
persons within the frame of their professional or commercial activities are
exempted from the requirement of publishing a prospectus pursuant to the
Austrian Capital Markets Act. Other requirements of this Act apply and any
person intending to offer shares in Austria must observe the requirements of the
Austrian Capital Markets Act.
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.
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. Our
revenue for the three-month period ended September 30, 1999 was $27.3 million.
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 second 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 quarter
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 approximately %, and the Primus funds
will indirectly hold approximately %, of the shares of Carrier1 International,
on a fully diluted basis. Providence is a private investment firm that
specializes in equity investments in telecommunications and media companies in
the United States and 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 of Carrier1 International in this offering.
<TABLE>
<S> <C>
Shares offered............................... shares, in the form of shares or, upon
request in the United States, ADSs.
U.S. offering.............................. shares, in the form of shares or, upon
request, ADSs.
International offering..................... shares.
Over-allotment option...................... shares.
Shares to be outstanding after the shares, not including the exercise of any
offering................................... outstanding options or warrants. 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 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 from this
offering:
- to repay debt,
- to expand our network, and
- for working capital and other general
corporate purposes, including acquiring
network assets.
Proposed Nasdaq National Market symbol....... "CONE" for the ADSs.
Payment and Delivery......................... The underwriters expect to deliver the ADSs
quoted on the Nasdaq National Market against
payment in U.S. dollars through The
Depository Trust Company's book-entry
facilities on or about , 2000.
Security codes............................... ADSs quoted on the Nasdaq National Market:
CUSIP:
ISIN:
</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 nine months ended September 30, 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 nine months ended September 30, 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>
NINE MONTHS ENDED INCEPTION TO
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................... $ 59,798 $ 2,792
Cost of services (exclusive of amounts shown separately
below)................................................... 71,904 11,669
Selling, general and administrative expenses............... 10,681 8,977
Depreciation and amortization.............................. 7,817 1,409
---------- ---------
Loss from operations....................................... (30,604) (19,263)
Other income (expense):
Interest income.......................................... 5,087 92
Interest expense......................................... (21,323) (11)
Other income (expense)................................... (438) --
Currency exchange loss, net.............................. (5,218) (53)
---------- ---------
Loss before income tax benefit............................. (52,496) (19,235)
Income tax benefit, net of valuation allowance (1)......... -- --
---------- ---------
Net loss................................................... $ (52,496) $ (19,235)
========== =========
Weighted average number of shares outstanding (2).......... 28,764,000 7,367,000
Net loss per share (basic)................................. $ (1.83) $ (2.61)
Net loss per share (diluted) (3)........................... (1.83) (2.61)
OTHER FINANCIAL DATA:
EBITDA (4)................................................. $ (22,787) $ (17,854)
Capital expenditures (5)................................... 119,059 37,168
Net cash used in operating activities...................... (59,569) (14,441)
Net cash used in investing activities...................... (199,255) (19,866)
Net cash provided by financing activities.................. 266,812 37,770
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $13,931 $4,184
Restricted cash............................................. 7,217 1,518
Restricted investments (6).................................. 103,743 --
Total assets (7)............................................ 341,462 51,434
Total long-term debt (8).................................... 265,017 --
Shareholders' equity........................................ (5,863) 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
10
<PAGE>
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 nine months
ended September 30, 1999, as their effect is antidilutive. See Note 4 to our
consolidated financial statements.
(4) EBITDA stands for earnings before interest, taxes, depreciation,
amortization and foreign currency exchange gains or losses.
EBITDA is used by management and certain investors as an indicator of a
company's 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 $41.6 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 $11.5 million as
of September 30, 1999.
(8) For information about indebtedness incurred subsequent to September 30,
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 and accounting and
administrative resources and network operation and management and billing
systems. Such a strain on our operational and administrative capabilities could
adversely affect the quality of our services and our ability to collect
revenues. To manage our growth effectively, we will have to further enhance the
efficiency of our operational support and other back office systems and
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 September 30, 1999 and as adjusted to give effect
to the offering.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-------------------------------
ACTUAL AS ADJUSTED
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Total long-term debt........................................ $265,017 $
Shareholders' equity........................................ (5,863)
Total long-term debt as a percentage of total
capitalization............................................ 102% %
</TABLE>
Our deficiency of earnings to fixed charges for the nine-month period ended
September 30, 1999 was approximately $53.1 million.
As of December 31, 1999, we had incurred approximately $85 million of
additional indebtedness since September 30, 1999, which we intend to repay from
the proceeds of this offering. 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
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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.
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.
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.
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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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 nine-month period ended September 30, 1999, for example, one
customer accounted for approximately 18% of our revenue and another customer
accounted for approximately 11% 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,
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- diversion of our resources and management time,
- inconsistent economic, business or legal interests or objectives among
joint venture partners,
- the possibility that a joint venture partner will default in connection
with a capital contribution or other obligation, thereby forcing us to
fulfill such obligation, and
- difficulty maintaining uniform standards, controls, procedures and
policies.
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.
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 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 intend to apply to have the ADSs quoted on the Nasdaq National
Market, 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.
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 shares outstanding, % of
which will be held indirectly by funds managed by Providence and % 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. Incorporated and Salomon Smith Barney Inc. Following
this 180-day period, they may sell their shares as permitted by the 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.
22
<PAGE>
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 $ , or %, 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 from this offering will be approximately
$ , at an initial public offering price of $ per
share ($ per ADS) and assuming no exercise of the over-allotment option. We
intend to use the net proceeds of this offering:
- to repay approximately [EURO]10 million of floating rate indebtedness due
December 31, 2000 and outstanding under an interim credit facility with
Morgan Stanley Senior Funding, Inc. and Citibank, N.A., and $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 September 30, 1999 was
approximately $ per share or $ 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 $ million of estimated net proceeds from the sale
of shares in the offering (assuming an initial public offering price of $
per share), our pro forma net tangible book value as of September 30, 1999 would
have been approximately $ per share or $ per ADS. This represents an
immediate dilution in net tangible book value of $ per share, or $ 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....................... $ $
Net tangible book value (deficit) as of September 30,
1999...................................................... $ $
Increase in net tangible book value attributable to the
offering..................................................
-------- --------
Net tangible book value after adjustment for the offering...
-------- --------
Dilution in net tangible book value to new investors........ $ $
======== ========
</TABLE>
If the U.S. underwriters' over-allotment option is exercised in full, the
pro forma net tangible book value after giving effect to the offering would have
been $ per share, or $ per ADS, representing an immediate dilution in
net tangible book value of $ per share, or $ per ADS, to new investors
and an immediate increase in net tangible book value of $ per share to
existing shareholders. The foregoing computations do not take into account
approximately 2.0 million shares purchased prior to September 30, 1999 but
formally issued under Luxembourg law in October 1999. The foregoing computations
also assume no exercise of any options or warrants. As of September 30, 1999,
there were outstanding 2,395,718 options and 245,000 warrants to purchase an
aggregate of 4,109,911 shares at exercise prices ranging from $2.00 to $10.00
per share for the options and, at September 30, 1999, $2.00 for the warrants. If
said shares had been issued on September 30, 1999 and if all of the foregoing
options and warrants had been exercised as of September 30, 1999, the net
tangible book value at such date would have been $ per share, or $ per
ADS, and the pro forma net tangible book value after giving effect to the
offering would have been $ per share, or $ per ADS, representing an
immediate dilution in net tangible book value of $ per share, or $
per ADS, to new investors and an immediate increase in net tangible book value
of $ per share to existing shareholders.
The following table summarizes, as of September 30, 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 $ per share, or $ per ADS, and before deducting the
underwriting discount and the estimated expenses of the offering payable by us:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
------------------- ------------------- AVERAGE AVERAGE
PRICE PER PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE ADS
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Existing shareholders............................. % $ % $ $
Investors purchasing in the offering..............
---- --- ---- ---- ---- ----
Total......................................... 100% $ 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.
25
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and total capitalization at September 30, 1999 and as adjusted to give effect to
the application of the proceeds of this offering.
Amounts are presented in thousands, except share data.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
Cash and cash equivalents................................... $ 13,931 $
========= ========
Restricted cash............................................. $ 7,217 $
========= ========
Restricted investments(1)................................... $ 103,743 $
========= ========
Long term debt(2)
Senior notes.............................................. $ 248,259 $248,259
Other long-term debt...................................... 16,758
Shareholders' equity:
Common Stock, $2 par value, 31,019,071 shares issued and
outstanding at September 30, 1999; shares issued
and outstanding, as adjusted............................ 62,038
Additional paid-in capital................................ 2,304
Accumulated deficit....................................... (71,731)
Accumulated other comprehensive income.................... 1,526
--------- --------
Total shareholders' equity............................ (5,863)
--------- --------
Total capitalization................................ $ 259,154 $
========= ========
</TABLE>
- ------------------------
(1) Reflects:
(a) the remaining portion of the net proceeds from our 13 1/4% senior notes
used to purchase government securities to secure and fund the first five
scheduled interest payments on the notes, and
(b) approximately $41.6 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.
(2) Subsequent to September 30, 1999, we incurred and had outstanding as of
December 31, 1999, $75 million of indebtedness under a vendor financing
facility and [EURO]10 million under an interim credit facility. We are
required to repay this indebtedness with proceeds of the offering.
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 nine months ended September 30, 1999. The selected consolidated financial
data as of and for the period from our inception to December 31, 1998, and for
the nine months ended September 30, 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>
NINE MONTHS ENDED INCEPTION TO
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................................... $ 59,798 $ 2,792
Cost of services (exclusive of amounts shown separately
below)................................................... 71,904 11,669
Selling, general and administrative expenses............... 10,681 8,977
Depreciation and amortization.............................. 7,817 1,409
----------- ----------
Loss from operations....................................... (30,604) (19,263)
Other income (expense):
Interest income.......................................... 5,087 92
Interest expense......................................... (21,323) (11)
Other income (expense)................................... (438) --
Currency exchange loss, net.............................. (5,218) (53)
----------- ----------
Loss before income tax benefit............................. (52,496) (19,235)
Income tax benefit, net of valuation allowance (1)......... -- --
----------- ----------
Net loss................................................... $ (52,496) $ (19,235)
=========== ==========
Weighted average number of shares outstanding (2).......... 28,764,000 7,367,000
Net loss per share (basic)................................. $ (1.83) $ (2.61)
Net loss per share (diluted) (3)........................... (1.83) (2.61)
OTHER FINANCIAL DATA:
EBITDA (4)................................................. $ (22,787) $ (17,854)
Capital expenditures (5)................................... 119,059 37,168
Net cash used in operating activities...................... (59,569) (14,441)
Net cash used in investing activities...................... (199,255) (19,866)
Net cash provided by financing activities.................. 266,812 37,770
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 13,931 $ 4,184
Restricted cash............................................. 7,217 1,518
Restricted investments (6).................................. 103,743 --
Total assets (7)............................................ 341,462 51,434
Total long-term debt (8).................................... 265,017 --
Shareholders' equity........................................ (5,863) 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 nine months
ended September 30, 1999, as their effect is antidilutive. See Note 4 to our
consolidated financial statements.
(4) EBITDA stands for earnings before interest, taxes, depreciation,
amortization and foreign currency exchange gains or losses.
EBITDA is used by management and certain investors as an indicator of a
company's 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 $41.6 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 $11.5 million as
of September 30, 1999.
(8) For a description of indebtedness incurred subsequent to September 30, 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. As of 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 nine months ended September 30, 1999, one
customer accounted for approximately 18% of our revenues and another customer
accounted for approximately 11% of our revenues, and these customers 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
30
<PAGE>
that customers for data center services are more sensitive to the differential
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 quarter of 2000 and the Amsterdam
intra-city network will be operational in the second 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
31
<PAGE>
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 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, we have a point of presence and have negotiated
an interconnection agreement in France but do not have the interconnection
agreement implemented yet. Pending implementation, we have implemented "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.
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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
personnel costs and lease expenses within our data center facilities.
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 nine-month period ended
September 30, 1999 to the period from our inception to September 30, 1998 and
for the three-month period ending September 30, 1999 to the three-month period
ending September 30, 1998 are not meaningful.
CONSOLIDATED FINANCIAL DATA FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30,
JUNE 30, AND MARCH 31, 1999.
The following table sets forth our consolidated financial data as of and for
the three-month periods ended 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, except per share data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
SEPTEMBER 30, 1999 JUNE 30, 1999 MARCH 31, 1999
------------------ ------------- --------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue........................................... $ 27,311 $ 20,194 $ 12,293
Cost of services (exclusive of amounts shown
separately below)............................... 32,543 22,346 17,015
Selling, general and administrative expenses...... 4,216 3,147 3,318
Depreciation and amortization..................... 4,183 2,298 1,336
-------- -------- --------
Loss from operations.............................. (13,631) (7,597) (9,376)
Other income (expense):
Interest income................................... 2,009 2,099 979
Interest expense.................................. (8,718) (8,400) (4,205)
Other income (expense)............................ (25) (413) --
Currency exchange gain (loss), net................ 1,931 (4,721) (2,428)
-------- -------- --------
Loss before income tax benefit.................... (18,434) (19,032) (15,030)
Income tax benefit, net of valuation allowance.... -- -- --
-------- -------- --------
Net loss.......................................... $(18,434) $(19,032) $(15,030)
-------- -------- --------
OTHER FINANCIAL DATA:
EBITDA............................................ $ (9,448) $ (5,299) $ (8,040)
Net cash used in operating activities............. (20,121) (20,932) (18,910)
Net cash used in investing activities............. (13,311) (31,893) (152,722)
Net cash provided by (used in) financing
activities...................................... (2,153) (4,996) 274,141
</TABLE>
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.
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 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.
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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.
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.
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 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.
THREE MONTHS ENDED JUNE 30, 1999
Revenues for the three-month period ended June 30, 1999 were approximately
$20.2 million, primarily relating to voice services, which contributed
$15.8 million or 78% to the total revenue generated in the second quarter of
1999. Voice revenue increased 33% compared to the first quarter of 1999. Voice
traffic volume of 121.6 million minutes was billed to our customers. Average
voice revenue per minute in the second quarter of 1999 was 13 cents, which
represented a decrease of approximately 32% compared to the first quarter of
1999, due primarily to the traffic mix.
Internet and bandwidth revenue was approximately $4.4 million in the second
quarter of 1999, or approximately $1.1 million excluding the 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 lease for transmission
capacity, and termination expenses including refiling. These costs for the
three-month period ended June 30, 1999 increased 31% from the previous quarter,
to approximately $22.3 million, or 20% to approximately $20.4 million excluding
cost of services associated with the second quarter bandwidth IRU contract. As a
percentage of revenues, these costs for the second quarter were 111% of
revenues, or 120% of revenues excluding the revenue and cost of services
associated with the second quarter bandwidth IRU contract, a percentage decrease
from 138% of revenues in the previous quarter.
Selling, general and administrative expenses were approximately
$3.1 million for the three-month period ended June 30, 1999 and consisted
primarily of personnel costs, information technology costs, office costs,
professional fees and expenses.
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Depreciation and amortization for the three-month period ended June 30, 1999
was approximately $2.3 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 June 30, 1999 was
approximately $6.3 million. It consisted of approximately $8.4 million of
interest expense on our 13 1/4% senior notes and other long term debt, less
interest income of approximately $2.1 million from investing the remaining
proceeds of the investment 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 second quarter of 1999
resulted in a currency exchange loss of $4.7 million.
Fixed cost contribution for voice services for the three-month period ended
June 30, 1999 was $3.0 million, representing $15.8 million in voice revenue less
$12.8 million, or 10.5 cents per minute, in voice termination costs. Fixed cost
contribution for Internet and bandwidth services for the same period was
$2.4 million, representing approximately $4.4 million in Internet and bandwidth
services revenue less cost of services of approximately $1.9 million relating to
the bandwidth IRU contract.
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues for the nine months ended September 30, 1999 were approximately
$59.8 million, primarily relating to voice services, which contributed
$53.3 million or 89% to the total revenue generated during that period. Voice
traffic volume of 366 million minutes was billed to our customers. Average
revenue per minute for the period was $14.6 cents. Revenue of $6.5 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 nine-month period ended
September 30, 1999 were approximately $71.9 million, including $1.9 million of
cost of services associated with the second quarter bandwidth IRU contract.
Selling, general and administrative expenses were approximately
$10.7 million for the nine-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 nine-month period ended September 30,
1999 was approximately $7.8 million and consisted primarily of depreciation
costs for network equipment, indefeasible rights of use, and other furniture and
equipment.
Net interest expense for the nine-month period ended September 30, 1999 was
approximately $16.2 million. It consisted during this period of approximately
$21.3 million of interest on the 13 1/4% senior notes and other long term debt,
less interest income of approximately $5.1 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 nine-month period ended
September 30, 1999 resulted in a currency exchange loss of approximately
$5.2 million.
Fixed cost contribution for voice services for the nine-month period ended
September 30, 1999 was $9.5 million, representing $53.3 million in voice revenue
less $43.8 million, or 12 cents per minute, in voice termination costs. Fixed
cost contribution for Internet and bandwidth services for the same period was
$4.5 million, representing approximately $6.5 million in Internet and bandwidth
services revenue less approximately $1.9 million of cost of services for the
bandwidth IRU contract.
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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 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, as we did not incur variable costs
associated directly with providing these services.
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 nine-month period ended September 30,
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. 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.
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<PAGE>
Between our inception and December 31, 1998, we had incurred capital
expenditures of approximately $37.2 million, and between December 31, 1998 and
September 30, 1999 we incurred capital expenditures of approximately
$119 million, including amounts related to the German network in both periods.
We estimate that we incurred approximately $65 million in additional capital
expenditures from September 30, 1999 through December 31, 1999. We estimate that
we will incur capital expenditures of approximately $363 million from
January 2000 through the end of 2001, including approximately $23 million of
which we estimate will be required for our investment in the Hubco joint
venture. By the end of the first quarter 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 second
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 September 30,
1999, employees and directors had directly or indirectly invested approximately
$6.1 million in our shares, approximately $4.0 million of which relates to
shares formally issued under Luxembourg law after September 30, 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
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and competitive developments. There can be no assurance that sources of
additional financing will be available on acceptable terms or at all.
As of September 30, 1999, we had total current assets of $149.9 million, of
which $33.2 million was escrowed for interest payments on the 13 1/4% senior
notes and $41.6 million of which was allocated to the construction cost of the
German network. Net unrestricted cash as of the same date was $13.9 million. In
the first quarter of 2000, we expect to allocate approximately $20.0 million in
additional funds for the construction cost of the German network.
EBITDA, which we define as earnings before interest, taxes, depreciation,
amortization, foreign currency exchange gains or losses and other income
(expense), decreased from negative $5.3 million in the second quarter of 1999
(negative $6.6 million if adjusted to exclude revenue and cost of services
associated with the second quarter bandwidth IRU contract) to negative
$9.5 million in the third 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 indications 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.
- Under our February 18, 1999 agreement to purchase fiber optic cable for
the German network for $20.3 million plus value-added tax. 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 $75,000,000 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 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
39
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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, 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 our fiscal year ending December 31, 2000. Management
does not believe that this new accounting standard will have a significant
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.
41
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Because substantially all of our outstanding debt at September 30, 1999 is
fixed-rate debt, a change in market interest rates would not have a material
effect on our earnings, cash flows or financial condition. We are exposed to
market risk from changes in foreign currency exchange rates. As of
September 30, 1999, we did not have a position in futures, forwards, swaps,
options or other similar financial instruments to manage the risk arising from
these exposures. 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.
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 September 30, 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 September 30, 1999.
The information is presented in U.S. dollar equivalents, our reporting currency,
using the exchange rate at September 30, 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
September 30, 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
September 30, 1999.
<TABLE>
<CAPTION>
(IN THOUSANDS)
EXPECTED
MATURITY DATE 1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
- --------------------- -------- -------- -------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Notes payable:
Fixed rate
([EURO])........... $ 90,458 $ 90,458 $ 94,171
Interest rate........ 13.25% 13.25%
Fixed rate ($)....... $160,000 $160,000 $158,738
Interest rate........ 13.25% 13.25%
Other long-term debt:
Fixed rate ($)....... $1,013 $3,038 $3,038 $ 760 $ 7,849 $ 6,351
Interest rate........ 9.7% 9.7% 9.7% 9.7%
Variable rate ($).... $4,240 $4,240 $4,239 $ 12,719 $ 11,272
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.
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. Our revenue
for the three-month period ended September 30, 1999 was $27.3 million.
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 second 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 quarter 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 second 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 nine months ended
September 30, 1999, we had $53.3 million of revenues from voice services and
$6.5 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, 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, 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, depending 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.
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.
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<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 quarter 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 up to approximately $105 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, 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 fiber
on the German network in March 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,
connecting the same cities. 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 second 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 1, 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.
As of December 1, 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.
As of December 1, 1999, we had resale agreements in France.
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 40% of our revenues for the
nine-month period ended September 30, 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 nine
months ended September 30, 1999, Interoute Telecommunications (UK) Limited and
Mobilcom AG, accounted respectively for approximately 11% and 18% of our
revenues and may continue to account for a significant portion of our revenues
in the near term. Our agreements with Interoute and Mobilcom employ usage-based
pricing and do 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
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telecommunications-related marketing and sales experience, as well as strong
customer relationships, in 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
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revenue per billable minute for voice traffic and declining revenue per Mb for
Internet traffic, in part 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
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to provide a general overview of the more relevant regulations and our current
regulatory posture in 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 can often be a very cost-effective basis for terminating 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 are also being reviewed
by the German regulator. We do not expect any adverse effect on our business
operations from 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 are currently implementing an interconnection agreement with France
Telecom. We expect to complete this implementation by early 2000.
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 has stated its intention to undertake a rigorous
assessment of the real net cost of universal service provision in France. 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.
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 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
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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.
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
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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 expect to file an application to provide infrastructure and voice and
Internet services in Spain in early 2000. 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.
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.
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In Norway, new service providers must register with the national regulator,
and in Finland and Sweden, a similar notification procedure is required to
authorize new service providers. In Denmark, services and infrastructure can be
provided by new entrants on the basis of a class license requiring no
registration, notification, or prior approval procedures involving the national
regulator. 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 2003.
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. We are not presently a party to any
such litigation that we believe 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.
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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 Carrier 1 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 also a Vice
President of Narragansett Capital Inc., which he joined in 1988. Mr. Creamer is
a director of American Cellular Corporation, Celpage, Inc., Epoch
Networks, Inc., 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 intends to establish a compensation committee and an audit
committee in the first quarter of 2000.
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 to a restructuring of our management equity, these
options for Carrier One, LLC interests were
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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 $279,605 $34,951 $28,000 355,555 $73,000
PRESIDENT AND CHIEF 1998 245,569 46,044 22,188 (e) 39,550
EXECUTIVE OFFICER
Eugene A. Rizzo........... 1999 197,368 24,671 27,000 355,555 32,000
VICE PRESIDENT, SALES AND 1998 173,343 32,502 22,188 (e) 27,248
MARKETING
Terje Nordahl............. 1999 171,053 21,382 25,000 177,777 38,000
CHIEF OPERATING OFFICER 1998 135,207 25,352 19,969 (e) 24,248
Joachim W. Bauer.......... 1999 171,053 21,382 25,000 355,555 41,000
CHIEF FINANCIAL OFFICER 1998 150,230 28,168 23,147 (e) 34,793
Kees van Ophem............ 1999 171,053 21,382 49,000 355,555 17,000
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 April 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 $27.9
Eugene A. Rizzo............................................. 22.2 26.7
Terje Nordahl............................................... 20.0 25.4
Joachim W. Bauer............................................ 22.2 25.4
Kees van Ophem.............................................. 22.2 24.0
</TABLE>
The figures for other annual compensation for the 1999 period which
are currently available are estimates.
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(e) Pursuant to the equity restructuring, options to purchase Carrier One,
LLC interests, which were granted to each executive in 1998, have been
cancelled and were replaced by the economically equivalent options shown
above as granted in 1999.
(f) Consists of estimated contributions under a defined contribution pension
plan.
STOCK OPTION GRANTS AND FISCAL YEAR-END VALUES
The following tables set forth information regarding grants of options to
purchase shares of Carrier1 International and the fiscal year-end value of such
options, which were granted to the executive officers listed in the Summary
Compensation Table above pursuant to the 1999 share option plan to replace
options to purchase Carrier One, LLC interests pursuant to a restructuring of
our management equity. The economic terms of these new options are substantially
the same as the terms of the Carrier One, LLC options. Options vest in equal
annual installments over the five years ending on the fifth anniversary of the
grant date of the predecessor options, subject to the executive's continuing
employment.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED
UNDERLYING TO EXERCISE PRESENT VALUE
OPTIONS EMPLOYEES PRICE AT DATE OF
NAME GRANTED IN 1999 ($/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 4, 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 formerly did not have a compensation committee and
the compensation of executive officers and other of our key employees have in
the past been determined by the board. Stig Johansson, our President and Chief
Executive Officer, is currently a member of the board and has participated in
such determination. See "Certain Relationships and Related Transactions" for a
description of transactions involving some members of the board.
Compensation of executive officers and other key employees will be set by
the compensation committee in the future.
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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 each own
(directly or through trusts organized for the benefit of family members) 400,000
Class A Units 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. Mr. Wynne's and Mr. Pelson's Class A Units
relate to a total of 400,000 shares of Carrier1 International held by Carrier
One, LLC or approximately 1.07% of Carrier1 International's common stock on a
fully diluted basis. Messrs. Wynne and Pelson, however, do not directly hold any
outstanding shares of Carrier1 International.
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 grant of such options. Options will expire if not
exercised within 10 years of the grant, or on an earlier date as specified by
the board or the committee. If the employment of a participant is terminated for
any reason, all unvested options will immediately expire and vested options must
be exercised within a particular number of days, which number will vary
depending on the reasons for termination. Subject to certain exceptions, options
will be nontransferable during the life of an optionee except pursuant to a
valid domestic relations order. Upon an optionee's death, disability or
termination of employment, the subsidiary which employs the optionee, or its
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designee, will have the right to repurchase all shares held by the optionee,
whether or not such shares were acquired pursuant to the exercise of options.
Under Luxembourg law, Carrier1 International and certain subsidiaries may be
precluded from exercising such right directly.
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
(collectively, the "Management Investors") have entered into the Securities
Purchase Agreement (the "Securities Purchase Agreement") (effective as of
March 1, 1999) under which each Management Investor has purchased a specified
number of shares at 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 Management Investors for,
among other things, losses related to any transaction financed or to be financed
with proceeds from the sale of securities purchased pursuant to the Securities
Purchase Agreement or any related agreement and environmental losses. The
Securities Purchase Agreement contains customary conditions, representations and
warranties.
REGISTRATION RIGHTS AGREEMENT
Carrier1 International, Carrier One, LLC, and Messrs. Johansson, Bauer,
Rizzo, van Ophem, Craven, Nordahl, Gross, Poulter, Wynne and Pelson, as the
original management 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 management investors and, at the request of
certain original management investors, possibly additional employees party to
the Securities Purchase Agreement or the Securityholders' Agreement described
below. The original management investors do not, however, have piggyback rights
in connection with an initial public offering. The registration rights agreement
contains provisions governing the registration statement filing process. Among
other things, it provides that Carrier1 International will bear all registration
expenses and expenses for each piggyback registration in which Carrier One, LLC
or any of the original management investors participate, other than underwriting
discounts and commissions, in connection with its obligations under the
registration rights agreement.
SECURITYHOLDERS' AGREEMENT
In connection with the Securities Purchase Agreement, Carrier1 International
has entered into a securityholders' agreement, effective as of March 1, 1999,
with Messrs. Wynne and Pelson, the Management Investors and Carrier One, LLC.
This agreement places restrictions on Management
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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 transferee.
Carrier One, LLC will also benefit from preemptive rights in certain other
circumstances. This agreement also provides that the Management Investors will
(i) consent to and raise no objections to a sale of Carrier1 International
approved by the board and (ii) comply with a board request to pledge their
securities to secure financing to be provided to Carrier1 International.
Management Investors have tag-along rights in the event of sales by Carrier One,
LLC or its members of securities if a change of control is involved. This
agreement provides for certain individuals to be appointed to the board.
Finally, under this agreement, the Management 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 21%
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
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the outstanding common stock of Worldwide Fiber Inc. Glenn Creamer, one of our
directors, is also a director of Worldwide Fiber Inc.
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 nine-months ended September 30, 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 $75,000 and $339,000, respectively,
and were expensed as selling, general and administrative expenses.
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PRINCIPAL 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, and
(4) all executive officers and directors of Carrier1 International as a
group.
All information with respect to beneficial ownership has been furnished to
us by the respective shareholders of Carrier1 International.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER OF SHARES SHARES
- --------------------------------------- ---------------- -------------
<S> <C> <C>
Carrier One, LLC............................................ 30,399,999 92.1%
c/o Providence Equity Partners Inc.
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Providence Equity Partners L.P.(2).......................... 30,400,000 92.1
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Jonathan M. Nelson(2)....................................... 30,400,000 92.1
Paul J. Salem(2)............................................ 30,400,000 92.1
NAME OF EXECUTIVE OFFICER OR DIRECTOR
- ------------------------------------------------------------
Stig Johansson(3)........................................... 105,241 *
Eugene A. Rizzo(3).......................................... 105,241 *
Terje Nordahl(3)............................................ 69,685 *
Joachim Bauer(3)............................................ 105,241 *
Kees van Ophem(3)........................................... 105,241 *
Glenn M. Creamer(2)......................................... 30,400,000 92.1
Jonathan E. Dick............................................ -- --
Mark A. Pelson.............................................. -- --
Victor A. Pelson(4)......................................... 4,000 *
Thomas J. Wynne(4).......................................... 4,000 *
All directors and executive officers as a group (12 31,003,890 92.8
persons)..................................................
</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) 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.
(3) Includes 34,130 shares and an additional 71,111 shares (35,555, in the case
of Mr. Nordahl) issuable to each such person upon exercise of options which
are exercisable within 60 days. Options for an additional 71,111 shares
(35,555 in the case of Mr. Nordahl) will become exercisable in March 2000.
(4) 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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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 (3)........................................ 400,000 *
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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(3) Thomas J. Wynne and Victor A. Pelson each hold (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 each of Thomas J. Wynne and Victor A. Pelson for a total of
40,000 shares (20,000 shares each). Messrs. Wynne and Pelson disclaim
beneficial ownership in any Class A Units held in any such trusts.
(4) Primus Capital Fund IV Limited Partnership ("Primus Capital LP") holds
9,600,000 Class A Units and another fund managed by Primus holds 400,000
Class A Units. Primus Venture Partners IV Limited Partnership ("Primus
Venture LP") is the general partner of Primus Capital LP and the other fund,
and Primus Venture Partners IV, Inc. ("Primus Venture Inc.") is the General
Partner of Primus Venture LP. By virtue of such status, either of Primus
Venture LP or Primus Venture Inc. may be deemed to be the beneficial owner
of the Class A Units in which Primus Capital LP and the other fund have
beneficial ownership. Each of Primus Venture LP and Primus Venture Inc.
disclaims such deemed beneficial ownership.
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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. 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 will bear 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 owed under this
facility 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 31, 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.
Carrier1 International has outstanding 33,010,700 shares with a par value of
$2.00, all of which have been paid in full, representing a subscribed capital
amount of $66,021,400.
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. 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
shares (not including additional shares issuable upon exercise of
options held by our directors and employees or upon exercise of the warrants
described below).
MEETINGS OF SHAREHOLDERS
Meetings of shareholders may be either ordinary or extraordinary. At
ordinary meetings, 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,
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.
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
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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.
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.
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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.
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.
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
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.
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
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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 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, 1999, and prior to the close of business on February 19, 2009,
unless redeemed. The warrants will also become exercisable in connection with
the initial public offering of Carrier1 International. Warrants that are not
exercised by this expiration date will expire.
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
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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 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
The following is a summary of the material provisions of the deposit
agreement relating to the ADSs among us, as depositary, and all
holders and beneficial owners of the ADSs represented by American Depositary
Receipts issued under the deposit agreement. This is only a summary and may not
contain all of the information that may be important about the ADSs and the
deposit agreement that may be important to you. For complete information, you
should read the deposit agreement, which has been filed as an exhibit to the
registration statement of which this prospectus is a part. You may also review a
copy of the deposit agreement at the principal office of the depositary,
currently located at .
AMERICAN DEPOSITARY RECEIPTS
The depositary will arrange for ADRs to be issued. ADRs are certificates
that evidence ADSs; each ADR represents a specified number of ADSs and each ADS
represents share which will be deposited with as the
custodian and agent of the depositary in Luxembourg. We refer to these shares,
together with any and all other securities, property and cash held under the
deposit agreement as the "deposited securities." An ADR may represent any number
of ADSs.
DEPOSIT AND WITHDRAWAL OF SECURITIES
The shares represented by the ADSs will be deposited with the custodian, and
credited to an account at the custodian maintained for that purpose by the
depositary. The depositary will be the holder of record of all shares deposited
with the custodian. Once the custodian confirms the deposit of the shares to its
account at the custodian, the depositary will sign and deliver the ADRs
representing the ADSs.
The depositary will execute and deliver an ADR or ADRs registered in the
name of any person depositing shares with the custodian, either through
book-entry transfer to the custodian's account or by physical delivery to the
custodian of the shares, provided that both the depositary and the custodian
will each refuse to accept for deposit shares or other securities that it
believes to be "restricted securities." Anyone depositing shares will be deemed
to represent that the deposit of the shares and the issuance of the ADRs upon
deposit are not restricted under the securities laws of the United States and
that the shares deposited are not "restricted securities." In addition, the
depositary and the custodian will refuse to accept shares for deposit whenever
notified that we have restricted transfer of such shares to comply with delivery
or transfer requirements and/or ownership restrictions referred to in the
deposit agreement or under applicable law. The shares to be deposited must be
accompanied by (i) appropriate written instructions as to issuance,
(ii) certain certifications and payment of required fees, charges and taxes and
(iii) any other documentation or certification as we or the depositary may
require.
You may turn in your ADSs at the depositary's principal office in order to
withdraw the deposited securities represented by the ADSs. You may turn in your
ADSs by delivering the ADR representing the ADSs or by book-entry delivery of
the ADSs to the depositary. Upon payment of certain fees and expenses (including
transfer or custody fees relating to shares) and any applicable taxes or
governmental charges, subject to the terms and conditions of the deposit
agreement, you will be entitled to delivery of the deposited securities
represented by the ADSs. We do not intend to issue fractional shares. Therefore,
the depositary will only accept for surrender a number of ADSs representing a
whole number of shares. To turn in an ADR, you will be requested to sign and
deliver to the depositary a written order containing delivery instructions
meeting the depositary's requirements.
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At your request, risk and expense, the depositary will direct
to send to you any cash or other property (other than
securities) relating to your surrendered ADR to the depositary for delivery to
you. You must provide instructions for the depositary to do so in writing.
PRE-RELEASE TRANSACTIONS
The depositary may arrange for the issue of ADRs against the right to
receive shares. In certain cases, the depositary may permit ADSs to be issued
before the deposit of the underlying shares, and may deliver shares before it
has received and canceled the ADSs representing the shares. This is called a
pre-release transaction. Any pre-release transaction must be accompanied by or
subject to a written agreement whereby you must represent, first, that at the
time the depositary issues the ADRs or delivers the shares, that you own the
shares or ADRs in question; second, that you agree to indicate the depositary as
owner of the shares or ADRs in your records and to hold the shares or ADRs in
trust for the depositary until you deliver them to the depositary or the
custodian; third, that you unconditionally guarantee to deliver the shares or
ADRs upon the depositary's request and, finally, that you agree to any
additional restrictions or requirements that the depositary may request.
At all times, any pre-release transaction must be fully collateralized with
cash, United States government securities, or other similar collateral. The
depositary may terminate any pre-release transaction by giving you up to five
business days' notice, and the depositary may also require further indemnities
and credit regulations. The depositary will normally limit the number of shares
or ADRs issued by it under pre-release transactions and outstanding at any time
to 30% of the ADRs issued by the depositary and with respect to which shares are
on deposit, provided that the depositary may, after consultation with us, change
or disregard this limit from time to time. The depositary will also set limits
with respect to the number of ADRs or shares involved in pre-release
transactions to be entered into with any one person on a case by case basis. The
collateral you provide for a pre-release transaction (but not the earnings on
the collateral) will be held for your benefit. The depositary is entitled to
retain any compensation received by it in connection with pre-release
transactions including earnings on collateral.
DIVIDENDS, OTHER DISTRIBUTIONS AND RIGHTS
The depositary will convert any cash dividends and other cash contributions
(and net proceeds of sales or other distributions) received by it into U.S.
dollars if it can do so on a practicable basis and can transfer the U.S. dollars
to the United States. If the depositary determines that this is not practicable
or that a required approval cannot be received at reasonable cost or in a
reasonable time, it may convert the foreign currency and make distributions in
U.S. dollars to any holders for whom it is practicable to do so, distribute the
foreign currency to holders for whom it is practicable to receive that foreign
currency, or hold the foreign currency for the accounts of those holders
entitled to receive it. The depositary will not invest this foreign currency and
will not be liable for any interest. You will receive these dividends or
distributions in proportion to the number of deposited securities represented by
your ADSs on the applicable record date. The depositary may deduct certain fees
and expenses and may withhold required taxes or other governmental charges.
If we declare a share dividend or free distribution of shares, the
depositary may, after consultation with us or at our request, (i) instruct us to
deposit or cause the deposit of the shares with the custodian and registered in
the name of the custodian or its nominee or the depositary or its nominee and
(ii) distribute additional ADSs in proportion to the number of ADSs held by you
as of the record date, net of fees, charges and expenses and taxes; or, if
additional ADSs are not issued, each ADS shall, after the record date, also
represent the additional shares distributed with respect to shares represented
by the ADSs. If we distribute property (including shares) that requires that we
or the depositary withhold from you taxes or other governmental charges, or if
the shares must be registered under the Securities Act in order to be
distributed to you, the depositary may sell all or any part of the property
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as it considers advisable. The depositary will distribute the proceeds of the
sale to you. It will deduct fees, charges and expenses and taxes. The depositary
will distribute only whole ADSs. It will sell the number of shares represented
by the aggregate of any fractional ADSs fractions and distribute the net
proceeds in U.S. dollars, all as provided in the deposit agreement.
If we offer to distribute any rights to subscribe for additional shares or
any rights of any other nature, the depositary will make those rights available
to you only if we request that they be made available to you, if the depositary
has determined that it is reasonably practicable for you to receive the rights
and if the depositary receives certain documents from us. If these conditions
are satisfied, the depositary will make these rights available to you by means
of warrants or otherwise. If the depositary determines in its discretion that
making the rights available to you is not lawful or feasible, or if the rights
represented by the warrants or other instruments are not exercised and appear to
be about to lapse, it may use its reasonable efforts to sell the rights,
warrants or other instruments, and allocate the net proceeds of the sales to you
as described in the deposit agreement. If the depositary cannot make any rights
available to you or arrange for their sale, the depositary will allow the rights
to lapse.
If the custodian receives any distribution upon any deposited securities
(other than cash, shares or rights), the depositary will, after consultation
with us and upon receipt of required legal documents, cause such securities or
property to be distributed to you, in proportion to the number of ADSs held by
you on the record date. If the conditions for distributing these securities or
property to you are not satisfied, the depositary, after consulting with us, may
sell or otherwise dispose of the property or cause it to be sold as it wishes.
The depositary will distribute the proceeds of the sale to you in the same
manner as it distributes cash distributions, net of taxes after deducting fees,
charges and expenses and taxes.
If any distribution of property (including shares or rights to subscribe for
shares) other than cash is subject to any tax or governmental charges that the
depositary is obligated to withhold, the depositary may dispose of or sell all
or a portion of the property as it deems necessary and practicable to pay any
taxes or governmental charges. The net proceeds of the sale, after deduction of
taxes or governmental charges, will be distributed to you.
The depositary will not make available to you any right to subscribe for or
to purchase any securities unless a registration statement under the Securities
Act with respect to the securities is in effect or unless the offering and sale
of the securities to you are exempt from registration under the provisions of
the Securities Act and any other applicable laws. Neither we nor the depositary
are obligated to file a registration statement under the Securities Act or
otherwise register the rights or securities under any other applicable laws to
make the rights available to you. If neither we nor the depositary file a
registration statement under the Securities Act or otherwise register the rights
or securities under any applicable law, and an exemption from registration is
not available, you will not be permitted to purchase the securities or otherwise
exercise the rights and the depositary will, to the extent possible, dispose of
the rights for your account, as provided in the preceding paragraph.
CHANGES AFFECTING DEPOSITED SECURITIES
If the nominal or par value of deposited securities changes, the deposited
securities are split-up, consolidated or reclassified, or if there is a
recapitalization, reorganization, merger or consolidation or sale of assets
affecting us or to which we are a party, any securities received by the
depositary or the custodian will be treated as newly deposited securities under
the deposit agreement. The ADSs will from that point on represent the new
deposited securities received in that exchange or conversion. The depositary
may, however, with our approval, and will, at our request, deliver new ADRs or
call for the surrender of outstanding ADRs to be exchanged for new ADRs so long
as the distributions do not violate any laws.
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RECORD DATES
Whenever any cash dividend or other cash distribution becomes payable, any
distribution other than cash is made, or rights are issued with respect to the
deposited securities, or whenever the depositary receives notice of any
shareholders' meeting of Carrier1 International or any other meeting at which
holders of deposited securities may vote, or whenever, for any reason, the
depositary causes a change in the number of shares that are represented by each
ADS or whenever the depositary finds it necessary or convenient for any reason,
the depositary will fix a record date (which date will be the same as, or as
near as reasonably practicable to, the corresponding record date set by Carrier1
International with respect to the shares, subject to the requirements of and the
regulations of any stock exchange on which the ADSs are listed) by giving notice
to you and to us. Record dates may be fixed for the determination of the holders
who are entitled to receive dividends, distributions or rights, or net proceeds
from the sale thereof or for any other reason, or who are entitled to give
instructions for the exercise of their voting rights at any shareholders'
meeting, subject to the provisions of the deposit agreement. Record dates may
also be fixed for fixing the date on or after which each ADS will represent a
changed number of shares or for any other matter.
VOTING OF THE DEPOSITED SECURITIES
You may instruct the depositary to vote the ordinary shares or deposited
securities underlying your ADSs as described below.
As soon as practicable after the depositary receives notice of any meeting
of holders of deposited securities, under the terms of the deposit agreement,
the depositary will mail or cause to be mailed the information contained in the
notice of meeting to you. The deposited securities represented by your ADSs will
not be voted except as you instruct. The depositary itself may not exercise any
voting discretion over any shares or other deposited securities. If the
depositary does not receive your voting instructions on or before the date it
specifies, the shares or other deposited securities represented by your ADSs
will not be voted.
DISCLOSURE OF INTERESTS
We or the depositary may ask you to provide information as to the capacity
in which you hold or held ADSs and the name of any other person then or
previously holding any beneficial or other interest in your ADSs and various
other matters. You agree to provide the requested information whether or not you
are still a holder at the time of the request.
If the deposit agreement or applicable law requires disclosure relating to
our shares and other securities or limits beneficial or other ownership of
deposited securities and provides for blocking transfer and voting or other
rights to enforce disclosure or limit ownership, the depositary will use
reasonable efforts to comply with our instructions as to ADRs concerning
enforcement or limitation. You must comply with all disclosure requirements and
ownership limitations and must cooperate with the depositary's compliance with
our instructions. See also "Description of Capital Stock--Meetings of
Shareholders".
Upon our request, the depositary will provide us with a list, as of a recent
date, of the names, addresses and holdings of ADSs by all persons in whose names
ADSs are registered on the books of the depositary. Any request for information
made by us will be limited to the information related to shares as recorded by
the depositary pursuant to the terms of the deposit agreement.
INSPECTION OF TRANSFER BOOKS
The depositary is required to keep books at its principal office for the
registration and transfer of ADRs. You may inspect these books at all reasonable
times, provided that no inspection shall be for
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the purpose of communicating with other holders for any reason not connected
with our business or for matters unrelated to the deposit agreement or the ADRs.
REPORTS AND NOTICES
We will furnish to the depositary all notices of shareholders' meetings and
annual reports to shareholders and other reports and communications that are
made generally available to shareholders, together with English translations of
notices or reports not in English. These notices will be available for your
inspection at the principal office of the depositary. Certain notices or
summaries of reports and communications will also be sent to you by the
depositary as provided in the deposit agreement.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
We and the depositary may agree to amend the form of ADRs and the deposit
agreement at any time without your consent for any reason. If an amendment
imposes or increases any fees or charges (except for taxes and other
governmental charges and certain depositary expenses), or prejudices an
important right of yours, it will only take effect after the depositary has
given you 30 days' notice of the amendment. At the time the amendment becomes
effective, you are considered, by continuing to hold your ADS or ADSs, to agree
to the amendment and to be bound by the deposit agreement as amended. No
amendment will impair your right to surrender your ADRs and receive the
deposited securities represented by it, except in order to comply with
applicable law.
The depositary must terminate the deposit agreement at any time at our
written request by mailing notice of the termination to you at least 60 days
prior to the date fixed in the notice for such termination. The depositary may
likewise terminate the deposit agreement if the depositary delivers to us a
written notice of its resignation at least 60 days prior to the date fixed in
the notice, provided that no successor depositary shall have been appointed and
accepted its appointment, as provided in the deposit agreement, before the end
of that 60-day period.
If any ADRs remain outstanding after the date of termination of the deposit
agreement, the registrar will stop the registration of transfer of ADRs, and the
depositary will suspend the distribution of dividends to you and will not give
any further notices or perform any further acts under the deposit agreement,
except (i) the collection of dividends and other distributions relating to
deposited securities, (ii) the sale of property and rights and the conversion of
deposited securities (that are not shares) into cash as provided in the deposit
agreement and (iii) the delivery of shares and other deposited securities,
together with any dividends or other distributions received with respect to the
deposited securities and the net proceeds of the sale of any rights or other
property, in exchange for surrendered ADRs, subject to the terms of the deposit
agreement.
At any time after six months after termination, the depositary may sell the
deposited securities and hold the net proceeds, together with any other cash
then held by it for the PRO RATA benefit of ADR holders who have not surrendered
their ADRs. It will not invest the money and has no liability for interest.
After termination, the depositary's only obligations will be to account for the
net proceeds and other cash and certain indemnification obligations to us. After
termination, we will also be discharged from all obligations under the deposit
agreement, except for certain obligations to the depositary.
CHARGES OF DEPOSITARY
The depositary will charge you fees for receiving deposits and issuing ADRs,
for delivering deposited securities against your surrender of ADRs, for
splitting and combining ADRs and for receiving a stock dividend or distribution
of shares pursuant to an exercise of rights of up to $0.05 for each ADS issued
or surrendered. We will pay certain expenses, fees or charges of the depositary
and those of the registrar according to the terms of the deposit agreement and
any other written agreements between us and the depositary, except for taxes and
other governmental charges, any
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applicable share transfer, custody and registration fees on deposit, withdrawal
or transfer of shares, certain cable, telex, facsimile transmission and delivery
charges and expenses incurred by the depositary in the conversion of foreign
currency into U.S. dollars, and in connection with compliance with foreign
exchange control regulations. These expenses, fees and charges will be payable
by you.
LIABILITY OF HOLDERS AND BENEFICIAL OWNERS FOR TAXES OR OTHER CHARGES
You will pay to the depositary any tax, duty or other governmental charge or
expense payable by the custodian or the depositary as the registered holder of
any deposited securities represented by ADSs. The depositary may refuse to
effect any registration of transfer or split-up or combination of ADRs or any
deposit or withdrawal of the deposited securities represented by ADSs until the
depositary receives full payment of the tax, charge, penalty or interest, and
may withhold or deduct from any dividends or other distributions the amount to
be paid or may sell for your account any or all of the deposited securities
represented by ADSs and apply the amount deducted or withheld from the dividends
or distributions or the proceeds of sale in order to pay the tax, charge, or
penalty. You will remain liable for any deficiency.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, there will be shares of Carrier1
International outstanding (assuming no exercise of the Underwriters'
over-allotment option), of which the 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 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.
Each of Carrier1 International, its directors, executive officers and
certain other shareholders has agreed not to (i) 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 (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 the shares of Carrier1 International, whether any
such transaction described in clause (i) or (ii) 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 without
the prior written consent of Morgan Stanley & Co. Inc. and Salomon Smith Barney
Inc. on behalf of the underwriters, subject to certain exceptions. See
"Underwriters."
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
believes that neither Carrier1 International nor its subsidiaries, should be
classified as a PFIC because Carrier1 International and each of the subsidiaries
should not satisfy the foregoing income or asset tests. Further, Carrier1
International intends to manage its affairs and the affairs of its subsidiaries
so as to continue to avoid or minimize the chances that Carrier1 International
will be classified as a PFIC, 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
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circumstances, on the difference between the fair market value and the adjusted
basis of such shares as described below.
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 proposed regulations issued on February 2, 1999,
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.
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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 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
This initial public offering consists of (1) the U.S. offering of an
aggregate of shares in the United States and Canada and (2) the international
offering of an aggregate of shares outside of the United States and Canada.
Carrier1 and the underwriters for the U.S. offering named below, for whom
Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc. are acting as
U.S. representatives, and the international underwriters named below, for whom
Morgan Stanley & Co. International Limited and Salomon Brothers International
Limited are acting as international representatives, have entered into an
underwriting agreement with respect to the shares being offered in the U.S. and
international offerings. Under the terms and subject to the conditions contained
in the underwriting agreement dated the date of this prospectus, the
underwriters named below have severally agreed to purchase and we have agreed to
sell to them, the number of shares indicated below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated...................
Salomon Smith Barney Inc............................
Warburg Dillon Read LLC.............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................
Bear, Stearns & Co. Inc.............................
---------
Subtotal..................................................
---------
International Underwriters:
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.................
---------
Subtotal..................................................
---------
Total...................................................
=========
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares offered hereby 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 by this prospectus if
any such shares are taken. The U.S. underwriters may elect to take delivery of
all or a portion of the shares purchased by them in the form of ordinary shares
or ADSs.
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In the agreement among the U.S. and international underwriters, each U.S.
underwriter has represented and agreed that:
- it is not purchasing any shares or ADSs for the account of anyone other
than a United States or Canadian person, and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or ADSs, or distribute any prospectus relating to
the shares or ADSs outside the United States or Canada or to anyone other
than a United States or Canadian person,
Each international underwriter has represented and agreed that:
- it is not purchasing any shares for the account of any United States or
Canadian person, and
- it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares or distribute any prospectus relating to the shares
in the United States or Canada or to any United States or Canadian person.
For any underwriter participating in more than one offering, these
representations and agreements (1) made by it in its capacity as a U.S.
underwriter apply only to it in its capacity as a U.S. underwriter and (2) made
by it in its capacity as an international underwriter apply only to it in its
capacity as an international underwriter. The limitations described above do not
apply to stabilization transactions or to certain other transactions specified
in the agreement between U.S. and international underwriters. "United States or
Canadian person" means any national or resident of the United States or Canada,
or any corporation, pension, profit-sharing or other trust or other entity
organized under the laws of the United States or Canada or of any political
subdivision thereof (other than a branch located outside the United States and
Canada of any United States or Canadian person), and includes any United States
or Canadian branch of a person who is otherwise not a United States or Canadian
person.
In the agreement between the U.S. and international underwriters, sales of
shares may be made among the U.S. and international underwriters. The price of
any shares sold shall be the public offering price listed on the cover page of
this prospectus, in U.S. dollars, less an amount not greater than $ a share.
In the agreement between the U.S. and international underwriters, each U.S.
underwriter has represented that it has not offered or sold, and has agreed not
to offer or sell, any shares or ADSs, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws of Canada. Each
U.S. underwriter has represented that any offer or sale of shares or ADSs in
Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer or
sale is made. Each U.S. 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, the dealer represents and agrees that it has not offered
or sold, and will not offer or sell, directly or indirectly, any of such shares
or ADSs in any province or territory of Canada or to, or for the benefit of, any
resident of any province or territory of Canada in contravention of the
securities laws of Canada, and that any offer or sale of shares or ADSs in
Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer or
sale is made. Each dealer will deliver to any other dealer to whom it sells any
of such shares or ADSs a notice containing substantially the same selling
restrictions.
In the agreement between the U.S. and international underwriters, each
international 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 international 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
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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.
In the agreement between the U.S. and international underwriters, each
international 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.
Each of the international underwriters and Carrier1 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 Degree 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 distributed or
cause to be distributed in France other than to investors to whom offers and
sales of shares in France may be made as described above.
In the agreement between U.S. and international underwriters, each
underwriter has represented and agreed that (i) it is aware of the fact that 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 Securities Prospectus Act 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.
The Underwriters initially propose to offer part of the shares and ADSs
directly to the public at the public offering price listed on the cover page of
this prospectus and part to securities dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriter may allow, and such dealers may re-allow, a concession not in excess
of $ a share to other underwriters or to securities dealers. After the initial
offering of the shares and ADSs, the offering price and other selling terms may
from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of additional
shares at the public offering price listed on the cover page hereof, less
underwriting discounts and commissions. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, made in
connection with the offering of the shares and ADSs offered by this prospectus.
To the extent this option is exercised, each underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to the underwriter's name in
the preceding table bears to the total number of shares set forth next to the
names of all underwriters in the preceding table. If the underwriters exercise
their option in full, the total price to the public would be $ , the total
underwriters' discounts and commissions would be $ and total proceeds to
Carrier1 International 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.
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At our request, the underwriters have reserved up to shares (in the
form of shares or ADSs) for sale, at the initial public offering price, to
selected persons, including our directors, officers and other employees who will
agree to hold their shares for at least 180 days after the date of this
prospectus. The number of shares, including shares in the form of ADSs,
available for sale to the general public in the U.S. or international offerings
will be reduced to the extent these individuals purchase the reserved shares.
Any reserved shares that are not purchased in the directed share program will be
offered by the underwriters to the general public on the same basis as the other
shares offered in this prospectus.
We intend to apply to have the ADSs quoted on the Nasdaq National Market
under the symbol "CONE."
Each of Carrier1 International, its directors, executive officers and
certain other shareholders has agreed that, subject to some exceptions, without
the prior written consent of Morgan Stanley & Co. Incorporated and Salomon Smith
Barney Inc. on behalf of the underwriters, it will not, during the period ending
180 days after 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
transactions by any person other than Carrier1 International relating to shares
or other securities acquired in open market transactions after the completion of
this initial public offering.
In order to facilitate the offerings, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares and the ADSs. Specifically, the underwriters may over-allot in connection
with the offerings, creating a short position in the shares or the ADSs for
their own account. In addition, to cover over-allotments or to stabilize the
price of the shares and the ADSs, the underwriters may bid for, and purchase,
shares or the ADSs in the open market. Finally, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or a dealer for
distributing shares or the ADSs in the offering, if the syndicate repurchases
previously distributed shares or the ADSs in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the shares and the ADSs
above independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
Carrier1 and the underwriters have agreed to indemnify each other against
liabilities, including liabilities under the Securities Act.
Because approximately $10.0 million of the proceeds from this offering will
be used to pay all amounts outstanding under the interim credit facility
described under "Description of Certain Indebtedness." Some of the underwriters
are affiliates of Carrier1 under Rule 2720 of the Conduct Rules of the National
Association of Securities Dealers. Accordingly, the offering will be conducted
in compliance with the requirements of Rule 2720. Under the provisions of
Rule 2720, when a NASD member such as these underwriters distributes securities
of an affiliate, the public offering price of the securities can be no higher
than that recommended by the "qualified independent underwriter" as defined in
Rule 2720. has agreed to serve as qualified independent underwriter
and has conducted due diligence and has recommended a maximum price for the
shares and the ADSs.
From time to time, some of the underwriters have provided, and continue to
provide, investment banking services to Carrier1 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 these offerings, 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 representatives. 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.
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.
EXPERTS
The financial statements as of September 30, 1999, and December 31, 1998,
and for the nine months ended September 30, 1999, and for the period from
February 20, 1998 (date of inception) to December 31, 1998, included in this
prospectus have been audited by Deloitte & Touche Experta AG, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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.
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CARRIER INTERNATIONAL S.A. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 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-8
</TABLE>
F-1
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
CARRIER1 INTERNATIONAL S.A.
We have audited the accompanying consolidated balance sheets of Carrier1
International S.A. and subsidiaries (collectively, the "Company") as of
September 30, 1999 and December 31, 1998, and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for the
nine months ended September 30, 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 September 30, 1999 and December 31, 1998, and the results of
its operations and its cash flows for the nine months ended September 30, 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
/s/ David Wilson /s/ Jeffrey A. Swormstedt
David Wilson Jeffrey A. Swormstedt
Erlenbach, Switzerland
January 5, 2000
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -----------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 13,931 $ 4,184
Restricted cash........................................... 7,217 1,518
Restricted investments held in escrow..................... 74,750 --
Accounts receivables...................................... 19,066 1,217
Unbilled receivables...................................... 14,322 1,645
Value-added tax refunds receivable........................ 13,208 3,014
Prepaid expenses and other current assets................. 7,453 3,179
-------- -------
Total current assets.................................... 149,947 14,757
RESTRICTED INVESTMENTS HELD IN ESCROW....................... 28,993 --
PROPERTY AND EQUIPMENT--Net (See Notes 5 and 7)............. 142,350 31,091
INVESTMENT IN JOINT VENTURES (See Note 6)................... 4,681 4,675
OTHER ASSETS................................................ 15,491 911
-------- -------
TOTAL....................................................... $341,462 $51,434
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable.................................... $ 33,936 $27,602
Accrued network costs..................................... 16,391 516
Accrued refile costs...................................... 13,967 1,515
Accrued interest.......................................... 4,148 --
Other accrued liabilities................................. 13,866 2,612
-------- -------
Total current liabilities............................... 82,308 32,245
LONG-TERM DEBT:
Senior notes.............................................. 248,259 --
Other long-term debt...................................... 16,758 --
-------- -------
Total long-term debt.................................... 265,017 --
COMMITMENTS AND CONTINGENCIES (See Note 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $2 par value, 55,000,000 and 30,000,000
shares authorized, respectively, 31,019,071 and
18,885,207 issued and outstanding, respectively......... 62,038 37,770
Additional paid-in capital................................ 2,304 --
Accumulated deficit....................................... (71,731) (19,235)
Accumulated other comprehensive income.................... 1,526 654
-------- -------
Total shareholders' equity (deficit).................... (5,863) 19,189
-------- -------
TOTAL....................................................... $341,462 $51,434
======== =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 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
NINE MONTHS (DATE OF INCEPTION)
ENDED TO
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------ -------------------
(IN THOUSANDS)
<S> <C> <C>
REVENUES.................................................... $ 59,798 $ 2,792
OPERATING EXPENSES:
Cost of services (exclusive of items shown separately
below).................................................. 71,904 11,669
Selling, general and administrative....................... 10,681 8,977
Depreciation and amortization............................. 7,817 1,409
-------- --------
Total operating expenses................................ 90,402 22,055
-------- --------
LOSS FROM OPERATIONS........................................ (30,604) (19,263)
OTHER INCOME (EXPENSE):
Interest expense.......................................... (21,323) (11)
Interest income........................................... 5,087 92
Currency exchange loss, net............................... (5,218) (53)
Total other income (expense).............................. (438) --
-------- --------
(21,892) 28
-------- --------
LOSS BEFORE INCOME TAX BENEFIT.............................. (52,496) (19,235)
INCOME TAX EXPENSE (BENEFIT)--Net of valuation allowance
(See Note 10)............................................. -- --
-------- --------
NET LOSS.................................................... $(52,496) $(19,235)
======== ========
EARNINGS (LOSS) PER SHARE:
Net loss:
Basic................................................... $ (1.83) $ (2.61)
======== ========
Diluted................................................. $ (1.83) $ (2.61)
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CARRIER1 INTERNATIONAL S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED SEPTEMBER 30, 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 PAID-IN ACCUMULATED COMPREHENSIVE
STOCK CAPITAL DEFICIT INCOME TOTAL
-------- ---------- ----------- ------------- --------
<S> <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 (12,133,864
shares)............................. 24,268 24,268
Issuance of warrants.................. $ 2,304 2,304
Comprehensive income (loss):..........
Net loss............................ (52,496) (52,496)
Other comprehensive income, net of
tax:..............................
Currency translation
adjustments..................... 872 872
--------
Total comprehensive loss.......... (51,624)
-------- -------- -------- -------- --------
BALANCE--September 30, 1999........... $ 62,038 $ 2,304 $(71,131) $ 1,526 $ (5,863)
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 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,
NINE MONTHS 1998 (DATE OF
ENDED INCEPTION) TO
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss.................................................... $(52,496) $(19,235)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 7,817 1,409
Amortization of financing costs........................... 563 --
Changes in operating assets and liabilities:
Restricted cash......................................... (5,699) (1,518)
Receivables............................................. (40,781) (5,838)
Prepaid expenses and other current assets............... (3,863) (3,165)
Other assets............................................ (3,213) (898)
Trade accounts payable and accrued liabilities.......... 38,103 14,804
-------- --------
Net cash used in operating activities................. (59,569) (14,441)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of restricted investments held in escrow.......... (143,034) --
Receipts from maturity of restricted investments............ 39,291 --
Purchases of property and equipment......................... (95,506) (15,191)
Investment in joint venture................................. (6) (4,675)
-------- --------
Net cash used in investing activities................... (199,255) (19,866)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.................... 249,428 --
Payments on long-term debt.................................. (1,169) --
Proceeds from issuance of common shares and warrants........ 26,572 37,770
Proceeds from subscription of shares........................ 4,018 --
Cash paid for financing costs............................... (12,037) --
-------- --------
Net cash provided by financing activities............... 266,812 37,770
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 1,759 721
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 9,747 4,184
CASH AND CASH EQUIVALENTS:
Beginning of period......................................... 4,184 --
-------- --------
End of period............................................... $ 13,931 $ 4,184
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 16,480
========
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING AND INVESTING
ACTIVITIES:
At September 30, 1999 and December 31, 1998, the Company had
purchased approximately $26,421 and $17,315, respectively,
of equipment on open accounts payable.
During 1999, the Company acquired property and equipment of
$7,944 by entering into a capital lease. In addition, the
Company acquired $12,280 of equipment by entering into a
long-term financing agreement with a vendor.
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 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 U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used
when accounting for such items as revenue, 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. The
financial statements include the consolidated accounts of Carrier1 with all
significant intercompany balances and transactions eliminated. The investment in
joint venture is 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.
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.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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)
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 nine months
ended September 30, 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 September 30, 1999 and December 31, 1998, $7,217 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 8) are classified as held-to-maturity. In
accordance with Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," securities are
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.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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)
At September 30, 1999, such investments had an aggregate amortized cost of
$103,743 and a fair value of $104,476.
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 indefeasible rights of use 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 indefeasible right of use on a
transatlantic cable. This indefeasible right of use is being amortized over a
useful life of 15 years. Maintenance, repairs, and reengineering costs are
charged to expense as incurred.
LONG-LIVED ASSETS
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 September 30, 1999, other assets included deferred financing costs of
$11,474, net of accumulated amortization of $563, incurred in connection with
the issuance of the senior notes and the Nortel financing facility (see
Note 7). Amortization of deferred financing costs is recognized as interest
expense.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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 indefeasible rights of use for fiber and
fiber wavelength capacity as nonmonetary exchanges in accordance with Accounting
Principles Board 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 September 30, 1999 and December 31, 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 was estimated using discounted cash flows analyses based on
Carrier1's borrowing rate at September 30, 1999. Fair values of notes payable at
September 30, 1999 are as follows:
<TABLE>
<CAPTION>
BOOK VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Notes payable:
Dollar...................................................... $160,000 $158,738
Euro........................................................ 90,458 94,171
Other long-term debt:
Seller financing............................................ 12,719 11,272
</TABLE>
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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 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 fiber
transaction 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 ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction. This standard is effective
for Carrier1's fiscal year ending December 31, 2000. Management has not yet
completed its analysis of this new accounting standard and, therefore, has not
determined whether this standard will have a material effect on Carrier1's
financial statements.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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 nine
months ended September 30, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED INCEPTION TO
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Loss from operations................................ $ (30,604) $ (19,263)
========== ==========
Net Loss............................................ $ (52,496) $ (19,235)
========== ==========
Total number of shares used to compute
basic earnings (loss) per share................... 28,764,000 7,367,000
========== ==========
Loss from operations:
Basic loss per share................................ $ (1.06) $ (2.61)
========== ==========
Diluted loss per share.............................. $ (1.06) $ (2.61)
========== ==========
Net Loss:
Basic loss per share................................ $ (1.83) $ (2.61)
========== ==========
Diluted loss per share.............................. $ (1.83) $ (2.61)
========== ==========
</TABLE>
Potential dilutive securities have been excluded from the computation for
the nine months ended September 30, 1999 and the period from February 20, 1998
(date of inception) to December 31, 1998 as their effect is antidilutive. Had
Carrier1 been in a net income position for the nine months ended September 30,
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 8,205,000 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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 1999 and December 31, 1998 consist
of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Network equipment................................... $ 59,127 $14,613
Indefeasible right of use investments............... 37,447 11,106
Leasehold improvements.............................. 7,847 1,712
Furniture, fixtures and office equipment............ 6,464 709
Construction in progress............................ 40,661 4,353
-------- -------
151,546 32,493
Less: accumulated depreciation and amortization..... (9,196) (1,402)
-------- -------
Property and equipment, net....................... $142,350 $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 the Company 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 DM109.5 million
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 necessary actions necessary or desirable to obtain and
maintain separate ownership of all components of their respective networks. The
development agreement contains contingency provisions for the possibility in
limited circumstances of joint ownership of particular
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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. 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 pledged
these portfolios for the benefit of the holders of the respective series of
Notes to secure and fund the first five interest payments.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
7. LONG-TERM DEBT (CONTINUED)
Other long-term debt as of September 30, 1999 consists of the following:
<TABLE>
<S> <C>
Seller financing............................................ $12,719
Network fiber lease......................................... 3,736
Other....................................................... 303
-------
$16,758
=======
</TABLE>
Approximately $12.7 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.
Approximately $3.7 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 for operating and maintenance
costs for 36 months, after which Carrier1 will obtain a 15 year indefeasible
right of use in the capacity underlying the lease. Carrier1 will be required to
pay an annual operating and maintenance fee of $250 for the term of the
indefeasible right of use. Minimum lease payments under this arrangement are due
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31:
- -------------------------------
<S> <C>
1999........................................................ $ 760
2000........................................................ 3,038
2001........................................................ 3,038
2002........................................................ 759
------
7,595
Amounts representing interest............................... (820)
------
$6,775
======
</TABLE>
Carrier1 also 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 will bear interest at a floating rate tied to LIBOR, and interest
payments will be payable periodically from the date of the relevant advance. At
Carrier1's option, it may pledge assets to secure the Nortel facility and
receive a lower interest rate. Carrier1 may not borrow additional funds under
the Nortel facility after December 31, 2000. Advances are to be repaid in
sixteen equal quarterly installments beginning March 31, 2001. As of
December 31, 1999, Carrier1 has borrowed approximately $75 million under this
agreement on an unsecured basis. These borrowings bear interest at a
weighted-average interest rate of 11.04% per annum as of December 31, 1999.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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
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 September 30,
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>
1999........................................................ $ 5,992
2000........................................................ 18,047
2001........................................................ 7,382
2002........................................................ 7,144
2003........................................................ 6,733
2004........................................................ 4,323
Thereafter.................................................. 13,687
-------
Total minimum lease payments.............................. $63,308
=======
</TABLE>
Total rental expense under operating leases was $17,408 and $5,171,
respectively, during the nine months ended September 30, 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 indefeasible right of use ("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 to Scandinavia are expected to be received by Carrier1 in the first
quarter of 2000. Carrier1 will deliver the two wavelengths on the German ring
during the first quarter of 2000.
On April 29, 1999, Carrier1 signed a letter of intent with Nortel for the
purchase of DWDM equipment to light up dark fiber in Germany and the United
Kingdom. The value of the purchases and the associated services to be performed
before September 30, 2000 amounts to $22 million. Through September 30, 1999,
Carrier1 had not received any equipment and 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 fiber wavelength capacity from London to Frankfurt, Amsterdam
and Paris. In addition, Carrier1 paid $3.0 million on the date of
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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)
acceptance. The capacity was received in August 1999. Carrier1 expects to
deliver capacity to the other party in February 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.
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 Malmo, Oslo and Gothenburg. The bandwidth capacity
is scheduled to be provided on May 31, 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.
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>
1999............................................. $ -- $ 2,340 $ 2,340
2000............................................. 10,061 9,360 19,421
2001............................................. 952 -- 952
------- ------- -------
$11,013 $11,700 $22,713
======= ======= =======
</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 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 1999,
Carrier1 canceled the 1998 Share Option Plan and replaced it with the new 1999
Share Option Plan (the "1999 Option Plan"), under which Carrier1 International
SA and related companies of the consolidated Carrier1 group (the "Related
Corporations") may grant to any employee of Carrier1 or Related Corporations
options in equity securities (the "Options") issued by Carrier1. This
effectively reduced the number of
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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)
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
December 30, 1998. The per-share exercise price for the Options may not be less
than $2. Options granted under the 1999 Option Plan vest in five equal annual
installments beginning on the first anniversary of the grant of such Options.
Options expire if not exercised within 10 years of the grant, or on an earlier
date as specified by the Board or the committee. If the employment of a
participant is terminated for any reason, all unvested Options immediately
expire and vested Options must be exercised within a certain period of time as
specified by the plan document. 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.
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
September 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at December 31, 1998........................ 2,022,221 $ 2.00
Granted............................................... 333,997 4.41
Exercised............................................. -- --
Canceled.............................................. 500 2.00
---------
Outstanding at September 30, 1999....................... 2,355,718 $ 2.34
=========
Options exercisable at September 30, 1999............... 808,888 $ 2.00
=========
</TABLE>
As required by Statement of Financial Accounting Standards 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 nine months ended September 30, 1999 and the period from
February 20, 1998 (date of inception) to December 31, 1998 was $1.20 and $0.15
per option, respectively. During the nine months ended September 30, 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
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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)
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 nine months ended
September 30, 1999 and the period from February 20, 1998 (date of inception) to
December 31, 1998 would have been reflected as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Net loss............................................
As reported....................................... $(52,496) $(19,235)
======== ========
Pro forma......................................... $(52,668) $(19,461)
======== ========
Net loss per share--basic basis.....................
As reported....................................... $ (1.83) $ (2.61)
======== ========
Pro forma......................................... $ (1.83) $ (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 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 thousand 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
October 1999. During the nine months ended September 30, 1999, employees
committed to purchase approximately 2,206,000 additional shares with an
aggregate value of approximately $4.6 million, including 400,000 shares sold at
$2.00 per share to Carrier One, LLC for the benefit of two directors.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
10. INCOME TAXES
The income tax expense (benefit) for the nine months ended September 30,
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................................................. 14,622 5,378
-------- -------
14,622 5,378
Valuation allowance...................................... (14,622) (5,378)
-------- -------
Total.................................................... $ -- $ --
======== =======
</TABLE>
Carrier1 has tax loss carryforwards of approximately $20,000 and $5,378 at
September 30, 1999 and December 31, 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 - $122; 2005 - $4,586; 2006 - $8,539; 2013 - $46; 2014 - $121. Net
operating losses totaling $6,519 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 September 30, 1999.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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 nine months ended September 30, 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 $75 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.
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
nine months ended September 30, 1999 and the period from February 20, 1998 (date
of inception) to December 31, 1998, Carrier1 recorded pension expense totaling
$493 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.
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
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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)
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 nine
months ended September 30, 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 September 30, 1999 and December 31, 1998 and for the nine months ended
September 30, 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 September 30, 1999 and December 31, 1998, network equipment with
a cost basis of $34,618 and $12,008, respectively, has been identified as
relating to a specific segment and network equipment of $24,509 and $2,605,
respectively, is shared by the segments. The remaining assets, including but not
limited to indefeasible right of use investments and construction in progress,
are not allocated to segments since such assets are considered to be either
shared or corporate-related.
NINE MONTHS ENDED SEPTEMBER 30, 1999:
<TABLE>
<CAPTION>
INTERNET AND
VOICE BANDWIDTH
SERVICES SERVICES OTHER CONSOLIDATED
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Revenues.......................................... $53,342 $6,456 $ -- $ 59,798
Fixed cost contribution........................... 9,540 4,519 -- 14,059
Identifiable assets............................... 27,740 3,247 310,475 341,462
Depreciation and amortization..................... 2,664 397 4,756 7,817
Capital expenditures.............................. 20,775 1,835 96,449 119,059
</TABLE>
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>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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 reconciles the fixed cost contribution for reportable
segments to the loss before income tax benefit for the nine months ended
September 30, 1999 and the period from February 20, 1998 (date of inception) to
December 31, 1998:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- -------------
<S> <C> <C>
Total fixed cost contribution for reportable segments....... $ 14,059 $ 118
Unallocated amounts:
Unallocated cost of services (exclusive of items shown
separately below)....................................... (26,165) (8,995)
Selling, general and administrative expenses.............. (10,681) (8,977)
Depreciation and amortization............................. (7,817) (1,409)
Other income (expense).................................... (21,892) 28
-------- --------
Loss before income tax benefit.............................. $(52,496) $(19,235)
======== ========
</TABLE>
Unallocated cost of services include network and transmission costs that are
shared by the voice and Internet and bandwidth services segments.
The following table provides detail of the other identifiable assets as of
September 30, 1999 and December 31, 1998 in the table shown above:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Cash and cash equivalents (including restricted cash)....... $ 21,148 $ 5,702
Receivables................................................. 46,596 5,876
Prepaid expenses and other current assets................... 7,453 3,179
Restricted investments...................................... 103,743 --
Investment in joint ventures................................ 4,681 4,675
Other noncurrent assets..................................... 15,491 911
Property and equipment:
Unallocated network equipment............................. 24,509 2,605
Indefeasible right of use investments..................... 37,447 11,106
Leasehold improvements.................................... 7,847 1,712
Furniture, fixtures and office equipment.................. 6,464 709
Construction in progress.................................. 40,661 4,353
Accumulated depreciation and amortization................. (5,665) (794)
-------- -------
Total other identifiable assets............................. $310,475 $40,034
======== =======
</TABLE>
GEOGRAPHIC INFORMATION
The following table provides detail of Carrier1's revenues for the nine
months ended September 30, 1999 and the period from February 20, 1998 (date of
inception) to December 31, 1998 and long-lived assets as of September 30, 1999
and December 31, 1998 on a geographic basis. Revenues have been allocated based
on the location of the customer. Indefeasible right of use investments are
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 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)
included based on the entity which owns the investment. Carrier1 did not earn
any revenues in its country of domicile, Luxembourg.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31, 1998
--------------------- ---------------------
LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Germany.............................................. $23,820 $ 62,801 $ 878 $10,369
Switzerland.......................................... 4,212 45,508 108 14,186
United Kingdom....................................... 16,976 15,132 1,768 7,399
United States........................................ 1,365 4,304 -- 3,006
Netherlands.......................................... 5,706 7,225 38 725
France............................................... 4,275 3,783 -- 407
Luxembourg........................................... -- 11,612 -- --
Other countries...................................... 3,444 12,157 -- 585
------- -------- ------ -------
$59,798 $162,552 $2,792 $36,677
======= ======== ====== =======
</TABLE>
MAJOR CUSTOMERS
During the nine months ended September 30, 1999 and the period from
February 20, 1998 (date of inception) to December 31, 1998, Carrier1 earned 29%
and 69%, respectively, of its revenues from major customers as follows:
<TABLE>
<CAPTION>
% OF REVENUES
--------------------
SEPTEMBER DECEMBER
CUSTOMER 30, 1999 31, 1998
- -------- --------- --------
<S> <C> <C>
MobilCom City Line GmbH..................................... 18% --
Interroute Telecommunications (UK) Limited.................. 11% 46%
Worldcom Telecommunications Services GmbH................... * 13%
Star Telecommunications Deutschland GmbH.................... * 10%
-- --
29% 69%
== ==
</TABLE>
- ------------------------
* Less than 10%.
14. SUBSEQUENT EVENTS
COMMITMENTS
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, 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.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
14. SUBSEQUENT EVENTS (CONTINUED)
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 and Primus Venture Partners, the majority unitholders of LLC, is one of
the partners in the venture.
INTERIM CREDIT FACILITY
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, it had drawn the amount of [EURO]10,000,000 under the
facility. The facility allows Carrier1 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. The facility
is available until November 30, 2000 and has a scheduled maturity of
December 31, 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. 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.
F-25
<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......... $
NASD Filing Fee............................................. 30,500
NASD Original Listing Fee...................................
Blue Sky Fees and Expenses..................................
Legal Fees and Expenses.....................................
Accounting Fees.............................................
Printing and Engraving Costs................................
Transfer Agent and Registration Fees........................
Depositary Fees.............................................
Miscellaneous Expenses......................................
-------
Total................................................... $
=======
</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 issued 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
issued 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,
II-2
<PAGE>
1999 we issued 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 issued 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, and appropriate legends were affixed to the
certificates or other instruments issued in each transaction. 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, 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.* ++
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)*
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<C> <S>
10.20 Shareholders Agreement, dated as of November 23, 1999, 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 10.1 to the Registrant's periodic report
filed on Form 8-K dated January 4, 2000 (the "Registrant's
8-K"))* ++
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)* ++
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 Form
8-K)*
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
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference.
** To be filed by amendment.
++ Previously filed under a request for confidential treatment.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements or related
notes and therefore has been omitted.
ITEM 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
II-6
<PAGE>
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
JANUARY 12, 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 January 12, 2000
Stig Johansson Officer)
Chief Financial Officer
* (Principal Financial
------------------------------------------- Officer and Principal January 12, 2000
Joachim W. Bauer Accounting Officer)
*
------------------------------------------- Director January 12, 2000
Glenn M. Creamer
*
------------------------------------------- Director January 12, 2000
Jonathan E. Dick
*
------------------------------------------- Director January 12, 2000
Mark A. Pelson
*
------------------------------------------- Director January 12, 2000
Victor A. Pelson
*
------------------------------------------- Director January 12, 2000
Thomas J. Wynne
Authorized Representative
CARRIER 1, INC. in the U.S. January 12, 2000
</TABLE>
<TABLE>
<S> <C> <C> <C>
By: *
-------------------------------------- January 12, 2000
Joachim W. Bauer, ITS SECRETARY
*By: /s/ KEES VAN OPHEM
-------------------------------------- January 12, 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, 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.*++
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 Shareholders Agreement, dated as of November 23, 1999, 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 10.1 to the Registrant's periodic report
filed on Form 8-K dated January 4, 2000 (the "Registrant's
8-K"))* ++
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)* ++
</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 Form
8-K)*
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
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference.
** To be filed by amendment.
++ Previously filed under a request for confidential treatment.
<PAGE>
Ex 3.1
STATUTS COORDONNES
CARRIER 1 INTERNATIONAL S.A.
Societe anonyme
Siege social: Strassen
R.C. Luxembourg B 65864
- --------------------------------------------------------------------------------
constituee suivant acte dresse par le notaire Gerard LECUIT, de residence a
Hesperange, en date du 13 aout 1998, publie au Memorial Recueil Special C numero
783 du 28 octobre 1998,
les statuts ont ete modifies a plusieurs reprises et pour la derniere fois
suivant acte dresse par ledit notaire Gerard LECUIT, en date du 15 juin 1999,
et suivant acte dresse par ledit notaire Gerard LECUIT, en date du 5 juillet
1999,
et suivant acte dresse par ledit notaire Gerard LECUIT, en date du 15 octobre
1999,
<PAGE>
TITLE I. - DENOMINATION, REGISTERED OFFICE, OBJECT, DURATION,
ARTICLE 1
There is established hereby a societe anonyme under the name of CARRIER 1
INTERNATIONAL S.A.
ARTICLE 2
The registered office of the corporation is established in Strassen.
The registered office may be transferred to any other place in the
municipality by a decision of the board of directors.
If extraordinary political or economic events occur or are imminent, which
might interfere with the normal activities of the registered office, or with
easy communication between the registered office and abroad, the registered
office shall be declared to have been transferred abroad provisionally, until
the complete cessation of such extraordinary events. Such provisional transfer,
shall have no effect on the nationality of the corporation. Such declaration of
the transfer of the registered office shall be made and brought to the attention
of third parties by the organ of the corporation which is best situated for this
purpose under such circumstances.
ARTICLE 3
The corporation is established for an unlimited period.
ARTICLE 4
The corporation may take any action permitted by the laws of Luxembourg
for commercial companies and in particular, may carry out all transactions
pertaining directly or indirectly to the acquiring of participating interests in
any enterprises, in whatever form, having activities directly or indirectly
related to the field of telecomunications, and the administration, management,
control, and development of those participating interests.
In particular, the corporation may use its funds for the establishment,
management, development and disposal of a portfolio consisting of any securities
and patents of whatever origin, having a direct or indirect relationship to the
field of telecommunications and participate in the creation, development and
control of any enterprise, the acquisition, by way of investment, subscription,
underwriting or option, of securities and patents, the realisation thereof by
way of sale, transfer, exchange or otherwise, the development of such securities
and patents, and the granting to other companies or enterprises of any support,
loans, advances or guarantees.
<PAGE>
The corporation may also carry out any commercial, industrial, or
financial operations, any transactions in respect of real estate or moveable
property, which the corporation may deem useful to the accomplishment of its
purposes. This shall include without limitation the ability to issue warrants,
bonds and notes and other financial instruments, and to borrow funds from
financial institutions and other third parties.
TITLE II. - CAPITAL, SHARES
ARTICLE 5
The subscribed capital of the corporation is fixed at SIXTY-SIX MILLION
TWENTY-ONE THOUSAND FOUR HUNDRED UNITED STATES DOLLARS (66.021.400. -USD)
represented by THIRTY-THREE MILLION TEN THOUSAND SEVEN HUNDRED (33.010.700)
shares with a par value of TWO UNITED STATES DOLLARS (2. -USD) each. The
authorized capital of the corporation is fixed at HUNDRED TEN MILLION UNITED
STATES DOLLARS (110,000,000. -USD) to be divided into FIFTY FIVE MILLION SHARES
(55,000,000) shares with a par value of TWO UNITED STATES DOLLARS (2. -USD)
each. A maximum of FOUR MILLION FOUR HUNDRED FOURTY FOUR THOUSAND FOUR HUNDRED
FOURTY FOUR UNITED STATES DOLLARS (4,444,444. -USD) (not counting any additional
options granted to Thomas Wynne or Victor Pelson ) are reserved to the holders
of options issued under the 1999 Share Option Plan approved by the board of
directors on January 15, 1999 and a maximum of EIGHT MILLION UNITED STATES
DOLLARS (8,000,000. -USD) are reserved for the holders of warrants issued as
part of an issuance by the corporation of 1) USD Units, each USD Unit consisting
of one dollar note due 2009 and one warrant to purchase shares of common stock
of the corporation and/or 2) EuroUnits, each Euro Unit consisting of one euro
note due 2009 and one warrant to purchase shares of common stock of the
corporation, in each case as determined by the board of directors or its
designee(s).
Subject to what is stated above with respect to the authorized capital
reserved to the holders of options and/or warrants, the authorized and
subscribed capital of the corporation may be increased or reduced by a decision
of the general meeting of shareholders, voting with the same quorum as for an
amendment of the articles of incorporation.
The board of directors is hereby authorized to issue further shares with
or without issuance premium so as to bring the total capital of the corporation
up to the total authorized capital in whole or in part from time to time as it
in its discretion may determine and to accept subscriptions for such shares
within a period such
<PAGE>
as determined by article 32(5) of the Company Act of August 10, 1915, as
amended.
The board of directors is specifically authorized to make such issues
without reserving for the then existing shareholders a preferential or
pre-emptive right to subscribe for the shares to be issued.
The board of directors may delegate to any duly authorized person, the
duty of accepting subscriptions, receiving payment for shares representing part
or all of such increased amounts of capital, issuing shares and carrying out all
such acts and things as are necessary to document the increase in capital and,
in particular, to amend in the legally required notarial form, the present
article to reflect the capital increase.
Shares may be evidenced at the owners option, in certificates representing
single shares or in certificates representing two or more shares.
Shares may be issued in registered or bearer form, at the shareholder's
option, unless transfer restrictions or other restrictions otherwise require.
The corporation may refuse to approve a transfer of shares if it
determines that such transfer would be in violation of an existing restriction
on the transfer of shares which has been brought to its attention (it being
understood that such a refusal must not result in a situation where a
shareholder of the corporation who wishes to sell his shares to a party who has
made a bona fide offer to purchase such shares is forced to continue holding
such shares for an extended period of time) and shall notify the grounds for its
refusal to the shareholder seeking to effect the transfer.
The board of directors may delegate to any committee formed by the board
of directors the responsibility for approving or refusing to approve proposed
share transfers as contemplated by the preceding paragraph of this article 5.
The corporation may, to the extent and under the terms permitted by law,
purchase its own shares.
Moreover, the board of directors is authorized to issue ordinary or
convertible bonds and notes, in registered or bearer form, with any denomination
and payable in any currencies. Any issue of convertible bonds and notes may only
be made within the limits of the authorized capital.
The board of directors shall determine the nature, the price, the interest
rate, the conditions of issue and reimbursement and any other conditions which
may be related to such bond or note issue.
If the corporation issues bonds or notes in registered form, a ledger of
the registered bondholders will be held at the registered office of the
corporation, or at such other place as the board of directors shall designate
for this purpose.
<PAGE>
Within the limits of the authorized capital set forth above, the board of
directors is also authorized to issue warrants giving to each warrant holder a
right to subscribe for one or more shares (or for a fraction of a share, it
being understood that the corporation shall in no event be obligated to issue
any fractional shares), without reserving to the existing shareholders a
preferential right to acquire the warrants or to subscribe to shares upon the
exercise of the warrants. The board of directors is authorized to determine the
conditions under which the warrants will be issued, including without limitation
the subscription price to be paid for the shares upon the exercise of the
warrants, subject to article 26-5 (1) of the law on commercial companies, as
well as the price to be paid in consideration of the warrant, if any. The board
of directors may subject the exercise of the warrants to such conditions as it
in its discretion may determine, including restrictions, if any, as to the
disposal of the shares issued upon the exercise of the warrants.
TITLE III. - MANAGEMENT
ARTICLE 6
The corporation shall be managed by a board of directors composed of at
least three members, either shareholders or not. Each director shall be
appointed for a term not exceeding six years, by a general meeting of
shareholders. Each director may be reelected and may be removed at any time by a
general meeting of shareholders.
The number of directors and their term of office shall be fixed by a
general meeting of shareholders.
In the event of a vacancy on the board of directors, the remaining
directors have the right to appoint a new director to fill the vacancy, which
appointment must be ratified by the next general meeting.
ARTICLE 7
The board of directors shall elect from among its members a chairman.
A meeting of the board of directors shall be convened at any time upon
call by the chairman or at the request of not less than two directors.
The board of directors may validly deliberate and act only if the majority
of its members are present or represented. A proxy between directors, is
permitted provided that a director may represent only one of his colleagues at a
given board meeting. A director shall be considered present at a board meeting
if he participates in the meeting by conference call. Directors may cast their
vote on the points of the agenda by letter, telegram, telex or telefax.
Resolutions in writing approved
<PAGE>
and signed by all directors shall have the same effect as resolutions voted at
the directors' meetings.
Resolutions shall require a majority vote.
In case of a tie, the chairman has a casting vote.
ARTICLE 8
The board of directors shall have the broadest powers to perform all acts
of administration and disposition in compliance with the corporate object stated
in Article 4 hereof.
All powers not expressly reserved by law or by the present articles of
association to a general meeting of shareholders, shall fall within the
competence of the board of directors.
The board of directors may pay interim dividends in compliance with the
legal requirements.
ARTICLE 9
The corporation shall be bound in all circumstances by the joint signature
of two directors or by the sole signature of the managing director, if any, and
by the signature of individual(s) who have received a delegation of powers or
proxy given by the board of directors pursuant to Article 10 hereof.
ARTICLE 10
The board of directors may delegate its powers for the conduct of the
daily management of the corporation, to one or more directors, who will be
called managing directors.
The board of directors may also commit the management of all or part of
the affairs of the corporation, to one or more managers, and give special powers
for determined matters to one or more proxyholders. Such proxyholder or manager
shall not be required to be a director or a shareholder.
Delegation to a member of the board of directors is subject to a prior
authorization of the general meeting.
The board of directors may designate one or more committees.
Each committee designated by the board of directors shall consist of such
number of directors as from time to time may by fixed by the board of directors
and may include individuals who are not directors. The board of directors may
also designate one or more directors as alternate members of any such committee,
who may replace any absent or disqualified member or members at any meeting of
such committee. Thereafter, members (and alternate members, if any) of each such
committee may be designated by the board of directors. Any such committee may be
abolished or re-designated from time to time by the board of directors. Each
<PAGE>
member (and each alternate member) of any such committee shall hold office until
his or her successor shall have been designated or until his or her earlier
death, resignation or removal.
Any committee formed by the board of directors, except as otherwise
provided in this article, shall have and may exercise such powers of the board
of directors as may be provided by resolution of the board of directors.
No committee formed by the board of directors shall have the power or
authority:
a) to approve or adopt any action or matter expressly required by the
applicable laws of the Grand-Duchy of Luxembourg to be submitted to the
stockholders for approval; or
b) adopt, amend or repeal any provision of the articles of association of the
corporation, subject to what is stated under article 5.
Each such committee may fix its own rules of procedure and may meet at
such place (within or outside the Grand-Duchy of Luxembourg), at such time and
upon such notice, if any, as it shall determine from time to time. Each such
committee may keep minutes of its proceedings and shall report such proceedings
to the board of directors at the meeting of the board of directors next
following any such proceedings.
Except as may be otherwise provided in the resolution creating such
committee, at all meetings of any committee the presence of members (or
alternate members) constituting a majority of the total membership of such
committee shall constitute a quorum for the transaction of business. The act of
the majority of the members present at any meeting at which a quorum is present
shall be the act of such committee. Any action required or permitted to be taken
at any meeting of any such committee may be taken without a meeting, if all
members of such committee shall consent to such action in writing and such
writing or writings are filed with the minutes of the proceedings of the
committee. The members of any such committee shall act only as a committee, and
the individual members of such committee shall have no power as such.
Members of any committee designated by the board of directors may
participate in a meeting of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
provision shall constitute presence in person at such meeting.
In the event of the absence or disqualification of a member of any
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint
<PAGE>
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any member (and any alternate member) of any committee may resign at any
time by delivering a written notice of resignation, signed by such member, the
chairman of the board of directors. Unless otherwise specified therein, such
resignation shall take effect upon delivery.
Any member (and any alternate member) of any committee may be removed from
his of her position as a member (or alternate member, as the case may be) of
such committee at any time, either for or without cause, by resolution adopted
by a majority of the whole board of directors.
If any vacancy shall occur in any committee, by reason of
disqualification, death, resignation, removal or otherwise, the remaining
members (and any alternate members) shall continue to act, and any such vacancy
may be filled by the board of directors.
ARTICLE 11
The Company 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 attorney's
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 Company, or, at the request of
the Company, of any other company, partnership, joint venture, trust or other
enterprise in which the Company holds a direct or indirect ownership interest or
of which the Company is a direct or indirect creditor and by which he or she is
not entitled to be indemnified, provided that he or she acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, 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 Company
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 Company against such a director, committee member or fonde
de pouvoir to procure a judgment in favor of the Company (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably
<PAGE>
incurred by such person in the defence 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 Company 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 Company may purchase and maintain insurance on behalf of any person
who is or has agreed to become a director, committee member or fonde de pouvoir
of the Company, or is or was serving at the request of the Company in any
equivalent position in any such other company, 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 Company would have the power to indemnify him against such
liability under the provisions of this article, 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 this article or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the Company shall nevertheless
indemnify each such directors, committee member or fonde de pouvoir and may
indemnify each employee or agent of the Company 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 Company, to the fullest extent permitted by any applicable portion
of this article that shall not have been invalidated and to the fullest extent.
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 Company shall be liable to the Company 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 these articles of association 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 Company or its stockholders, (ii) for acts or omissions not in
good faith or which
<PAGE>
involves intentional misconduct or a knowing violation of the law, or (iii) for
any transaction from which the director derived an improper personal benefit.
ARTICLE 12
Any litigation involving the corporation either as plaintiff or as
defendant, will be handled in the name of the corporation by the board of
directors, represented by its chairman or by a director delegated for such
purpose.
TITLE IV. - SUPERVISION
ARTICLE 13
The corporation shall be supervised by one or more statutory auditors,
appointed by a general meeting of shareholders which shall fix their number,
remuneration, and their term of office, such office not to exceed six years.
They may be reelected and removed at any time.
TITLE V. - GENERAL MEETING
ARTICLE 14
The annual general meeting of shareholders will be held in the commune of
the registered office at the place specified in the convening notices on the
second Tuesday of June at 11.00 a.m. and the first time in the year 2000. If
such day is a legal holiday, the annual general meeting will be held on the next
following business day.
The board of directors or the statutory auditor may convene other
shareholders' meetings each time the interests of the company so require. Such
meetings must be convened each time shareholders representing at least one fifth
of the subscribed capital request it by writing with an indication of the
agenda. Each share gives the right to one vote.
If all the shareholders are present or represented and if they declare
that they have had knowledge of the agenda, the general meeting may take place
without previous convening notices.
TITLE VI. - ACCOUNTING YEAR, ALLOCATION OF PROFITS
ARTICLE 15
The accounting year of the corporation shall begin on the 1st of January
and shall terminate on the 31st of December of each year, with the exception of
the first accounting year, which shall begin on the date of the formation of the
corporation and shall terminate on the 31st of December 1999.
ARTICLE 16
After deduction of any and all expenses and amortizations of the
corporation, the credit balance represents the net profits of the corporation.
Of such net profit, five percent (5%) shall be appropriated for the compulsory
legal
<PAGE>
reserve. Such appropriation shall cease to be compulsory when the legal reserve
amounts to ten percent (10%) of the capital of the corporation, but must be
resumed until the reserve is entirety reconstituted if, at any time and for
whatever reason, the legal reserve has fallen below the required ten percent
(10%) of the capital of the corporation.
The balance of the net profit is at the disposal of the general meeting.
TITLE VII.- DISSOLUTION, LIQUIDATION
ARTICLE 17
The corporation may be dissolved by a resolution of the general meeting of
shareholders. The liquidation will be carried out by one or more liquidators,
appointed by the general meeting of shareholders which will specify their powers
and fix their remuneration.
TITLE VIII.- GENERAL PROVISIONS
ARTICLE 18
All matters not governed by these articles of association are to be
construed in accordance with the law of August 10th 1915 on commercial companies
and the amendments thereto.
SUIT LA TRADUCTION FRANCAISE DU TEXTE QUI PRECEDE:
TITRE IER: DENOMINATION, SIEGE SOCIAL, OBJET, DUREE
ARTICLE 1ER
Il est forme une societe anonyme sous la denomination de CARRIER 1
INTERNATIONAL S.A.
ARTICLE 2
Le siege de la societe est etabli a Strassen.
Il pourra etre transfere dans tout autre lieu de la commune par simple
decision du conseil d'administration.
Au cas ou des evenements extraordinaires d'ordre politique ou economique,
de nature compromettre l'activite normale au siege social ou la communication
aisee de ce siege avec l'etranger se produiront ou seront imminents, le siege
social pourra etre declare transfere provisoirement a l'etranger, jusqu'a
cessation complete de ces circonstances anormales. Une telle decision n'aura
d'effet sur la nationalite de la societe. La declaration de transfert du siege
sera faite et portee a la connaissance des tiers par l'organe de la societe qui
se trouvera le mieux place a cet effet dans les circonstances donnees.
<PAGE>
ARTICLE 3
La societe est constituee pour une duree illimitee.
ARTICLE 4
La societe peut entreprendre toutes operations permises par les lois
luxembourgeoises relatives au societes commerciales et en particulier, elle peut
effectuer toutes transactions ayant un rapport direct ou indirect avec la prise
de participations dans toute entreprise, sous quelque forme que ce soit,
exercant des activites en relation avec le domaine des telecommunications et
l'administration, la gestion, le controle, et le developpement de ces prises de
participations.
Elle pourra notamment employer ses fonds a la creation, a la gestion, a la
mise en valeur et a la liquidation d'un portefeuille se composant de tous titres
et brevets de toute origine, participer a la creation, au developpement et au
controle de toute entreprise, acquerir par voie d'apport, de souscription, de
prise ferme ou d'option d'achat et de toute autre maniere, tous titres et
brevets, les realiser par voie de vente, de cession, d'echange ou autrement,
faire mettre en valeur ces affaires et brevets et accorder aux societes
auxquelles elle s'interesse tous concours, prets, avances ou garanties.
La societe pourra egalement entreprendre toutes operations commerciales,
industrielles ou financieres, toutes transactions en rapport avec la propriete
immobiliere ou mobiliere, qu'elle estimerait utile a la realisation de son
objet. Ceci comprendra sans limitation la possibilite d'emettre des warrants,
des obligations et d'autres instruments financiers et emprunter des fonds a des
institutions financieres et a d'autres tierces parties.
TITRE II: CAPITAL, ACTIONS
ARTICLE 5
Le capital social est fixe a SOIXANTE-SIX MILLIONS VINGT-ET-UN MILLE
QUATRE CENTS DOLLARS DES ETATS-UNIS (66.021.400.-USD) represente par
TRENTE-TROIS MILLIONS DIX MILLE SEPT CENTS (33.010.700) actions d'une valeur
nominale de DEUX DOLLARS DES ETATS-UNIS (2.-USD) chacune.
Le capital autorise de la societe est fixe a CENT-DIX MILLIONS DOLLARS DES
ETATS UNIS (110,000,000,-USD) a diviser en CINQUANTE-CINQ MILLIONS (55.000.000.)
d'actions ayant une valeur nominale de DEUX DOLLARS DES ETATS UNIS (2.-USD)
chacune. Un maximum de QUATRE MILLIONS QUATRE-CENT QUARANTE-QUATRE MILLE ET
QUATRE-CENT QUARANTE-QUATRE DOLLARS DES ETATS UNIS (4,444,444,.-USD) (sans
compter d'autres options additionnelles offertes a Thomas Wynne ou Victor
Pelson) sont reserves aux
<PAGE>
detenteurs d'options emises sous le Share Option Plan de 1999, approuve par le
conseil d'administration a la date du 15 janvier 1999 et un maximum de HUIT
MILLIONS DE DOLLARS DES ETATS UNIS (8,000,000,-USD) sont reserves aux detenteurs
de warrants emis comme partie d'une emission de la societe de 1) USD Units,
chaque USD Unit consistant en une note de un dollar venant a echeance en 2009 et
un warrant pour acquerir des actions ordinaires de la societe et/ou 2) des Euro
Units, chaque Euro Unit consistant en une note de un euro venant a echeance en
2009 et un warrant pour acquerir des actions ordinaires de la societe, dans
chaque cas comme il sera determine par le conseil d'administration ou son (ses)
delegue(s).
Sous reserve de ce qui a ete dit plus haut, concernant le capital social
autorise reserve aux detenteurs d'options et/ou de warrants, le capital social
autorise et souscrit de la societe peut etre augmente ou reduit par une decision
de l'assemblee generale d'actionnaires, deliberant aux conditions de quorum
requis pour une modification du capital social.
Le conseil d'administration est par la presente autorise d'emettre des
actions supplementaires avec ou sans prime d'emission en vue de porter le
capital total de la societe au total du capital autorise en une fois ou en
plusieurs fois, tel qu'il le decide librement et d'accepter des souscriptions
pour ces actions endeans une periode determinee conformement aux termes de
l'article 32(5) de la loi sur les societes commerciales du 10 aout 1915, telle
que modifiee.
Le conseil d'administration est autorise plus particulierement a proceder
a des emissions sans devoir reserver pour les actionnaires existants un droit
preferentiel ou un droit de preemption de souscrire les actions qui vont etre
emises.
Le conseil d'administration pourra deleguer a une quelconque personne
valablement autorisee, le pouvoir d'accepter les souscriptions, de recevoir les
paiements pour les actions representant une partie ou le tout d'une telle
augmentation de capital, d'emettre des actions et de proceder a tous actes et
actions necessaires pour documenter l'augmentation de capital et, en
particulier, de modifier le present article pour refleter l'augmentation de
capital, sous la forme notariee telle que requise par la loi.
Les actions seront, a l'option du detenteur, exprimes en certificats
representant une seule action ou en des certificats representant deux ou
plusieurs actions.
Les actions seront emises, a l'option de l'actionnaire, comme actions
nominatives ou au porteur, sauf au cas ou des restrictions au
<PAGE>
transfert ou d'autres restrictions requierent le contraire.
La societe pourra refuser d'approuver un transfert d'actions si elle
estime qu'un tel transfert est en violation d'une restriction existante sur le
transfert d'actions qui a ete portee a sa connaissance (etant entendu que ce
refus ne doit pas resulter en une situation ou un actionnaire de la societe, qui
veut vendre ses actions a une partie qui a fait une offre de bonne foi
d'acquerir ces actions, est force de garder ces actions pour une periode
prolongee) et elle notifiera les raisons de son refus a l'actionnaire qui veut
proceder au transfert.
Le conseil d'administration pourra deleguer a tout comite etabli par le
conseil d'administration la responsabilite d'approuver ou de refuser les
transferts d'actions envisages conformement aux termes du paragraphe precedent
de cet article 5.
La societe pourra, dans la mesure de ce qui est permis par la loi,
acquerir ses propres actions.
De plus, le conseil d'administration est autorise d'emettre des
obligations ou notes ordinaires ou convertibles, nominatifs ou au porteur, avec
une denomination quelconque et payable en n'importe quelle devise. Toute
emission d'obligations et de notes convertibles pourra seulement etre effectuee
dans les limites du capital autorise.
Le conseil d'administration determinera la nature, le prix, le taux
d'interet, les conditions d'emission et le remboursement et toutes autres
conditions qui pourront le cas echeant etre en relation avec une telle emission
d'obligations ou de notes.
Si la societe emet des obligations ou des notes au porteur, un registre
des detenteurs d'obligations nominatives sera tenu au siege social de la
societe, ou a toute autre endroit que le conseil d'administration determinera a
cet effet.
Dans le cadre des limites du capital autorise, le conseil d'administration
est egalement autorise a emettre des warrants donnant a chaque porteur le droit
de souscrire une ou plusieurs actions (ou fraction d'action, en etant
sous-entendu que la societe ne sera aucunement obligee d'emettre des fractions
d'action), sans reserver aux actionnaires existants un droit preferentiel
d'acquerir des warrants ou de souscrire des actions suite a l'exercice des
warrants.
Le conseil d'administration est autorise a determiner les conditions sous
lesquelles les warrants seront emis, y inclus sans limitation le prix de
souscription a payer pour les actions suite a l'exercice des warrants, sans
prejudice de l'article 26-5 (1) de la Loi sur les Societes Commerciales, ainsi
que le prix a payer en consideration du warrant, si applicable. Le conseil
<PAGE>
d'administration peut soumettre l'exercice des warrants aux conditions qu'il
determine librement, y inclus des restrictions, si applicable, concernant la
disposition des actions emises suivant l'exercice des warrants.
TITRE III: ADMINISTRATION
ARTICLE 6
La societe est administree par un conseil compose de trois membres au
moins, associes ou non, nommes chacun pour un terme qui ne peut exceder six
annees, par l'assemblee generale des actionnaires. Chaque administrateur peut
etre reelu et revoque a tout moment par l'assemblee generale.
Le nombre des administrateurs et la duree de leur mandat sont fixes par
l'assemblee generale de la societe.
En cas de vacance au sein du conseil d'administration, les administrateurs
restants ont le droit de nommer un nouvel administrateur, laquelle nomination
devra etre ratifiee a la prochaine assemblee.
ARTICLE 7
Le conseil d'administration choisit parmi ses membres un president.
Le conseil d'administration se reunit a tout moment, sur la convocation du
president ou sur la demande de deux administrateurs.
Le conseil d'administration ne peut valablement deliberer et statuer que
si la majorite de ses membres est presente ou representee. Une procuration entre
administrateurs est permise etant entendu qu'un administrateur ne peut
representer qu'un de ses collegues lors d'une reunion du conseil
d'administration.
Un administrateur sera considere comme etant present a une reunion du
conseil s'il y participe par conference telephonique. Les administrateurs
peuvent emettre leurs votes sur les points a l'ordre du jour par lettre,
telegramme, telex ou fax.
Les resolutions par ecrit approuvees et signees par tous les
administrateurs auront le meme effet que les resolutions adoptees a une reunion
du conseil d'administration.
Les resolutions sont prises a la majorite des voix.
En cas de partage, le president a une voix preponderante.
ARTICLE 8
Le conseil d'administration est investi des pouvoirs les plus etendus pour
effectuer tous actes d'administration et de disposition qui rentrent dans
l'objet social conformement a l'article 4 ci-dessus.
<PAGE>
Il a dans sa competence tous les actes qui ne sont pas reserves
expressement par la loi et les statuts a l'assemblee generale.
Le conseil d'administration est autorise a verser des acomptes sur
dividendes, aux conditions prevues par la loi.
ARTICLE 9
La societe est engagee en toutes circonstances par les signatures
conjointes de deux administrateurs, ou par la signature d'un
administrateur-delegue, s'il en est, et par la signature individuelle de la
(des) personne (s) qui aura (auront) recu une delegation de pouvoirs ou un
mandat confere par le conseil d'administration en vertu de l'article 10 des
statuts.
ARTICLE 10
Le conseil d'administration peut deleguer la gestion journaliere de la
societe a un ou plusieurs administrateurs qui prendront la denomination
d'administrateurs-delegues.
Le conseil d'administration peut aussi confier la direction de l'ensemble
ou de telle partie ou branche speciale des affaires sociales a un ou plusieurs
directeurs, et donner des pouvoirs speciaux pour des affaires determinees a un
ou plusieurs fondes de pouvoirs. Le fonde de pouvoir ou le directeur ne doit pas
etre necessairement un administrateur ou un actionnaire.
La delegation a un membre du conseil d'administration est subordonnee a
l'autorisation prealable de l'assemblee generale.
Le conseil d'administration peut designer un ou plusieurs comites.
Chaque comite designe par le conseil d'administration comprendra autant
d'administrateurs que le conseil d'administration nommera, y compris des
personnes qui ne sont pas des administrateurs. Le conseil d'administration peut
egalement designer un ou plusieurs administrateurs remplacants du comite, dont
la fonction sera de remplacer des membres absents ou disqualifies ou des membres
a toute reunion du comite. Par la suite, les membres (et les membres
remplacants, le cas echeant) de chaque comite peuvent etre designes par le
conseil d'administration. Chaque comite peut etre aboli ou re-designe de temps
en temps par le conseil d'administration. Chaque membre (et chaque membre
remplacant) de chaque comite sera en charge jusqu'a ce que son successeur ait
ete designe ou jusqu'a sa mort, sa resignation ou sa revocation, si tel
evenement se produisait a une date plus rapprochee.
Chaque comite forme par le conseil d'administration, sauf indication
contraire dans le present article, aura et exercera les pouvoirs du
<PAGE>
conseil d'administration tel que prevu par les resolutions du conseil
d'administration.
Aucun comite forme par le conseil d'administration aura le pouvoir ou
l'autorite
a) d'approuver ou d'adopter une action ou affaire dont les lois
applicables du Grand-Duche de Luxembourg requierent expressement l'approbation
des actionnaires
b) d'adopter, de modifier ou d'abolir une disposition des statuts de la
societe, sans prejudice des disposition de l'article 5
Chaque comite peut fixer ses propres regles et pourra se reunir a telle
place (au Grand-Duche de Luxembourg ou a l'etranger), a telle heure et, le cas
echeant, selon telle convocation qu'il pourra de temps en temps determiner.
Chaque comite pourra tenir des proces-verbaux des ses reunions et fera le
rapport des ses reunions au conseil d'administration lors de la reunion du
conseil d'administration suivante.
Sauf indication contraire dans les resolutions creant le comite, a chaque
reunion de chaque comite, la presence des membres (ou des membres remplacants)
constituant la majorite du total des membres de ce comite sera constitutif d'un
quorum. Les actes de la majorite des membres presents a chaque reunion lors de
laquelle un quorum est present seront consideres comme etant ceux du comite.
Toute action qui pourrait etre prise lors d'une reunion d'un comite pourra etre
prise sans reunion, si tous les membres du comite consentissent a l'action prise
par ecrit et l'ecrit ou les ecrits sont deposes avec les proces-verbaux des ses
reunions du comite. Les membres de chaque comite agiront uniquement en tant que
comite et les membres individuels d'un comite n'ont pas de pouvoir propre.
Les membres de tout comite designes par le conseil d'administration
pourront participer dans une reunion de ce comite par conference call ou voie de
communication similaire permettant a tous les personnes participant dans la
reunion de s'entendre, et la participation dans une reunion suivant cette
disposition constituera une presence en personne dans cette reunion.
En cas d'absence ou de disqualification de tout membre de tout comite, le
membre ou les membres presents a la reunion et non disqualifies de voter,
independamment du fait si il, elle ou eux constituent un quorum, pourra/ont a
l'unanimite designer un autre membre du conseil d'administration un vue d'agir
lors de la reunion en lieu et place de la personne absente ou disqualifiee.
Chaque membre (et chaque membre remplacent) de tout comite pourra
demissionner a tout moment en
<PAGE>
remettant une note ecrite de demission, signee par le membre en question, au
president du conseil d'administration. Sauf indication contraire, la demission
prendra effet apres la remise de la note.
Chaque membre (et chaque membre remplacant) de tout comite pourra etre
revoque de sa position en tant que membre (ou membre remplacant, le cas echeant)
de tel comite a tout moment, avec ou sans cause, par le biais d'une resolution
prise a la majorite de l'entier conseil d'administration.
En cas de poste vacant au sein d'un comite, en raison d'une
disqualification, d'un deces, d'une demission, d'une revocation ou en raison de
toute autre cause, les membres restants (et tous les membres remplacants)
continueront d'agir, et chaque poste vacant pourra etre occupe par le conseil
d'administration.
ARTICLE 11
La societe indemnisera tout administrateur, tout membre du comite designe
par le conseil d'administration et tout fonde de pouvoir et ses heritiers,
executeurs testamentaires et administrateurs de biens pour tous frais (en ce
inclus les frais d'avocats), condamnations et amendes relatifs a des actions en
justice, proces, poursuites judiciaires ou procedures d'appel auxquelles il est
partie en raison de ses fonctions d'administrateur ou de membre de comite nomme
par le conseil d'administration ou par un fonde de pouvoir de la societe ou, a
la demande de la societe, de tout autre "partnership", "joint venture", "trust"
ou toute autre entite dans laquelle la societe possede une participation directe
ou indirecte ou pour laquelle la societe est creanciere directe ou indirecte et
par laquelle il n'est pas habilite a etre indemnise, a condition qu'il ait agi
de bonne foi et d'une maniere qu'il a consideree raisonnablement comme etant ou
n'etant pas opposee aux meilleurs interets de la societe et, s'agissant de
poursuites penales, qu'il n'ait pas eu de motif raisonnable de croire que sa
conduite etait illegale; en cas d'arrangement transactionnel, une telle
indemnisation sera fournie pour toutes depenses occasionnees ou sommes payees a
l'occasion d'un tel arrangement, sauf si la societe est informee par son conseil
juridique que la personne a indemniser ne s'est pas conformee aux principes de
conduite decrits ci-dessus. A l'exception de l'hypothese ou une action en
justice ou un proces serait engage par la societe contre un tel administrateur,
membre de comite ou fonde de pouvoir tendant a obtenir un jugement en faveur de
la societe, (1) une telle indemnite sera limitee aux frais (en ce inclus les
frais d'avocats) reellement et raisonnablement occasionnes par une telle
personne pour sa defense ou pour un accord
<PAGE>
transactionnel faisant suite a telle action en justice ou a un tel proces, et
(2) nonobstant toute autre disposition, aucune autre indemnite ne sera octroyee
en raison d'une requete, litige ou matiere pour lesquels cette personne a ete
reconnue responsable vis-a-vis de la societe a moins que, et dans cette seule
limite, les juridictions luxembourgeoises ou les juridictions devant lesquelles
ces procedures ou actions en justice ont ete engagees ne decident que malgre la
reconnaissance de sa responsabilite mais eu egard a l'ensemble des circonstances
de l'espece, cette personne a honnetement et raisonnablement droit aux
indemnites pour ces frais et depenses que les juridictions luxembourgeoises ou
toutes autres juridictions evalueront souverainement. La societe pourra acheter
et maintenir en vigueur une assurance pour couvrir la responsabilite de toute
personne qui est, a ete ou a accepte de devenir administrateur, membre du comite
ou fonde de pouvoir de la societe, ou est ou a ete, a la demande de la societe,
dans une fonction equivalente au sein d'une autre societe, "partnership", "joint
venture", "trust" ou toute entite, contre toute responsabilite alleguee contre
elle et encourue par elle ou pour son compte a ce titre, ou provenant de sa
situation, que la societe ait ou non le pouvoir d'indemniser cette personne
contre une telle responsabilite aux termes du present article, a la condition
qu'une telle assurance soit disponible en des termes acceptables, la decision
concernant cette disponibilite devant etre prise par un vote de la majorite de
l'ensemble du conseil d'administration.
Dans l'hypothese ou le present article ou une partie du present article
devait etre annulee pour quelque cause que ce soit par une juridiction, la
societe devra alors neanmoins indemniser l'administrateur, membre de comite ou
fonde de pouvoir, et pourra indemniser chaque employe ou agent de la societe
pour les couts, frais et depenses (en ce compris les frais d'avocats),
jugements, amendes et sommes payees au titre d'un accord transactionnel
occasionne par une action en justice civile, criminelle, administrative ou
faisant suite a une enquete, y compris une action par ou au nom de la societe,
dans les limites indiquees aux dispositions du present article qui n'auraient
pas ete annulees et dans les limites de la loi applicable.
Sous reserve des dispositions de la loi luxembourgeoise et plus
particulierement de l'article 59 de la loi luxembourgeoise sur les societes
commerciales, aucun administrateur, membre de comite ou fonde de pouvoir de la
societe ne pourra etre tenu responsable vis-a-vis de la societe ou de ses
actionnaires pour ses actions ou
<PAGE>
omissions dans l'exercice de ses fonctions d'administrateur, de membre de comite
ou de fonde de pouvoir, a condition qu'aucune disposition des presents statuts
ne supprime ou ne limite la responsabilite d'un administrateur, membre de comite
ou fonde de pouvoir (i) pour tout manquement a son devoir de loyaute vis-a-vis
de la societe ou de ses actionnaires, (ii) pour tous actes ou omissions n'ayant
pas ete faits de bonne foi ou ayant ete generes par une faute intentionnelle ou
une violation manifeste de la loi, ou (iii) pour toute transaction de laquelle
l'administrateur a tire un profit irregulier.
ARTICLE 12
Les actions judiciaires concernant la societe, tant en demandant qu'en
defendant, sont suivies au nom de la societe par le conseil d'administration,
representee par son president ou un administrateur delegue a ces fins.
TITRE IV: SURVEILLANCE
ARTICLE 13
La societe est surveillee par un ou plusieurs commissaires nommes par
l'assemblee generale, qui fixe leur nombre et leur remuneration, ainsi que la
duree de leur mandat, qui ne peut exceder six annees.
Ils peuvent etre reelus ou revoques a tout moment.
TITRE V: ASSEMBLEE GENERALE
ARTICLE 14
L'assemblee generale annuelle se reunit dans la commune du siege social, a
l'endroit indique dans les convocations, le second mardi du mois de juin a 11.00
heures et pour la premiere fois en 2000. Si ce jour est un jour ferie legal,
l'assemblee generale a lieu le premier jour ouvrable suivant.
Le conseil d'administration ou le commissaire aux comptes peut convoquer
d'autres assemblees generales chaque fois que l'interet de de la societe le
requiere. De telles assemblees doivent etre convoquees chaque fois que des
actionnaires representant un cinquieme au moins du capital souscrit le
requierent par ecrit avec indication de l'ordre du jour. Chaque action donne
droit a une voix.
Si tous les actionnaires sont presents ou representes et s'ils declarent
qu'ils ont eu connaissance de l'ordre du jour, l'assemblee generale peut avoir
lieu sans convocation prealable.
<PAGE>
TITRE VI: ANNEE SOCIALE, REPARTITION DES BENEFICES
ARTICLE 15
L'annee sociale commence le 1er janvier et finit le 31 decembre de chaque
annee.
Exceptionnellement, le premier exercice social comprendra tout le temps a
courir de la constitution de la societe jusqu'au 31 decembre 1999.
ARTICLE 16
L'excedent favorable du bilan, defalcation faite des charges sociales et
des amortissements, forme le benefice net de la societe. Sur ce benefice, il est
preleve cinq pour cent (5%) pour la formation du fonds de reserve legale
obligatoire; ce prelevement cesse d'etre obligatoire lorsque la reserve aura
atteint le dixieme du capital social, mais devrait toutefois etre repris jusqu'a
entiere reconstitution, si a un moment donne et pour quelque cause que ce soit,
le fonds de reserve devient inferieur a dix pour cent (10%) du capital de la
societe.
Le solde est a la disposition de l'assemblee generale.
TITRE VII: DISSOLUTION, LIQUIDATION
ARTICLE 17
La societe peut etre dissoute par decision de l'assemblee generale. Lors
de la dissolution de la societe, la liquidation s'effectuera par les soins d'un
ou de plusieurs liquidateurs, nommes par l'assemblee generale qui determine
leurs pouvoirs et leurs emoluments.
TITRE VIII: DISPOSITIONS GENERALES
ARTICLE 18
Pour tous les points non specifies dans les presents statuts, les parties
se referent et se soumettent aux dispositions de la loi luxembourgeoise du 10
aout 1915 sur les societes commerciales et de ses lois modificatives.
POUR COPIE CONFORME DES STATUTS COORDONNES
Hesperange, le 20 octobre 1999.
/s/ [ILLEGIBLE] [SEAL]
<PAGE>
Exhibit 4.9
EXECUTION COPY
$200,000,000
CREDIT AGREEMENT
Dated as of December 21, 1999
Among
CARRIER 1 INTERNATIONAL S.A.
AS PARENT
THE BORROWERS NAMED HEREIN
AS BORROWERS
THE GUARANTORS NAMED HEREIN
AS GUARANTORS
and
THE INITIAL LENDERS NAMED HEREIN
AS INITIAL LENDERS
and
MORGAN STANLEY SENIOR FUNDING, INC.
and
CITIBANK, N.A.
AS LEAD ARRANGERS
MORGAN STANLEY SENIOR FUNDING, INC.
AS ADMINISTRATIVE AGENT AND SECURITY AGENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS.................................................................1
SECTION 1.02. OTHER DEFINED TERMS..................................................................27
SECTION 1.03. COMPUTATION OF TIME PERIODS..........................................................27
SECTION 1.04. ACCOUNTING TERMS.....................................................................27
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. THE ADVANCES.........................................................................27
SECTION 2.02. MAKING THE ADVANCES..................................................................28
SECTION 2.03. FEES.................................................................................29
SECTION 2.04. TERMINATION OR REDUCTION OF THE COMMITMENTS..........................................29
SECTION 2.05. REPAYMENT............................................................................29
SECTION 2.06. INTEREST.............................................................................30
SECTION 2.07. INTEREST RATE DETERMINATION..........................................................30
SECTION 2.08. PREPAYMENTS..........................................................................31
SECTION 2.09. INCREASED COSTS......................................................................31
SECTION 2.10. ILLEGALITY...........................................................................32
SECTION 2.11. PAYMENTS AND COMPUTATIONS............................................................33
SECTION 2.12. TAXES................................................................................34
SECTION 2.13. RULES................................................................................35
SECTION 2.14. SHARING OF PAYMENTS, ETC.............................................................36
SECTION 2.15. EVIDENCE OF INDEBTEDNESS.............................................................36
SECTION 2.16. USE OF PROCEEDS......................................................................37
SECTION 2.17. REMOVAL OF LENDER....................................................................37
SECTION 2.18. CERTAIN RULES RELATING TO THE PAYMENT OF ADDITIONAL AMOUNTS..........................37
ARTICLE III CONDITIONS TO LENDING
SECTION 3.01. CONDITIONS PRECEDENT.................................................................37
SECTION 3.02. CONDITIONS PRECEDENT TO CERTAIN BORROWINGS. ........................................39
SECTION 3.03. CONDITIONS PRECEDENT TO EACH BORROWING...............................................42
SECTION 3.04. DETERMINATIONS UNDER SECTION 3.01....................................................42
ARTICLE IV REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES.......................................................42
ARTICLE V COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS................................................................46
SECTION 5.02. NEGATIVE COVENANTS...................................................................49
SECTION 5.03. FINANCIAL COVENANT...................................................................63
SECTION 5.04. LIMITATION ON PARENT ACTIVITIES......................................................63
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VI EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT....................................................................64
ARTICLE VII THE AGENTS
SECTION 7.01. AUTHORIZATION AND ACTION.............................................................66
SECTION 7.02. AGENT'S RELIANCE, ETC................................................................67
SECTION 7.03. MSSF AND AFFILIATES..................................................................67
SECTION 7.04. LENDER CREDIT DECISION...............................................................67
SECTION 7.05. INDEMNIFICATION......................................................................68
SECTION 7.06. SUCCESSOR AGENT......................................................................68
ARTICLE VIII
GUARANTEE.............................................69
SECTION 8.01. GUARANTEE............................................................................69
SECTION 8.02. GUARANTEE ABSOLUTE...................................................................70
SECTION 8.03. WAIVERS AND ACKNOWLEDGMENTS..........................................................70
SECTION 8.04. SUBROGATION..........................................................................71
SECTION 8.05. CONTINUING GUARANTEE.................................................................71
ARTICLE IX MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC......................................................................72
SECTION 9.02. NOTICES, ETC.........................................................................72
SECTION 9.03. NO WAIVER; REMEDIES..................................................................73
SECTION 9.04. COSTS AND EXPENSES...................................................................73
SECTION 9.05. RIGHT OF SET-OFF.....................................................................74
SECTION 9.06. BINDING EFFECT.......................................................................74
SECTION 9.07. ASSIGNMENTS AND PARTICIPATIONS.......................................................75
SECTION 9.08. CONFIDENTIALITY......................................................................77
SECTION 9.09. GOVERNING LAW........................................................................77
SECTION 9.10. EXECUTION IN COUNTERPARTS............................................................77
SECTION 9.11. JUDGMENT.............................................................................77
SECTION 9.12. JURISDICTION, ETC....................................................................78
SECTION 9.13. WAIVER OF JURY TRIAL.................................................................79
</TABLE>
<PAGE>
PAGE
SCHEDULES
Schedule 1 - Initial Lenders and Commitments
Schedule 4.01(a) - Corporate Structure Chart
EXHIBITS
Exhibit A-1 - List of Borrowers
Exhibit A-2 - List of Guarantors
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Opinion of Local Counsel for the Loan Parties
Exhibit E - Form of Accession Agreement
Exhibit F - Name and Address of Process Agent
<PAGE>
CREDIT AGREEMENT
Dated as of December 21, 1999
Carrier 1 International S.A., a societe anonyme organized under the laws of the
Grand Duchy of Luxembourg, as parent (the "PARENT"), certain subsidiaries of the
Parent listed on Exhibit A-1 hereto as borrowers (together with any Acceding
Borrowers (as defined below), the "BORROWERS") certain subsidiaries of the
Parent listed on Exhibit A-2 hereto as guarantors (together with any Acceding
Guarantors (as defined below), the "GUARANTORS"), the banks, financial
institutions and other institutional lenders (the "INITIAL LENDERS") listed on
the signature pages hereof, Morgan Stanley Senior Funding, Inc. ("MSSF") and
Citibank, N.A., as lead arrangers (collectively, the "LEAD ARRANGERS"), MSSF, as
security agent (together with any successor appointed pursuant to Article VII
hereof, the "SECURITY AGENT"), MSSF, as administrative agent (together with any
successor appointed pursuant to Article VII hereof, the "ADMINISTRATIVE AGENT")
for the Lenders (as hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"ACCEDING BORROWER" means each additional borrower named by
the Parent as to which the conditions set forth in Section 3.03(b)
hereof have been met.
"ACCEDING GUARANTOR" means each Person who has executed and
delivered to the Administrative Agent an accession agreement in the
form of Exhibit E hereto.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary or is
merged with or consolidated with a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by a Restricted Subsidiary and not
Incurred in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition.
"ADJUSTED CONSOLIDATED NET INCOME" means, for any period, the
aggregate net income (or loss) of the Parent and its Restricted
Subsidiaries for such period determined on a consolidated basis in
conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without
duplication):
(i) the net income (or loss) of any Person that is not a
Restricted Subsidiary, except (x) with respect to net income, to the
extent of the amount of dividends or other distributions actually paid
to the Parent or any of its Restricted Subsidiaries by such
<PAGE>
2
Person during such period and (y) with respect to net losses, to the
extent of the amount of Investments made by the Parent or any
Restricted Subsidiary in such Person during such period;
(ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to Clause III of Section
5.02(b)(i)(C) hereof (and in such case, except to the extent includable
pursuant to clause (i) above), the net income (or loss) of any Person
accrued prior to the date it becomes a Restricted Subsidiary or is
merged into or consolidated with the Parent or any of its Restricted
Subsidiaries or all or substantially all of the property and assets of
such Person are acquired by the Parent or any of its Restricted
Subsidiaries;
(iii) the net income of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not
at the time permitted (after giving effect to any effective waiver,
consent or approval) by the operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary;
(iv) any gains or losses attributable to Asset Sales (without
regard to clause (c) or (d) in the proviso to the definition thereof);
(v) solely for purposes of calculating the amount of
Restricted Payments that may be made pursuant to Clause III of Section
5.02(b)(i)(C) hereof, any amount paid or accrued as dividends on
Preferred Stock of the Parent or any Restricted Subsidiary owned by
Persons other than the Parent and any of its Restricted Subsidiaries;
(vi) all extraordinary gains and extraordinary losses or
extraordinary charges;
(vii) any compensation expense to the extent paid or payable
solely with Capital Stock (other than Disqualified Stock) of the Parent
or any options, warrants or other rights to acquire Capital Stock
(other than Disqualified Stock) of the Parent; and
(viii) the cumulative effect of a change in accounting
principles.
"ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS" means the total
amount of assets of the Parent and its Restricted Subsidiaries (less
applicable depreciation, amortization and other valuation reserves),
except to the extent resulting from write-ups of capital assets
(excluding write-ups in connection with accounting for acquisitions in
conformity with GAAP), after deducting therefrom (i) all current
liabilities of the Parent and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks,
patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Parent and its Restricted
Subsidiaries, prepared in conformity with GAAP and filed with the
Commission or provided to the Administrative Agent.
<PAGE>
3
"ADMINISTRATIVE AGENT'S ACCOUNT" means (i) with respect to
Advances denominated in Dollars, the account of the Administrative
Agent maintained by the Administrative Agent with Citibank, N.A. at its
office in New York, New York, Account No. 406-99-776, Attention: Liz
Frattaroli and (ii) with respect to Advances denominated in Euros, the
account of the Administrative Agent maintained by the Administrative
Agent with Banque Paribas at its office in Paris, France, Account No.
001000-0000-46961A, Attention: Liz Frattaroli, or such other account or
accounts as the Administrative Agent may notify to the Parent and the
Lenders from time to time.
"ADVANCE" means an advance by a Lender to a Borrower pursuant
to Article II.
"AFFILIATE" means, as to any Person, any other Person directly
or indirectly controlling, controlled by or under direct or indirect
common control with, such Person. For purposes of this definition, the
term "control" (including with correlative meanings the terms
"controlling", "controlled by" and "under common control with") as
applied to any Person means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
"AGENT" means any of the Administrative Agent, the Security
Agent or the Lead Arrangers.
"APPLICABLE MARGIN" means 3.25% per annum; PROVIDED, HOWEVER,
that if the condition precedent with respect to the German Pledge
Agreement contained in Section 3.02(a)(iv) hereof has not been
satisfied on or before the Closing Date, then for so long as the
Pledged Shares do not include the Pledged Shares pledged pursuant to
such German Pledge Agreement or other Pledged Shares which fully secure
the initial Borrowing (as determined by the Administrative Agent in its
reasonable discretion taking into consideration its customary secured
lending policies), the Applicable Margin otherwise in effect will be
6%; PROVIDED, FURTHER, that if the Advances are not paid in full by
June 30, 2000, the Applicable Margin otherwise in effect shall increase
by 0.50% and shall thereafter increase by an additional 0.50% at the
end of each subsequent calendar quarter until the repayment in full of
the Advances; PROVIDED, FURTHER, that, in no event shall the Applicable
Margin exceed 4.75%, other than as referred to in the first proviso of
this definition or pursuant to Section 2.06(b) hereof.
"ASSET ACQUISITION" means (i) an investment by the Parent or
any of its Restricted Subsidiaries in any other Person pursuant to
which such Person shall become a Restricted Subsidiary or shall be
merged into or consolidated with the Parent or any of its Restricted
Subsidiaries; PROVIDED that such Person's primary business is related,
ancillary or complementary to the businesses of the Parent and its
Restricted Subsidiaries on the date of such investment as determined in
good faith by the Board of Directors (whose determination shall be
conclusive and evidenced by a Board Resolution) or (ii) an acquisition
by the Parent or any of its Restricted Subsidiaries of the property and
assets of any Person other than the Parent or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of
business of such Person; PROVIDED that the property
<PAGE>
4
and assets acquired are related, ancillary or complementary to the
businesses of the Parent and its Restricted Subsidiaries on the date
of such acquisition as determined in good faith by the Board of
Directors (whose determination shall be conclusive and evidenced by a
Board Resolution).
"ASSET DISPOSITION" means the sale or other disposition by the
Parent or any of its Restricted Subsidiaries (other than to the Parent
or another Restricted Subsidiary) of (i) all or substantially all of
the Capital Stock of any Restricted Subsidiary or (ii) all or
substantially all of the assets that constitute a division or line of
business of the Parent or any of its Restricted Subsidiaries.
"ASSET SALE" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback
transaction) in one transaction or a series of related transactions by
the Parent or any of its Restricted Subsidiaries to any Person other
than the Parent or any of its Restricted Subsidiaries of (i) all or any
of the Capital Stock of any Restricted Subsidiary, (ii) all or
substantially all of the property and assets of an operating unit or
business of the Parent or any of its Restricted Subsidiaries or (iii)
any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Parent or any of its
Restricted Subsidiaries outside the ordinary course of business of the
Parent or such Restricted Subsidiary and, in each case, that is not
governed by Section 5.02(j); PROVIDED that "ASSET SALE" shall not
include (a) sales, transfers or other dispositions of Temporary Cash
Investments, inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets constituting a
Restricted Payment (or a transaction excluded from the definition of
the term "RESTRICTED PAYMENTS") permitted to be made under Section
5.02(b), (c) for purposes of Section 2.08(b) only, sales of ducts, dark
fiber, lit fiber and capacity and fiber swaps outside the ordinary
course of business and contemplated by the most recent business plan of
the Parent as presented to the Lenders from time to time or (d) sales,
transfers or other dispositions of assets with a fair market value (as
certified in an officer's certificate) not in excess of $2 million in
any transaction.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C hereto.
"AVERAGE LIFE" means, at any date of determination with
respect to any Indebtedness, the quotient obtained by dividing (i) the
sum of the products of (a) the number of years from such date of
determination to the dates of each successive scheduled principal
payment of such Indebtedness and (b) the amount of such principal
payment by (ii) the sum of all such principal payments.
"BOARD OF DIRECTORS" means the Board of Directors or other
corporate governing body of the Parent or any committee of such Board
of Directors duly authorized to act.
<PAGE>
5
"BOARD RESOLUTIONS" means a copy of a resolution of the Board
of Directors of the Parent certified to have been duly adopted by the
Board of Directors and to be in full force and effect on the date of
such adoption, delivered to the Administrative Agent.
"BORROWING" means a borrowing consisting of Advances in the
same Permitted Currency and having the same Interest Period.
"BRIDGE FACILITY" means the $200 million bridge financing
facility provided hereunder.
"BUSINESS DAY" means a day of the year banks are not required
or authorized by law to close in New York City and on which dealings
are carried on in the London interbank market and, for payments of
interest and determination of interest rates in respect of Advances
denominated in Euros, on which the Trans-European Automated Real-Time
Gross Settlement Express Transfer (TARGET) System is in operation.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) in equity of such Person,
whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all Common Stock and Preferred Stock.
"CAPITALIZED LEASE" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the
discounted present value of the rental obligations of such Person as
lessee, in conformity with GAAP, is required to be capitalized on the
balance sheet of such Person.
"CAPITALIZED LEASE OBLIGATIONS" means the discounted present
value of the rental obligations under a Capitalized Lease.
"CHANGE OF CONTROL" means such time as (i) a "person" or
"group" (within the meaning of Section 13(d) or 14(d)(2) under the
Exchange Act) becomes the ultimate "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) of more than 35% (50%, if the
Permitted Holders hold more than 35% of the voting power of the Voting
Stock of the Parent on a fully diluted basis) of the total voting power
of the Voting Stock of the Parent on a fully diluted basis and such
ownership represents a greater percentage of the total voting power of
the Voting Stock of the Parent, on a fully diluted basis, than is held
by Permitted Holders on such date; or (ii) during any period of two
consecutive years beginning on or after the Closing Date, individuals
who at the beginning of such period were members of the Board of
Directors (together with any new directors whose election by the Board
of Directors or whose nomination for election by the Parent's
shareholders was approved by a vote of at least a majority of the
members of the Board of Directors then in office who either were
members of the Board of Directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the
Board of Directors then in office.
<PAGE>
6
"CLOSING DATE" means December 21, 1999 or such later date to
which the Parent consents; PROVIDED, HOWEVER, that the Closing Date
shall not occur during the Restricted Period unless the Initial Lenders
in their sole discretion consent.
"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act or, if at
any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it, then the body
performing such duties at such time.
"COMMITMENT" has the meaning specified in Section 2.01 hereof.
"COMMON STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's equity,
other than Preferred Stock of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation all
series and classes of such common stock.
"CONFIDENTIAL INFORMATION" means information that the Parent
furnishes to the Administrative Agent or any Lender in a writing
pursuant to or in connection with this Agreement, but does not include
any such information that is or becomes generally available to the
public or that is or becomes available to the Administrative Agent or
such Lender from a source other than the Parent.
"CONSOLIDATED ADJUSTED EBITDA" means, for any period, Adjusted
Consolidated Net Income for such period plus, to the extent such amount
was deducted in calculating such Adjusted Consolidated Net Income, (i)
Consolidated Interest Expense, (ii) provision for all taxes based on
income, profits or capital, (iii) depreciation expense, (iv)
amortization expense (including but not limited to amortization of
goodwill and intangibles and amortization and write-off of financing
costs) and (v) all other non-cash items reducing Adjusted Consolidated
Net Income (other than items that will require cash payments and for
which an accrual or reserve is, or is required by GAAP to be, made),
less all non-cash items increasing Adjusted Consolidated Net Income
(other than any item reversing, offsetting or reducing any such accrual
or reserve), all as determined on a consolidated basis for the Parent
and its Restricted Subsidiaries in conformity with GAAP; PROVIDED that,
if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated Adjusted EBITDA shall be reduced (to the
extent not otherwise reduced in accordance with GAAP) by an amount
equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the
percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by the Parent or
any of its Restricted Subsidiaries.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the
aggregate amount of interest in respect of Indebtedness (including,
without limitation, amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment
obligation, calculated in accordance with the effective interest method
of accounting; all commissions, discounts and other fees and charges
owed with respect to letters of credit
<PAGE>
7
and bankers' acceptance financing; the net costs associated with Hedge
Agreements; and interest on Indebtedness that is Guaranteed or secured
by the Parent or any of its Restricted Subsidiaries) and the interest
component of Capitalized Lease Obligations paid, accrued or scheduled
to be paid or to be accrued by the Parent and its Restricted
Subsidiaries during such period, all as determined on a consolidated
basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"CONSOLIDATED LEVERAGE RATIO" means, on any Transaction Date,
the ratio of (i) the aggregate amount of Indebtedness of the Parent and
its Restricted Subsidiaries on a consolidated basis outstanding on such
Transaction Date to (ii) four times the amount of Consolidated Adjusted
EBITDA for the then most recent fiscal quarter for which financial
statements of the Parent have been filed with the Commission or
provided to the Administrative Agent under this Agreement (such quarter
being the "QUARTER"); PROVIDED that, in making the foregoing
calculation, (A) pro forma effect shall be given, in calculating the
amount of Indebtedness outstanding on the Transaction Date, to any
Indebtedness to be Incurred on the Transaction Date, or to be repaid,
repurchased, redeemed or otherwise retired or discharged on the
Transaction Date; (B) pro forma effect shall be given to Asset
Dispositions and Asset Acquisitions (including giving pro forma effect
to the application of proceeds of any Asset Disposition) that occur
from the beginning of the Quarter through the Transaction Date (the
"REFERENCE PERIOD"), as if they had occurred and such proceeds had been
applied on the first day of such Reference Period; and (C) pro forma
effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of
any asset disposition) that have been made by any Person that has
become a Restricted Subsidiary or has been merged with or into, or
consolidated with, the Parent or any Restricted Subsidiary during such
Reference Period and that would have constituted Asset Dispositions or
Asset Acquisitions had such transactions occurred when such Person was
a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that
occurred on the first day of such Reference Period; PROVIDED that to
the extent that clause (B) or (C) of this sentence requires that pro
forma effect be given to an Asset Acquisition or Asset Disposition,
such pro forma calculation shall be based upon the full fiscal quarter
immediately preceding the Transaction Date of the Person, or division
or line of business of the Person, that is acquired or disposed of for
which financial information is available.
"CONSOLIDATED NET WORTH" means, at any date of determination,
shareholders' equity (plus, to the extent not otherwise included,
Preferred Stock of the Parent) as set forth on the most recently
available quarterly or annual consolidated balance sheet of the Parent
and its Restricted Subsidiaries (which shall be as of a date not more
than 90 days prior to the date of such computation, and which shall not
take into account Unrestricted Subsidiaries), less any amounts
attributable to Disqualified Stock or any equity security convertible
into or exchangeable for Indebtedness, the cost of treasury stock and
the principal amount of any promissory notes receivable from the sale
of the Capital Stock of the Parent or any of its Restricted
Subsidiaries, each item to be determined in conformity with GAAP
(excluding the effects of foreign currency exchange adjustments
<PAGE>
8
under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"DEFAULT" means any event that is, or after notice or passage
of time or both would be, an Event of Default.
"DISQUALIFIED STOCK" means any class or series of Capital
Stock of any Person that by its terms or otherwise is (i) required to
be redeemed prior to the Stated Maturity of the Advances, (ii)
redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the Advances
or (iii) convertible into or exchangeable for Capital Stock referred to
in clause (i) or (ii) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the Advances; PROVIDED that any Capital
Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an
"asset sale" or "change of control" occurring prior to the Stated
Maturity of the Advances shall not constitute Disqualified Stock to the
extent permitted under the Indentures as in effect on the date hereof.
"DOLLARS" and "$" means the lawful currency of the United
States of America.
"EBITDA" means, for any period, the sum of the following
determined on a Consolidated basis for the Parent and its Subsidiaries
in accordance with GAAP: (a) losses from operations for such period
PLUS (a) the sum of the following to the extent deducted in determining
losses from operations: (i) amortization and (ii) depreciation. For the
avoidance of doubt, the following items shall not be added back in
determining EBITDA: (i) interest income, (ii) interest expense, (iii)
certain other items as contemplated by the financial model provided to
the Lead Arrangers prior to the date hereof, (iv) depreciation of
financing costs capitalized and (v) currency exchange gain (loss).
"ELIGIBLE ASSIGNEE" means (i) a Lender; (ii) an Affiliate of a
Lender; and (iii) (a) a commercial bank, savings and loan association,
savings bank or other similar banking organization having a combined
capital and surplus of at least $250 million, (b) a finance company,
insurance company or other financial institution or fund (whether a
corporation, partnership, trust or other entity) that is engaged in
making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business and having total assets in excess of
$250 million, (c) telecommunications equipment vendors and related
entities and (d) any other Person approved by the Administrative Agent
of the type included in this clause (iii).
"ENVIRONMENTAL LAW" means any national state or local statute,
law, ordinance, rule, regulation, code, order, judgment, decree or
judicial or agency interpretation, policy or guidance relating to
pollution or protection of the environment, health, safety or natural
resources, including, without limitation, those relating to the use,
handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
<PAGE>
9
"EQUIVALENT" in Dollars of Euros on any date means the
equivalent in Dollars of Euros determined by using the spot rate at
which the Administrative Agent's principal office in London offers to
exchange Dollars for Euros in London prior to noon (London time) on
such date as is required pursuant to the terms of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA AFFILIATE" means any Person that for purposes of Title
IV of ERISA is a member of the Parent's controlled group, or under
common control with the Parent, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA EVENT" means (a) (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to any
Plan unless the 30-day notice requirement with respect to such event
has been waived by the PBGC, or (ii) the requirements of subsection (1)
of Section 4043(b) of ERISA (without regard to subsection (2) of such
Section) are met with respect to a contributing sponsor, as defined in
Section 4001(a)(13) of ERISA, of a Plan, and an event described in
paragraph (10), (11), (12) or (13) of Section 4043(c) of ERISA is
reasonably expected to occur with respect to such Plan within the
following 30 days; (b) the application for a minimum funding waiver
with respect to a Plan; (c) the provision by the administrator of any
Plan of a notice of intent to terminate such Plan pursuant to Section
4041(c) of ERISA; (d) the cessation of operations at a facility of the
Parent or any ERISA Affiliate in the circumstances described in Section
4062(e) of ERISA or other withdrawal by the Parent or any ERISA
Affiliate from a Multiple Employer Plan during a plan year for which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA
which is reasonably expected to result in liability under Section 4043
of ERISA; (e) the conditions for the imposition of a lien under Section
302(f) of ERISA shall have been met with respect to any Plan; (g) the
adoption of an amendment to a Plan requiring the provision of security
to such Plan pursuant to Section 307 of ERISA; or (h) the institution
by the PBGC of proceedings to terminate a Plan pursuant to Section 4042
of ERISA, or the occurrence of any event or condition described in
Section 4042 of ERISA that constitutes grounds for the termination of,
or the appointment of a trustee to administer, a Plan.
"EURO" and the "_" sign mean the single currency of
Participating Member States introduced at the start of the third stage
of Economic and Monetary Union pursuant to the Treaty of European
Union.
"EURO LIBOR" means for any Interest Period for each Advance
denominated in Euros, an interest rate equal to the rate for deposits
in Euros which appears on Telerate page 3750 (or any other page that
might replace this page in this service) as of 11:00 a.m. London time
two Business Days before the first day of such Interest Period;
PROVIDED, that, if for any reason such rate is not available, the term
"Euro LIBOR" shall mean the average of the rates at which deposits in
Euros are offered by the Reference Banks at
<PAGE>
10
approximately 11:00 a.m. London time on such date to prime banks in
the Euro-zone interbank market.
"EVENTS OF DEFAULT" has the meaning specified in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXTRAORDINARY RECEIPT" means any cash receipts received by or
paid to or for the account of any Person from proceeds of property
insurance and condemnation awards (and payments in lieu thereof);
PROVIDED, HOWEVER, that an Extraordinary Receipt shall not include (i)
cash receipts received from proceeds of property insurance or
condemnation awards (or payments in lieu thereof) to the extent such
proceeds, awards or payments in respect of loss or damage to equipment,
fixed assets or real or personal property are applied (or in respect of
which expenditures were previously incurred) to replace or repair the
equipment, fixed assets or real or personal property in respect of
which such proceeds were received in accordance with the terms of the
Loan Documents, (ii) tax refunds and (iii) other cash receipts in the
ordinary course of business.
"FAIR MARKET VALUE" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under
no compulsion to sell and an informed and willing buyer under no
compulsion to buy, as determined in good faith by the Board of
Directors, whose determination shall be conclusive if evidenced by a
Board Resolution; PROVIDED that for purposes of Section 5.02(a)(i)(G)
hereof, (x) the fair market value of any security registered under the
Exchange Act shall be the average of the closing prices, regular way,
of such security for the 20 consecutive trading days immediately
preceding the sale of Capital Stock and (y) in the event the aggregate
fair market value of any other property (other than cash or cash
equivalents) received by the Parent exceeds $10 million, the fair
market value of such property shall be determined by a nationally
recognized investment banking or appraisal firm and set forth in their
written opinion which shall be delivered to the Administrative Agent.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Closing Date,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as approved by a significant
segment of the accounting profession; PROVIDED, HOWEVER, that all
reports and other financial information provided by the Parent
hereunder shall be prepared in accordance with GAAP as in effect from
time to time. All ratios and computations contained or referred to in
this Agreement shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of
determining compliance with the terms of the covenants and with other
provisions of this Agreement shall be made without giving effect to (i)
the amortization or write-off of any expenses incurred in connection
with the offering of the Units (as defined in the Indentures) and (ii)
the amortization of any amounts required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17.
<PAGE>
11
"GERMAN NETWORK" means the fiber optic network to be built in
the Federal Republic of Germany by the Parent or any of its Restricted
Subsidiaries with affiliates of Viatel, Inc. and Metromedia Fiber
Network Inc. contemplated by the letter of intent dated August 20,1998.
"GERMAN NETWORK L/C" means a letter of credit in an amount not
to exceed $85 million, as issued, amended, supplemented or modified
from time to time, to secure obligations of the Parent or any of its
Restricted Subsidiaries with respect to the German Network.
"GUARANTEE" means any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness of any
other Person and, without limiting the generality of the foregoing, any
such obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness of such other Person (whether
arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services (unless
such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered
into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); PROVIDED that the term
"GUARANTEE" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "GUARANTEE" used as a verb
has a corresponding meaning.
"HAZARDOUS MATERIALS" means (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"HEDGE AGREEMENTS" means interest rate swap, cap or collar
agreements, interest rate future or option contracts, currency swap
agreements, currency future or option contracts and other similar
agreements.
"HIGH YIELD NOTES" means the 13 1/4% Senior Euro Notes of the
Parent due 2009 in the amount of Euro 85 million and the 13 1/4% Senior
Dollar Notes of the Parent due 2009 in the amount of $160 million.
"INCUR" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with
respect to, or become responsible for, the payment of, contingently or
otherwise, such Indebtedness, including an "INCURRENCE" by means of the
acquisition of more than 50% of the Capital Stock of any Person;
PROVIDED that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of
Indebtedness.
<PAGE>
12
"INDEBTEDNESS" means, with respect to any Person at any
date of determination (without duplication):
(i) all indebtedness of such Person for borrowed
money;
(ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments;
(iii) all reimbursement obligations of such Person
in respect of letters of credit or other similar instruments
(excluding obligations with respect to letters of credit
(including trade letters of credit) or other similar
instruments securing obligations (other than obligations
described in (i) or (ii) above or (v), (vi) or (vii) below)
entered into in the ordinary course of business of such Person
to the extent such letters of credit are not properly honored
and drawn upon or, if properly honored and drawn upon, to the
extent such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for
reimbursement);
(iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the
date of placing such property in service or taking delivery
and title thereto or the completion of such services, except
Trade Payables;
(v) all Capitalized Lease Obligations of such
Person;
(vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; PROVIDED that the
amount of such Indebtedness of such Person shall be the lesser
of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such
other Persons;
(vii) all Indebtedness of other Persons Guaranteed
by such Person; PROVIDED that the amount of Indebtedness of
such Person shall be the lesser of (A) the amount Guaranteed
and (B) the amount of such Indebtedness of such other Persons;
and
(viii) to the extent not otherwise included in this
definition, obligations under Hedge Agreements except if such
agreements (a) are designed solely to protect the Parent or
its Restricted Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates and (b) do not
increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of
fees, indemnities and compensation payable thereunder;
PROVIDED, that the amount of Indebtedness of any Person as described
above at any date shall be the outstanding balance at such date of all
unconditional obligations as described
<PAGE>
13
above and, with respect to contingent obligations as described above,
the maximum liability upon the occurrence of the contingency giving
rise to the obligation, PROVIDED, FURTHER (A) that the amount
outstanding at any time of any Indebtedness issued with original issue
discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity
with GAAP, (B) that obligations for money borrowed and set aside at
the time of the Incurrence of any Indebtedness in order to prefund the
payment of the interest on such Indebtedness shall not be deemed to be
"INDEBTEDNESS" so long as such money is held to secure the payment of
such interest, (C) that the amount of an obligation in respect of a
letter of credit or other similar instrument is the aggregate undrawn
and unexpired amount thereof plus the aggregate amount of drawings
properly honored thereunder that have not then been reimbursed, and
(D) that Indebtedness shall not include any liability for federal,
state, local or other taxes. Indebtedness shall not be deemed to
include any obligation arising from the honoring of a check, draft or
similar instrument drawn against insufficient funds, PROVIDED that
such obligation is extinguished within five business days of its
Incurrence.
"INDENTURES" means the trust indentures each dated February
19, 1999 in respect of the High Yield Notes.
"INTEREST PERIOD" means, for each Advance comprising part of
the same Borrowing, the period commencing on the date of such Advance
and ending on the last day of the period selected by the Parent on
behalf of the applicable Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by the Parent on behalf of the applicable Borrower
pursuant to the provisions below. The duration of each such Interest
Period shall be one or three months, as the Parent on behalf of the
applicable Borrower may, upon notice received by the Administrative
Agent not later than 10:00 A.M. (London time) on the third Business Day
prior to the first day of such Interest Period, select; PROVIDED,
HOWEVER, that:
(i) the Parent may not select any Interest
Period that ends after the Maturity Date;
(ii) Interest Periods commencing on the same date
for Advances comprising part of the same Borrowing shall be of
the same duration;
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, PROVIDED, HOWEVER, that, if
such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding
Business Day; and
(iv) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there
is no numerically corresponding day in the
<PAGE>
14
calendar month that succeeds such initial calendar month by
the number of months equal to the number of months in such
Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"INVESTMENT" in any Person means any direct or indirect
advance, loan or other extension of credit (including, without
limitation, by way of Guarantee or similar arrangement; but excluding
advances, loans or other extensions of credit to customers or suppliers
in the ordinary course of business to the extent required by GAAP to be
recorded as accounts receivable, prepaid expenses or deposits on the
balance sheet of the Parent or its Restricted Subsidiaries) or capital
contribution to (by means of transfer of cash or other property to
others or any payment for property or services for the account or use
of others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such Person
and shall include (i) the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (ii) the fair market value of the Capital
Stock (or any other Investment), held by the Parent or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by Section 5.02(d)(iii); PROVIDED that the fair
market value of the Investment remaining in any Person that has ceased
to be a Restricted Subsidiary shall not exceed the aggregate amount of
Investments previously made in such Person valued at the time such
Investments were made less the net reduction of such Investments. For
purposes of the definition of "UNRESTRICTED SUBSIDIARY" and Section
5.02(b), (i) "INVESTMENT" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Parent or any
of its Restricted Subsidiaries)) of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of
liabilities (other than liabilities to the Parent or any of its
Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary
shall be considered a reduction in outstanding Investments and (iii)
any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer.
"LENDERS" means the Initial Lenders and each Person that shall
become a party hereto pursuant to Section 9.07.
"LIBOR" means for any Interest Period for each Advance
denominated in Dollars, an interest rate per annum equal to the rate
per annum appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars, at 11:00
A.M. (London time) two Business Days before the first day of such
Interest Period in an amount equal to such Advance and for a period
equal to (as nearly as practicable) such Interest Period; PROVIDED,
that, if for any reason such rate is not available, the term "LIBOR"
shall mean the rates per annum appearing on the Reuters Screen ISDA
Page (or any successor page) as the London interbank offered rate
for deposits in Dollars, at 11:00 A.M. (London time) two Business
Days before the first day of such Interest Period in an
<PAGE>
15
amount equal to such Advance and for a period equal to (as nearly as
practicable) such Interest Period; PROVIDED, FURTHER, that if for
any reason such rate is not available, the term "LIBOR" shall mean
the average of the sales at which deposits in Dollars are offered by
the Reference Banks at approximately 11:00 a.m. London time on such
date to prime banks in the London interbank market.
"LIEN" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation,
any conditional sale or other title retention agreement or lease in the
nature thereof or any agreement to give any security interest).
"LOAN DOCUMENTS" means this Agreement and, to the extent
delivered to the Administrative Agent or the Security Agent, as the
case may be, pursuant to Section 3.02 hereof, the Pledge Agreements, in
each case as amended or otherwise modified from time to time.
"LOAN PARTIES" means the Parent, the Borrowers, and the
Guarantors.
"MANAGEMENT INVESTOR" means any officer, director, employee or
other member of the management of the Parent or any of its
Subsidiaries, or family members or relatives thereof, or trusts or
partnerships for the benefit of any of the foregoing, or any of their
heirs, executors, successors and legal representatives.
"MATERIAL ADVERSE CHANGE" means any material adverse change,
or any development that would reasonably be expected to cause a
material adverse change, in the business, financial condition or
results of operations of the Parent and its Subsidiaries taken as a
whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, financial condition or results of operations of the
Parent and its Subsidiaries, taken as a whole, (b) the rights and
remedies of the Administrative Agent, the Security Agent and the
Lenders under the Loan Documents or (c) the ability of any Loan Party
to perform its material obligations under the Loan Documents.
"MATURITY DATE" means December 20, 2000.
"MOODY'S" means Moody's Investors Service, Inc. and its
successors.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Parent or any ERISA Affiliate
is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an
obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of the Parent or any ERISA Affiliate and at least one Person
other than the Parent and the ERISA Affiliates or (b) was so maintained
and in respect of which the Parent or any ERISA Affiliate could
<PAGE>
16
reasonably be expected to have liability under Section 4064 or 4069 of
ERISA in the event such plan has been or were to be terminated.
"NET CASH PROCEEDS" means, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale when received in the form of cash or
cash equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold
with recourse to the Parent or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash
or cash equivalents, net of (i) brokerage commissions and other fees
and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes
(whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of the Parent and its Restricted Subsidiaries, taken as a
whole, including as a consequence of any transfer of funds in
connection with the application thereof in accordance with Section
5.02(i) hereof, (iii) payments made to repay Indebtedness or any other
obligation outstanding at the time of such Asset Sale that either (A)
is secured by a Lien on the property or assets sold or (B) is required
to be paid as a result of such Asset Sale (other than Indebtedness
under the High Yield Notes), (iv) all distributions and other payments
required to be made to minority interest holders in a Restricted
Subsidiary or joint venture as a result of such Asset Sale by or of
such Restricted Subsidiary or joint venture, or to any other Person
(other than the Parent or a Restricted Subsidiary) owning a beneficial
interest in the assets disposed of in such Asset Sale, and (v)
appropriate amounts to be provided by the Parent or any Restricted
Subsidiary as a reserve against any liabilities or obligations
associated with such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in
conformity with GAAP and (b) with respect to any issuance or sale of
Capital Stock, the proceeds of such issuance or sale in the form of
cash or cash equivalents, including payments in respect of deferred
payment obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of cash or
cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Parent or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted
to cash or cash equivalents, net of attorney's fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and
brokerage, consultant and other fees incurred in connection with such
issuance or sale and net of taxes paid or payable as a result thereof.
In the event that any consideration for any Asset Sale that would
otherwise constitute Net Cash Proceeds is required to be held in escrow
pending determination of whether a purchase price adjustment,
indemnification or other payment or similar adjustment will be made,
such consideration will become Net Cash Proceeds only when and to the
extent released from escrow to the Parent or a Restricted Subsidiary.
"NETWORK FINANCING BORROWINGS" means Indebtedness (including
Guarantees and the German Network L/C) to finance or refinance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or
<PAGE>
17
integration) of acquiring Telecommunications Equipment (including
acquisitions by way of Capitalized Lease and acquisitions of the
Capital Stock of a Person that becomes a Restricted Subsidiary to the
extent of the fair market value of the equipment, inventory or network
assets so acquired) by the Parent or a Restricted Subsidiary.
"NORTEL FACILITY" means the vendor financing facility provided
by Nortel Networks plc to the Parent in the amount of $75 million under
a loan agreement dated June 25, 1999.
"NOTICE OF BORROWING" has the meaning specified in Section
2.02 hereof.
"OBLIGORS" means the Borrowers and the Guarantors and in any
event does not include the Parent.
"PARTICIPATING MEMBER STATE" means each state so described in
any legislative measure of the European Council for introduction of,
changeover to, or operation of the Euro.
"PERMITTED CURRENCY" means Euros and Dollars.
"PERMITTED HOLDER" means any of the following: any of
Providence Equity Partners L.P., Providence Equity Partners II L.P.,
Providence Equity Partners III L.P., Primus Capital Fund IV Limited
Partnership and Primus Executive Fund Limited Partnership and any of
the respective Affiliates or successors of the foregoing.
"PERMITTED INTERCOMPANY INDEBTEDNESS" means Indebtedness owed
to the Parent by a Restricted Subsidiary that is (i) subordinated to
the Advances on terms and conditions reasonably satisfactory to the
Required Lenders (including on terms that prohibit cash payments in
respect thereof other than to the extent such payments are applied to
meet obligations of the Parent referred to in Section 5.04 hereof) or
(ii) in the case of any such Indebtedness that is outstanding on the
date hereof, such Indebtedness, PROVIDED, that no later than April 30,
2000, such Indebtedness is subordinated to the Advances on the terms
referred to in clause (i) hereof if such subordination can be effected
without significant adverse tax, accounting or legal consequences to
the Parent or any Subsidiary.
"PERMITTED INVESTMENT" means:
(i) an Investment in the Parent (other than
Capital Stock and the High Yield Notes) or a Restricted
Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or
consolidated with or into, or transfer or convey all or
substantially all its assets to, the Parent or a Restricted
Subsidiary; PROVIDED that such Person's primary business is
related, ancillary or complementary to the businesses of the
Parent and its Restricted Subsidiaries on the date of such
Investment;
(ii) Temporary Cash Investments;
<PAGE>
18
(iii) commissions, payroll, travel and similar
advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses in
accordance with GAAP;
(iv) stock, obligations, securities or other
Investments received (a) in satisfaction of judgments or (b)
in settlement of debts, or as a result of foreclosure,
perfection or enforcement of any Lien, in each case under this
clause (b) arising in the ordinary course of business and not
in contemplation of the acquisition of such stock,
obligations, securities or other Investments;
(v) Investments in negotiable instruments held for
collection, lease, utility and worker's compensation,
performance and other similar pledges or deposits and other
pledges or deposits permitted under Section 5.02(g) hereof;
(vi) obligations under Hedge Agreements designed
solely to protect the Parent or its Restricted Subsidiaries
against fluctuations in interest rates or foreign currency
exchange rates;
(vii) Investments in a joint venture to cover the
Parent's portion of the cost (including the cost of design,
development, acquisition, construction, installation and
improvement) of building a telecommunications network (or
network segment) in Europe, PROVIDED that the Parent or any of
its Restricted Subsidiaries will directly own their portion of
such network (or network segment); and Investments in joint
ventures to acquire or maintain or otherwise relating to any
rights-of-way, wayleaves, governmental approvals, licenses,
franchises or concessions relating to any such network (or
network segment);
(viii) Investments in any Person in an aggregate
amount not to exceed 25% of any gains (net of any losses)
attributable to Asset Sales after the Closing Date and prior
to the date of such Investment; and
(ix) loans or advances to directors, officers or
employees of the Parent or any Restricted Subsidiary that do
not in the aggregate exceed $3 million at any time
outstanding.
"PERMITTED JOINT VENTURE" means any joint venture between the
Parent or any Restricted Subsidiary and any Person other than a
Subsidiary, engaged in the provision or sale of telecommunications
services, or in any other business that is related, ancillary or
complementary to the provision or sale of telecommunications services,
as determined in good faith by the Board of Directors (whose
determination shall be conclusive if evidenced by a Board Resolution);
PROVIDED that prior to making any Investment in such a Person, the
Parent's Board of Directors shall have determined that such Investment
fits the Parent's strategic plan and is on terms that are fair and
reasonable to the Parent.
"PERMITTED LIENS" means:
<PAGE>
19
(i) Liens for taxes, assessments, governmental
charges or claims not yet delinquent, or that in the aggregate
are not material, or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with
GAAP shall have been made;
(ii) statutory and common law Liens of landlords,
carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary
course of business and with respect to amounts not yet
delinquent or that have been bonded or that are being
contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and for which a reserve or
other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(iii) Liens incurred or deposits made in the
ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of
social security and other similar legislation or other
insurance-related obligations (including, without
limitation, pledges or deposits securing liability to
insurance carriers under insurance or self-insurance
arrangements);
(iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, licenses, obligations
for utilities, statutory or regulatory obligations, bankers'
acceptances, letters of credit, surety and appeal bonds,
government or other contracts, completion guarantees,
performance and return-of-money bonds and other obligations of
a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money);
(v) easements, rights-of-way, municipal and
zoning ordinances, utility agreements, reservations,
encroachments, restrictions and similar charges, encumbrances,
title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Parent
or any of its Restricted Subsidiaries;
(vi) Liens (including extensions, renewals and
replacements thereof) upon real or personal property or assets
(including leases on an indefeasible right-to-use basis);
PROVIDED that (a) such Lien is created solely for the purpose
of securing Indebtedness Incurred, in accordance with Section
5.02(a), to finance or refinance the cost (including the cost
of design, development, acquisition, construction,
installation, improvement, transportation or integration) of
the item of property or assets subject thereto and the
original such Lien is created prior to, at the time of or
within one year after the later of the acquisition, the
completion of construction or the commencement of full
operation of such property or assets, (b) the principal amount
of the Indebtedness secured by such Lien does not exceed 100%
of such cost and (c) any such Lien shall not extend to or
cover any property
<PAGE>
20
or assets other than such item of property or assets and any
improvements, accessions or proceeds in respect of such item;
(vii) leases, subleases, licenses or sublicenses
granted to others that do not materially interfere with the
ordinary course of business of the Parent and its Restricted
Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under
construction (and related rights) in favor of a contractor or
developer, or arising from progress or partial payments by a
customer of the Parent or its Restricted Subsidiaries relating
to such property or assets;
(ix) any interest or title of a lessor in the
property subject to any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial
Code financing statements regarding leases;
(xi) Liens (including extensions, renewals and
replacements thereof) on property or assets of, or on shares
of Capital Stock or Indebtedness of, any Person existing (in
the case of the original such Lien) at the time such Person
becomes, or becomes a part of, any Restricted Subsidiary;
PROVIDED that such Liens do not extend to or cover any
property or assets of the Parent or any Restricted Subsidiary
other than the property, assets, Capital Stock or Indebtedness
so acquired (plus improvements, accessions or proceeds
(including dividends or distributions) in respect thereof);
(xii) Liens in favor of the Parent arising by
operation of law or in favor of any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final
judgment, order, decree or award against the Parent or any
Restricted Subsidiary that does not give rise to an Event of
Default;
(xiv) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products
and proceeds thereof;
(xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods;
(xvi) Liens encumbering customary initial deposits
and margin deposits, and other Liens that are within the
general parameters customary in the industry and incurred in
the ordinary course of business, in each case, securing
Indebtedness or other obligations under Hedge Agreements and
forward contracts,
<PAGE>
21
options, future contracts, futures options or similar
agreements or arrangements designed solely to protect the
Parent or any of its Restricted Subsidiaries from
fluctuations in interest rates, currencies or the price of
commodities;
(xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of
goods entered into by the Parent or any of its Restricted
Subsidiaries in the ordinary course of business;
(xviii) [Intentionally omitted];
(xix) Liens that secure Indebtedness or other
obligations with an aggregate principal amount not in excess
of $5 million at any time outstanding;
(xx) Liens placed by any third party on property
over which the Parent or any Restricted Subsidiary has
easement or other rights or on any leased property, or
arising by reason of subordination or similar agreements
relating thereto; and Liens arising by reason of any
condemnation or eminent domain proceedings;
(xxi) Liens on Capital Stock or other securities of
an Unrestricted Subsidiary that secure Indebtedness or other
obligations of such Unrestricted Subsidiary;
(xxii) any encumbrance or restriction (including,
but not limited to, put and call agreements) with respect to
Capital Stock of any joint venture or similar arrangement
pursuant to any joint venture or similar agreement;
(xxiii) Liens (including extensions, renewals and
replacements thereof) on property or assets acquired by the
Parent or any Restricted Subsidiary; PROVIDED that (a) such
Liens were not created in connection with or in anticipation
of such acquisition, (b) such Liens do not secure Indebtedness
other than Indebtedness assumed in connection with such
acquisition and (c) such Liens do not extend to or cover any
property or assets of the Parent or any Restricted Subsidiary
other than the property or assets so acquired (plus
improvements, accessions or proceeds in respect thereof); and
(xxiv) Liens on cash set aside at the time of the
Incurrence of any Indebtedness (including without limitation
the High Yield Notes), or government securities purchased with
such cash, in either case to the extent that such cash or
government securities prefund the payment of interest on such
Indebtedness and are held in an escrow account or similar
arrangement to be applied for such purpose.
"PERSON" means an individual, partnership, corporation
(including a businesstrust), joint stock company, trust, unincorporated
association, joint venture, limited
<PAGE>
22
liability company or other entity, or a government or any political subdivision
and an agency or instrumentality thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"PLEDGE AGREEMENTS" shall mean the German Pledge Agreement, the Swiss
Pledge Agreement, the French Pledge Agreement and the Deed of Charge and any
other pledge agreement pledging the shares of any Acceding Borrower pursuant to
Section 3.03(b) hereof.
"PLEDGED SHARES" means the shares or other ownership interests of certain
Subsidiaries of the Parent pledged to the Security Agent on behalf of the
Lenders pursuant to the Pledge Agreements.
"PREFERRED STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
now outstanding or issued after the Closing Date, including, without limitation,
all series and classes of such preferred stock or preference stock.
"QUALIFYING BANK" means a Lender that is (i) either a Person that is
entitled to receive payments hereunder (other than payments pursuant to Section
9.04 hereof) from a Borrower organized in the United Kingdom free and clear of
and without deduction for or on account of Taxes imposed by the United Kingdom
(or any political subdivision thereof or therein) and without being subject to
such Taxes in each case pursuant to applicable U.K. law or pursuant to an
applicable tax treaty or a Lender that is a bank (x) within the meaning of
Section 840A of the U.K. Income and Corporation Taxes Act 1988 (the "ACT"), (y)
within the charge to U.K. corporation tax for the purposes of Section 349(3) of
the Act in respect of interest payable or paid to it hereunder and (z) resident
in the United Kingdom for U.K. tax purposes (but if the Act is amended or
repealed, this clause (i) shall be amended in such manner as the Administrative
Agent, after consultation with the Parent, shall determine to be necessary in
order to define Persons of relevant equivalent categories) and (ii) a Person
that with respect to each Borrower that is an original signatory to this
Agreement and is organized in a jurisdiction other than the United Kingdom
either (x) has its lending office located in a jurisdiction that is a party to
an applicable tax treaty with the jurisdiction of organization of such Borrower
that reduces the rate of Taxes and withholding on payments hereunder by such
Borrower (other than payments pursuant to Section 9.04 hereof) to zero or (y)
benefits from an exemption from Taxes and withholding on payments hereunder
(other than payments pursuant to Section 9.04 hereof) by such Borrower under the
laws of the jurisdiction in which such Borrower is organized.
"REFERENCE BANKS" means the principal London offices of Citibank, N.A. and
Morgan Stanley Dean Witter Bank Limited or, if either such bank ceases to be a
Reference Bank, such other bank as the Administrative Agent shall reasonably
select after consultation with the Parent.
<PAGE>
23
"REGISTER" has the meaning specified in Section 9.07(c).
"RELEASED INDEBTEDNESS" means, with respect to any Asset Sale, (i)
Indebtedness of the Parent or any Restricted Subsidiary which is assumed by the
purchaser or any affiliate thereof in connection with such Asset Sale; PROVIDED
that the Parent or such Restricted Subsidiary receives written, unconditional,
valid and enforceable releases from each creditor, no later than the closing
date of such Asset Sale and (ii) Indebtedness of a Restricted Subsidiary that is
no longer a Restricted Subsidiary as a result of such Asset Sale; PROVIDED that
neither the Parent nor any other Restricted Subsidiary thereafter Guarantees
such Indebtedness.
"REQUIRED LENDERS" means at any time Lenders owed at least 51% of the then
aggregate unpaid principal amount of the Advances owing to the Lenders, or, if
no such principal amount is then outstanding, Lenders having at least 51% of the
Commitments.
"RESTRICTED PERIOD" means the period from December 22, 1999 to and
including January 4, 2000.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Parent other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., and its successors.
"SIGNIFICANT SUBSIDIARY" means, at any date of determination, (i) any
Obligor and (ii) any Restricted Subsidiary that, together with its Subsidiaries,
(x) for the most recent fiscal year of the Parent, accounted for more than 10%
of the consolidated revenues of the Parent and its Restricted Subsidiaries or
(y) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Parent and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Parent for such fiscal year.
"SINGLE EMPLOYER PLAN" means a single employer plan, as defined in Section
4001(a)(15) of ERISA, that (a) is maintained for employees of the Parent or any
ERISA Affiliate and no Person other than the Parent and the ERISA Affiliates or
(b) was so maintained and in respect of which the Parent or any ERISA Affiliate
would reasonably be expected to have liability under Section 4069 of ERISA in
the event such plan has been or were to be terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the assets of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair salable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay such debts
and
<PAGE>
24
liabilities as they mature, (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital and (e)
such Person is not (i) in the case of any Person organized under or otherwise
subject to the laws relating to solvency of the Federal Republic of Germany or
Switzerland, overindebted (UBERSCHULDET), illiquid (ZAHLUNGSUNFAHIG) or
threatened with illiquidity (DROHENDE ZAHLUNGSUNFAHIGKEIT) or (ii) in the case
of any other Person, subject to any other similar condition under the laws of
the jurisdiction in which such Person is organized. The amount of contingent
liabilities at any time shall be computed as the amount that, in the light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
"STATED MATURITY" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security, is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"STRATEGIC SUBORDINATED INDEBTEDNESS" means Indebtedness of the Parent
Incurred to finance the acquisition of a Person engaged in a business that is
related, ancillary or complementary to the business conducted by the Parent or
any of its Restricted Subsidiaries, which Indebtedness by its terms, or by the
terms of any agreement or instrument pursuant to which such Indebtedness is
Incurred provides that no payment of principal, premium or interest on, or any
other payment with respect to, such Indebtedness may be made prior to the
payment in full of all of the Obligors' obligations under the Loan Documents;
PROVIDED that such Indebtedness may provide for and be repaid at any time from
the proceeds of a capital contribution or the sale of Capital Stock (other than
Disqualified Stock) of the Parent after the Incurrence of such Indebtedness.
"SUBSIDIARY" of any Person means, with respect to any Person, any
corporation, association, or other business entity of which more than 50% of the
outstanding Voting Stock is owned by such Person and one or more other
Subsidiaries of such Person.
"SUBSIDIARY GUARANTEE" has the meaning provided in Section 5.02(e).
"SUBSIDIARY GUARANTOR" means any Restricted Subsidiary who, from time to
time, provides a guarantee pursuant to Section 5.02(e)(i).
"TELECOMMUNICATIONS EQUIPMENT" means (i) fiber optic cable, data and voice
switches, transmission equipment and other ancillary equipment, fees and costs,
and related tangible assets, (ii) all software and hardware associated with the
network operating center and back office systems (including OSS, billing
systems, and data services), together with all related support and installation
costs associated with an operational system, provided that such costs are
capitalized according to GAAP and (iii) any other equipment, inventory or
network assets (including leases on an indefeasible right-to-use basis and
multiple investment units).
<PAGE>
25
"TEMPORARY CASH INVESTMENT" means any of the following:
(i) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof;
(ii) bankers' acceptances, time deposit accounts, certificates of
deposit and money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America, and which bank
or trust company has capital, surplus and undivided profits aggregating in
excess of $50 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor;
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above or clause
(vi) below entered into with a bank meeting the qualifications described in
clause (ii) above;
(iv) commercial paper, maturing not more than one year after the date
of acquisition, issued by a corporation (other than an Affiliate of the
Parent) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P;
(v) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or Moody's; and
(vi) direct obligations of, or obligations fully and unconditionally
guaranteed by, (a) The Netherlands, the United Kingdom, France, Germany or
Switzerland or (b) any other member of the European Economic Community and
rated at least "A" by S&P or Moody's
"TERMINATION DATE" means the earlier of November 30, 2000 and the date
of termination in whole of the Commitments pursuant to Section 2.04 or 6.01.
"TRADE PAYABLES" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
<PAGE>
26
"TRANSACTION DATE" means, with respect to the Incurrence of any
Indebtedness by the Parent or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Parent that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Parent) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital
Stock of, or owns or holds any Lien on any property of, the Parent or any
Restricted Subsidiary; PROVIDED that (A) any Guarantee by the Parent or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "INCURRENCE" of such Indebtedness and an "INVESTMENT" by the
Parent or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under Section 5.02(b) hereof and (C)
if applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Section 5.02(a) and Section
5.02(b) hereof. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; PROVIDED that (i) no Default or Event of Default
shall have occurred and be continuing at the time of or after giving effect to
such designation and (ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately after such designation would, if Incurred at
such time, have been permitted to be Incurred (and shall be deemed to have been
Incurred) for all purposes of this Agreement. Any such designation by the Board
of Directors shall be evidenced to the Administrative Agent by promptly filing
with the Administrative Agent a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"VAT" or "VALUE ADDED TAX" means value added tax chargeable in the United
Kingdom under the Value Added Tax Act 1994 or any similar tax imposed in another
jurisdiction.
"VOTING STOCK" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"WARRANT AGREEMENTS" has the meaning given to it in the Indentures.
"WARRANTS" has the meaning given to it in the Indentures.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
<PAGE>
27
SECTION 1.02. OTHER DEFINED TERMS. The following terms shall have the
meanings specified in the sections set forth below:
<TABLE>
<CAPTION>
Term Section
<S> <C>
Administrative Agent Preamble
Borrowers Preamble
Deed of Charge 3.02(a)(iii)
French Pledge Agreement 3.02(a)(i)
German Pledge Agreement 3.02(a)(iv)
Guaranteed Obligations 8.01(a)
Guarantors Preamble
HGB 8.01(b)
Indemnified Costs 7.05
Indemnified Party 9.04(b)
Information 3.01(e)
Initial Lenders Preamble
Lead Arrangers Preamble
MSSF Preamble
Other Taxes 2.12(b)
Parent Preamble
Primary Currency 9.11(c)
Projections 4.01(r)
Restricted Payment 5.02(b)
Security Agent Preamble
Taxes 2.12(a)
Swiss Pledge Agreement 3.02(a)(ii)
</TABLE>
SECTION 1.03. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.04. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
<PAGE>
28
SECTION 2.01. THE ADVANCES. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make Advances in either Permitted Currency
to the Borrowers from time to time on any Business Day during the period from
the Closing Date until the Termination Date in an aggregate amount not to exceed
at any time outstanding the amount set forth opposite such Lender's name on
Schedule 1 hereto or, if such Lender has entered into any Assignment and
Acceptance, set forth for such Lender in the Register maintained by the
Administrative Agent pursuant to Section 9.07(c), as such amount may be reduced
pursuant to Section 2.04 or Section 2.08(c) hereof (such Lender's "COMMITMENT");
PROVIDED, HOWEVER, that the aggregate amount of Advances made under this Section
2.01 shall not exceed $25 million (or the Euro Equivalent thereof) until the
conditions precedent specified in Section 3.02 hereof shall have been satisfied;
PROVIDED, FURTHER, that so long as the High Yield Notes remain outstanding and
except for Advances made for the purpose of Network Financing Borrowings, the
aggregate amount of Advances made under this Section 2.01 shall not exceed $100
million (or the Euro Equivalent thereof) plus 80% of the Consolidated book value
of the accounts receivable of the Parent and its Restricted Subsidiaries
determined in accordance with GAAP; PROVIDED, FURTHER, that no Borrowing may be
made during the Restricted Period unless each of the Initial Lenders in its sole
discretion consents. Each Borrowing shall be in an aggregate amount of (i) $5
million (or in the case of Borrowings denominated in Euros, Euro 5 million) or
an integral multiple of $500,000 (or in the case of Borrowings denominated in
Euros, Euro 500,000) in excess thereof or (ii) the entire amount of the undrawn
Commitments of the Lenders, and shall consist of Advances made on the same day
in the same Permitted Currency by the Lenders ratably according to their
respective Commitments. Amounts borrowed under this Section 2.01 and repaid or
prepaid may not be reborrowed.
SECTION 2.02. MAKING THE ADVANCES. (a) Except for the initial Borrowing
made on the Closing Date, each Borrowing shall be made on notice, given not
later than 10:00 A.M. (London time) on the third Business Day prior to the date
of the proposed Borrowing by the Parent on behalf of the applicable Borrower to
the Administrative Agent, which shall give to each Lender prompt notice thereof
by telecopier. Each such notice of a Borrowing (a "NOTICE OF BORROWING") shall
be by telephone, confirmed immediately in writing, or telecopier, in
substantially the form of Exhibit B hereto, specifying therein the requested (i)
date of such Borrowing, (ii) aggregate amount of such Borrowing (iii) the
Permitted Currency in which such Borrowing shall be made and (iv) initial
Interest Period for each such Borrowing. Each Lender shall, before 11:00 A.M.
(London time) on the date of such Borrowing, make available to the
Administrative Agent at the Administrative Agent's Account, in same day funds,
such Lender's ratable portion of such Borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Administrative Agent will make such funds
available to the applicable Borrower at the Administrative Agent's address
referred to in Section 9.02.
(b) Anything in subsection (a) above to the contrary notwithstanding,
the Advances may not be outstanding as part of more than 7 separate Borrowings.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
applicable Borrower. The Parent shall indemnify each Lender against any loss,
cost or expense incurred by such Lender as a result of any failure to fulfill on
or before the date specified in such Notice of
<PAGE>
29
Borrowing for such Borrowing the applicable conditions set forth in Article III,
including, without limitation, any loss (including loss of anticipated profits),
cost or expense actually incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Borrowing when such Advance, as a result of
such failure, is not made on such date.
(d) Unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's ratable portion of such
Borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the date of such Borrowing in
accordance with subsection (a) of this Section 2.02 and the Administrative Agent
may, in reliance upon such assumption, make available to the applicable Borrower
on such date a corresponding amount. If and to the extent that such Lender shall
not have so made such ratable portion available to the Administrative Agent,
such Lender and the applicable Borrower severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to
such Borrower until the date such amount is repaid to the Administrative Agent,
at (i) in the case of such applicable Borrower, the interest rate applicable at
the time to Advances comprising such Borrowing and (ii) in the case of such
Lender, at a rate specified by the Administrative Agent to be its cost of funds.
If such Lender shall repay to the Administrative Agent such corresponding
amount, such amount so repaid shall constitute such Lender's Advance as part of
such Borrowing for purposes of this Agreement.
(e) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
SECTION 2.03. FEES. (a) COMMITMENT FEE. The Parent agrees on behalf of the
Borrowers to pay, or cause the Borrowers to pay, to the Administrative Agent for
the account of each Lender a commitment fee on the aggregate amount of such
Lender's Commitment from December 9, 1999 (or such later date as such Initial
Lender issued its commitment) in the case of each Initial Lender and from the
effective date specified in the Assignment and Acceptance pursuant to which it
became a Lender in the case of each other Lender payable in arrears on the
Closing Date and quarterly on the last day of each quarter thereafter, and on
the earlier of (i) the termination in whole of the unused portions of the
Commitments pursuant to Section 2.04 or 2.08 hereof or (ii) the Termination
Date, in each case at the rate of 0.875% per annum on the average daily unused
portion of such Lender's Commitment during such quarter.
(b) AGENT'S FEES. The Parent shall pay, or cause the Borrowers to pay,
to the Administrative Agent for its own account such fees as have been
separately agreed between the Parent and the Administrative Agent.
SECTION 2.04. TERMINATION OR REDUCTION OF THE COMMITMENTS. The Parent shall
have the right on behalf of the Borrowers, upon at least one Business Day's
notice to the Administrative Agent, to terminate in whole or reduce ratably in
part the unused portions of the
<PAGE>
30
respective Commitments of the Lenders, PROVIDED that each partial reduction
shall be in the aggregate amount of $5 million or an integral multiple of
$500,000 in excess thereof.
SECTION 2.05. REPAYMENT. Each Borrower shall repay to the Administrative
Agent for the ratable account of the Lenders on the Maturity Date the aggregate
principal amount of the Advances borrowed by it then outstanding.
SECTION 2.06. INTEREST. (a) SCHEDULED INTEREST. Each Borrower shall pay
interest on the unpaid principal amount of each Advance borrowed by it owing to
each Lender from the date of such Advance until such principal amount shall be
paid in full at the following rates per annum:
(i) For each Advance denominated in Dollars, at a rate per annum equal
at all times during each Interest Period for such Advance to the sum of (x)
LIBOR PLUS (y) the Applicable Margin in effect from time to time, payable
in arrears on the last day of such Interest Period and on the date such
Advance shall be paid in full;
(ii) For each Advance denominated in Euros, a rate per annum equal at
all times during each Interest Period for such Advance to the sum of (A)
Euro LIBOR for such Interest Period for such Advance plus (B) the
Applicable Margin in effect from time to time, payable in arrears on the
last day of such Interest Period and on the date such Advance shall be paid
in full.
(b) DEFAULT INTEREST. Upon the occurrence and during the continuance of
an Event of Default under Section 6.01(a) or (b) hereof, each Borrower shall pay
interest on (i) the unpaid principal amount of each Advance owing to each
Lender, payable in arrears on the dates referred to in clause (a) above, at a
rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Advance pursuant to clause (a) above and (ii) to the
fullest extent permitted by law, the amount of any interest payable hereunder
that is not paid when due, from the date such amount shall be due until such
amount shall be paid in full, payable in arrears on the date such amount shall
be paid in full and on demand, at a rate per annum equal at all times to 2% per
annum above the rate per annum required to be paid on Advances pursuant to
clause (a) above.
SECTION 2.07. INTEREST RATE DETERMINATION. (a) The Administrative Agent
shall give prompt notice to the Parent and the Lenders of the applicable
interest rate determined by the Administrative Agent for purposes of Section
2.06(a) hereof.
(b) If, with respect to any Advances, the Required Lenders notify the
Administrative Agent that the interest rate for any Interest Period for such
Advances will not adequately reflect the cost to such Required Lenders of
making, funding or maintaining their respective Advances for such Interest
Period, the Administrative Agent shall forthwith so notify the Parent and the
Lenders, then (i) within 15 days after any such notice by the Administrative
Agent, the Administrative Agent and the Parent shall enter into negotiations in
good faith with a view to agreeing to an alternative interest rate acceptable to
the Parent to make, fund or maintain such Advances and (ii) if, at the
expiration of 20 days from the giving of such notice by the Administrative
Agent, the Administrative Agent and the Parent shall not have reached an
<PAGE>
31
agreement, such Advances will bear interest at a rate per annum specified by
each such Lender to represent its cost of funds therefor plus the Applicable
Margin.
(c) If the Parent shall fail to select the duration of any Interest
Period for any Advances in accordance with the provisions contained in the
definition of "Interest Period" in Section 1.01 hereof, the Administrative Agent
will forthwith so notify the Parent and the Lenders and the Interest Period
shall have a duration equal to one month or, if a period of one month would
extend beyond the Maturity Date, an Interest Period that ends on the Maturity
Date.
SECTION 2.08. PREPAYMENTS. (a) OPTIONAL PREPAYMENTS. Any Borrower may, upon
at least three Business Days' notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given such Borrower shall, prepay the outstanding principal amount of
the Advances comprising part of the same Borrowing in whole or ratably in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid; PROVIDED, HOWEVER, that (x) each partial prepayment shall be in
an aggregate principal amount of $5 million in the case of Advances denominated
in Dollars (or Euro 5 million, in the case of Advances denominated in Euros) or
an integral multiple of $500,000 in the case of Advances denominated in Dollars
(or Euro 500,000, in the case of Advances denominated in Euros) in excess
thereof and (y) the applicable Borrower shall be obligated to reimburse the
Lenders in respect thereof pursuant to Section 9.04(c).
(b) MANDATORY PREPAYMENTS. The Parent shall, on the date of receipt by
the Parent or any of its Subsidiaries of (i) the Net Cash Proceeds from (A) any
Asset Sale or (B) the issuance of additional Indebtedness (other than
Indebtedness permitted by clause (F) of Section 5.02(a)(i)) or equity (excluding
the issuance of Capital Stock to any Management Investor) of the Parent or its
Subsidiaries and (ii) any Extraordinary Receipt received by or paid to or for
the account of any Borrower or any of its Subsidiaries and not included in
clause (i) above, cause one or more Borrowers to prepay an aggregate principal
amount of Advances comprising part of the same Borrowings in an amount equal to
the amount of such Net Cash Proceeds or Extraordinary Receipts, as the case may
be, together with accrued interest to the date of such prepayment on the
principal amount prepaid; PROVIDED that in the event that such Borrower is able
to meet the conditions precedent set forth in Section 3.03 hereof on the date of
such prepayment, such prepayment may, at the election of such Borrower by notice
to the Administrative Agent on the date of such prepayment confirming its
ability to meet such conditions precedent, be made net of any amount that such
Borrower would be entitled to borrow hereunder on the date of such prepayment
(or such lesser amount as may be specified in such notice). In the event that,
as of any Business Day, the aggregate principal amount of the Advances exceeds,
as a result of fluctuations in the exchange rate (determined as provided in the
definition of "Equivalent") of the Euro to the Dollar, 105% of the aggregate
amount of the Commitments as of such Business Day, the Parent shall within three
Business Days cause one or more Borrowers to prepay an aggregate principal
amount of the Advances equal to the difference between the amount of the
Advances as so calculated and the aggregate amount of the Commitments.
(c) The Commitments of the Lenders shall be reduced ratably by the
amount of any prepayment made or required to be made (without regard to the
proviso to the first sentence of Section 2.08(b)) under this Section 2.08.
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32
SECTION 2.09. INCREASED COSTS. (a) If, due to either (i) the introduction
of or any change in or in the interpretation of any law or regulation or (ii)
the compliance with any guideline or request from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding or
maintaining Advances (excluding for purposes of this Section 2.09 any such
increased costs resulting from changes related to taxation, as to which Section
2.12 hereof shall govern), then each Borrower shall from time to time, upon
demand by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender additional
amounts sufficient to compensate such Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to the Parent and
the Administrative Agent by such Lender, shall be conclusive and binding for all
purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or regulation
or any guideline or request from any central bank or other governmental
authority (whether or not having the force of law) affects or would affect the
amount of capital required or expected to be maintained by such Lender or any
corporation controlling such Lender and that the amount of such capital is
increased by or based upon the existence of such Lender's commitment to lend
hereunder and other commitments of this type, then, upon demand by such Lender
(with a copy of such demand to the Administrative Agent), each Borrower shall
pay to the Administrative Agent for the account of such Lender, from time to
time as specified by such Lender, additional amounts sufficient to compensate
such Lender or such corporation in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital to be
allocable to the existence of such Lender's commitment to lend hereunder. A
certificate as to such amounts submitted to the Parent and the Administrative
Agent by such Lender shall be conclusive and binding for all purposes, absent
manifest error.
(c) Nothing in this Section 2.09 shall entitle any Lender to receive
any amount in respect of compensation for any such liability to increased or
additional cost, reduction, payment, forgone return or loss to the extent that
the same:
(i) is the subject of an indemnification or additional payment
required to be made under Section 2.12; or
(ii) arises as a consequence of (or of any law or regulation
implementing) (x) the proposals for international convergence of
capital measurement and capital standards published by the Basle
Committee on Banking Regulations and Supervisory practices in July
1988 and/or (y) any applicable directive of the European Union (in
each case) unless it results from any change in, or in the
interpretation or application of, such proposals or any such
applicable directive (or any law of regulation implementing the
same) occurring after the date hereof; or
(iii) arises as a result of breach by such Lender of any
regulation, request or requirement which is in existence at the
date of this Agreement of any
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33
applicable central bank or other fiscal, monetary or other
authority (whether or not having the force of law).
SECTION 2.10. ILLEGALITY. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for any Lender to perform its obligations
hereunder each Borrower shall forthwith repay the outstanding principal amount
of the Advances borrowed by it and owing to such Lender and the unused
Commitments of such Lender shall terminate; PROVIDED, HOWEVER, that, before
giving any such notification, such Lender agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
designate a different lending office if the making of such a designation would
allow such Lender or its lending office to continue to perform its obligations
to make Advances or to continue to fund or maintain Advances and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender.
SECTION 2.11. PAYMENTS AND COMPUTATIONS. (a) Each Borrower
shall make each payment due from such Borrower hereunder not later than 11:00
A.M. (London time) on the day when due in the Permitted Currency in which the
Advance was made to the Administrative Agent at the Administrative Agent's
Account in same day funds. The Administrative Agent will promptly thereafter
cause to be distributed like funds relating to the payment of principal or
interest or facility fees ratably (other than amounts payable pursuant to
Section 2.09, 2.12 or 9.04(c)) to the Lenders, and like funds relating to the
payment of any other amount payable to any Lender to such Lender, in each case
to be applied in accordance with the terms of this Agreement. Upon its
acceptance of an Assignment and Acceptance and recording of the information
contained therein in the Register pursuant to Section 9.07(d), from and after
the effective date specified in such Assignment and Acceptance, the
Administrative Agent shall make all payments hereunder in respect of the
interest assigned thereby to the Lender assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves.
(b) Each Loan Party hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder held by such Lender,
to charge from time to time against any or all of such Loan Party's accounts
with such Lender any amount so due.
(c) All computations of interest and of facility fees shall be made by
the Administrative Agent on the basis of a year of 360 days, in each case for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or facility fees are payable.
Each determination by the Administrative Agent of an interest rate hereunder
shall be conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder shall be stated to be due on a day
other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest or facility fee, as the case may be;
PROVIDED, HOWEVER, that, if such extension would cause payment
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34
of interest on or principal of Advances to be made in the next following
calendar month, such payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from the
Parent prior to the date on which any payment is due to the Lenders hereunder
that any Borrower will not make such payment in full, the Administrative Agent
may assume that such Borrower has made such payment in full to the
Administrative Agent on such date and the Administrative Agent may, in reliance
upon such assumption, cause to be distributed to each Lender on such due date an
amount equal to the amount then due such Lender. If and to the extent any
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at a rate specified by
the Administrative Agent to be its cost of funds.
SECTION 2.12. TAXES. (a) Any and all payments by any Loan Party hereunder
shall be made, in accordance with Section 2.11 hereof, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
EXCLUDING, in the case of each Lender and the Administrative Agent, taxes
measured by or imposed upon the overall net income of the Administrative Agent,
such Lender or such Lender's applicable lending office, or any branch or
affiliate of either, any franchise taxes, branch taxes, taxes on doing business
or taxes measured by or imposed upon the overall capital or net worth of the
Administrative Agent, such Lender or such Lender's applicable lending office, or
any branch or affiliate of either, but in each case only to the extent imposed
by the jurisdiction under the laws of which the Administrative Agent, such
Lender or such Lender's applicable lending office, or any branch or affiliate of
either, is organized or is located, or in which the Administrative Agent or such
Lender is managed and controlled for tax purposes, in the case of a jurisdiction
that utilizes such criterion as the basis upon which it imposes net income
taxation, or any nation within which such jurisdiction is located or any
political sub-division thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder being hereinafter referred to as "TAXES"). Subject to Section 2.12(e)
and 2.12(f), if any Loan Party shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder to any Lender or the Administrative
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.12) such Lender or the Administrative Agent
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Loan Party shall make such
deductions and (iii) such Loan Party shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable
law.
(b) In the event that an indemnity or additional payment is
made under this Section 2.12 for the account of the Administrative Agent or any
Lender and the Administrative Agent or such Lender, as the case may be, receives
or is granted a refund in respect of any Taxes paid pursuant to this Section
2.12, the Administrative Agent or such Lender shall remit such refund to the
applicable Borrower, net of all reasonable out-of-pocket
<PAGE>
35
expenses of such Lender; PROVIDED that the applicable Borrower, upon the request
of the Administrative Agent or such Lender, agrees to return such refund to the
Administrative Agent or such Lender, as the case may be, in the event the
Administrative Agent or such Lender, as the case may be, is required to repay
such refund to the relevant taxing authority. Nothing contained herein shall
interfere with the right of the Administrative Agent or a Lender to arrange its
tax affairs in whatever manner it thinks fit nor oblige the Administrative Agent
or any Lender to apply for any refund or to disclose any information relating to
its tax affairs or any computations in respect thereof.
(c) In addition, the Loan Parties shall pay any present or future
stamp, documentary or registration taxes or any other similar taxes, charges or
levies that arise from any payment made hereunder or from the execution,
delivery or registration of, or performing under or otherwise with respect to,
the Loan Documents (other than those imposed by reason of any transfer by any
Lender, except in the case of any transfer requested by any Loan Party)
(hereinafter referred to as "OTHER TAXES").
(d) The Loan Parties shall indemnify each Lender and the Administrative
Agent for and hold them harmless against the full amount of Taxes or Other Taxes
(including, without limitation any Taxes imposed by any jurisdiction on amounts
payable under this Section 2.12) imposed on or paid by such Lender or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be made within 30 days from the date such Lender or
the Administrative Agent (as the case may be) makes written demand therefor.
(e) The Administrative Agent and each Lender shall, upon
becoming a party to this Agreement, confirm that it is a Qualifying Bank at such
time and agrees to notify the Parent (through the Administrative Agent) promptly
upon it becoming aware that it is not a Qualifying Bank. If the Administrative
Agent or any Lender, otherwise than by reason of any change in law or treaty or
any change in its official interpretation or administration or any change in
published revenue practice in any such case after the date on which the
Administrative Agent or such Lender, as the case may be, became a party to this
Agreement, is not or ceases to be a Qualifying Bank with respect to any Loan
Party, then such Loan Party shall not be liable to pay to the Administrative
Agent or such Lender, as the case may be, under this Section 2.12 any amount in
excess of the amount such Loan Party would have been obliged to pay to the
Administrative Agent or such Lender if the Administrative Agent or such Lender
had not ceased to be a Qualifying Bank with respect to such Loan Party.
(f) This Section 2.12 shall not require any Borrower to pay
any indemnity or additional amounts in respect of Taxes that would not have been
imposed but for the failure of the Administrative Agent or any Lender to comply
with any certification, identification, information or other documentation
requirement that is a precondition to exemption from, or reduction in the rate
of the imposition, deduction or withholding of Taxes after the Administrative
Agent or such Lender, as the case may be, has been notified in writing by the
Parent of the necessity to comply with such requirement.
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36
(g) Without prejudice to the survival of any other agreement or
obligation of the Loan Parties hereunder, the agreements and obligations of the
Loan Parties contained in this Section 2.12 shall survive the payment in full of
all amounts due hereunder.
SECTION 2.13. RULES CONCERNING ADDITIONAL AMOUNTS. Any Lender claiming any
indemnity or additional amounts payable pursuant to Section 2.12 hereof shall
use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its lending office if the
making of such a change would avoid the need for, or reduce the amount of, any
such indemnity or additional amounts that may thereafter accrue and would not,
in the reasonable judgment of such Lender, be disadvantageous to such Lender.
SECTION 2.14. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Advances owing to it (other than
pursuant to Section 2.09, 2.12 or 9.04(c) hereof) in excess of its ratable share
of payments on account of the Advances obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the
Advances owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; PROVIDED, HOWEVER, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. Each Loan Party agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.13
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of such Loan Party in the amount of such
participation.
SECTION 2.15. EVIDENCE OF INDEBTEDNESS. (a) Each Lender shall
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of each Borrower to such Lender resulting from each Advance
owing to such Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time hereunder.
(b) The Register maintained by the Administrative Agent
pursuant to Section 9.07(c) hereof shall include a control account, and a
subsidiary account for each Lender, in which accounts (taken together) shall be
recorded (i) the date and amount of each Borrowing made hereunder and each
Interest Period applicable thereto, (ii) the terms of each Assignment and
Acceptance delivered to and accepted by it, (iii) the amount of any principal or
interest due and payable or to become due and payable from each Borrower to each
Lender hereunder, and (iv) the amount of any sum received by the Administrative
Agent from each Borrower hereunder and each Lender's share thereof.
<PAGE>
37
(c) Entries made in good faith by the Administrative Agent in the
Register pursuant to subsection (b) above, and by each Lender in its account or
accounts pursuant to subsection (a) above, shall be PRIMA FACIE evidence of the
amount of principal and interest due and payable or to become due and payable
from each Borrower to, in the case of the Register, each Lender and, in the case
of such account or accounts, such Lender, under this Agreement, absent manifest
error; PROVIDED, HOWEVER, that the failure of the Administrative Agent or such
Lender to make an entry, or any finding that an entry is incorrect, in the
Register or such account or accounts shall not limit or otherwise affect the
obligations of such Borrower under this Agreement.
SECTION 2.16. USE OF PROCEEDS. The proceeds of the Advances shall be
available (and the Borrowers agree that they shall use such proceeds) solely (i)
to repay and/or to make payments to the Parent in order to enable the Parent to
repay the Nortel Facility, (ii) to finance the cost (including the cost of
design, development, acquisition, construction, installation, improvement,
transportation or integration) of acquiring the Telecommunications Equipment,
(iii) to pay transaction costs incurred in connection with the Bridge Facility
and (iv) for working capital and other general corporate purposes of the Parent,
the Borrowers and their respective Subsidiaries.
SECTION 2.17. REMOVAL OF LENDER. In the event that any Lender
demands payment of costs, indemnification or additional amounts pursuant to
Section 2.09 or Section 2.12 hereof then (subject to such Lender's right to
rescind such demand within 10 days after the notice from the Parent referred to
below) the Parent may, upon 20 days' prior written notice to such Lender and the
Administrative Agent, elect to cause such Lender to assign its Advances and
Commitments in full to an assignee institution selected by the Parent that meets
the criteria of an Eligible Assignee and is reasonably satisfactory to the
Administrative Agent, so long as such Lender receives payment in full in cash of
the outstanding principal amount of all Advances made by it and all accrued and
unpaid interest thereon and all other amounts then due and payable to such
Lender as of the date of such assignment (including, without limitation, amounts
owing pursuant to Section 2.09 or Section 2.12 hereof), and in such case such
Lender agrees to make such assignment and assume all obligations of such Lender
hereunder, in accordance with Section 9.07 hereof.
SECTION 2.18. CERTAIN RULES RELATING TO THE PAYMENT OF ADDITIONAL AMOUNTS.
If a Lender voluntarily changes its lending office and the effect of such
change, as of the date of such change, would be to cause a Borrower to become
obligated to pay an indemnity or additional amount under Section 2.09 or Section
2.12 hereof that such Borrower was not theretofore obligated to pay, then such
Borrower shall not be obligated to pay such indemnity or additional amount.
<PAGE>
38
ARTICLE III
CONDITIONS TO LENDING
SECTION 3.01. CONDITIONS PRECEDENT. The obligations of the Lenders to make
Advances on the occasion of the initial Borrowing shall be subject to the
following conditions precedent:
(a) There shall have occurred no Material Adverse Change since
December 31, 1998.
(b) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental or regulatory agency or authority that (i) would reasonably be
expected to have a Material Adverse Effect or (ii) seeks to prohibit or
restrain the transactions contemplated hereby.
(c) The Lenders shall be reasonably satisfied with the corporate and
legal structure and the terms and conditions of the capitalization of the
Parent, including, without limitation, the charter and by-laws of the Parent
and each material agreement or instrument relating thereto, to the extent
that, taken as a whole, the same differ materially from as in effect on
February 19, 1999 and from as disclosed in the Parent's filings with the
Commission or its public announcements.
(d) All governmental and third party consents and approvals if any
(other than any such consents and approvals the absence of which,
individually and in the aggregate would not reasonably be expected to have a
Material Adverse Effect), necessary in connection with the transactions
contemplated hereby shall have been obtained (without the imposition of any
conditions that would reasonably be expected to have a Material Adverse
Effect) and shall remain in effect; all applicable waiting periods shall
have expired without any adverse action being taken by any competent
authority (other than any such actions that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect); and no law or regulation shall be applicable that restrains,
prevents or imposes materially adverse conditions upon the transactions
contemplated hereby.
(e) All written information (other than the Projections) furnished to
the Administrative Agent by the Parent or its advisors on behalf of the
Parent prior to the Closing Date (the "INFORMATION"), taken as a whole,
shall not have contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances under which such
statements were made and no additional information shall have come to the
attention of the Administrative Agent or the Lenders that (i) was not known
to the Initial Lenders or publicly available to them through the Parent's
public announcements or filings with the Commission on such date and (ii)
would reasonably be expected to have a Material Adverse Effect.
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39
(f) All loans made by the Lenders to the Borrowers or any of their
affiliates shall be in full compliance with the Federal Reserve's Margin
Regulations.
(g) The Parent shall have paid all accrued fees of the Administrative
Agent and the Lenders due and payable.
(h) Except in each case as would not reasonably be expected to have a
Material Adverse Effect, the Lead Arrangers shall be reasonably satisfied
that (i) the Parent and its subsidiaries will be able to meet its
obligations under all employee and retiree welfare plans, (ii) the employee
benefit plans of the Parent and its ERISA affiliates are funded in
accordance with at least the minimum statutory requirements, (iii) no
"reportable event" (as defined in ERISA, but excluding events for which
reporting has been waived) has occurred as to any such employee benefit plan
and (iv) no termination of, or withdrawal from, any such employee benefit
plan has occurred or is contemplated.
(i) The Administrative Agent shall have received on or before the
Closing Date the following, each dated such day, in form and substance
reasonably satisfactory to the Administrative Agent and in sufficient
copies for each Lender:
(i) Certified copies of the resolutions of each Loan Party
approving the Loan Documents to which it is a party and, in the case of
the Parent, making the determinations required by clause (vi) of the
second paragraph of Section 4.05 of the Indentures, and of all
documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to the Loan Documents.
(ii) Either an officer's certificate of each Loan Party or
certified excerpts from the Commercial Register (HANDELSREGISTER),
STATUTS or similar governmental documents of each Loan Party with
respect to the directors and officers of such Loan Party evidencing
their authority to sign the Loan Documents to which such Loan Party is
a party and the other documents to be delivered hereunder.
(iii) A favorable opinion of Debevoise & Plimpton, New York counsel
for the Loan Parties, in form and substance reasonably satisfactory to
the Administrative Agent.
(iv) Favorable opinions of French, Luxembourg, German, Swiss and
U.K. counsel for the Loan Parties, each substantially in the form of
Exhibit D hereto and as to such other matters as any Lender through the
Administrative Agent may reasonably request.
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(v) A favorable opinion of Shearman & Sterling, New
York counsel for the Administrative Agent, in form and substance
reasonably satisfactory to the Administrative Agent.
(vi) A solvency certificate from the chief financial officer of the
Parent on behalf of each Obligor in form and substance reasonably
satisfactory to the Lenders.
SECTION 3.02. CONDITIONS PRECEDENT TO CERTAIN BORROWINGS. The obligation
of each Lender to make an Advance on the occasion of each Borrowing that would
result in the aggregate outstanding amount of the Advances exceeding $25 million
(or the Euro Equivalent thereof) shall be subject to the additional conditions
precedent:
(a) the Security Agent shall have received as soon as practicable but
in no event later than 30 days after the Closing Date, the following in form
and substance reasonably satisfactory to the Security Agent and in
sufficient copies for each Lender;
(i) A Pledge Agreement dated on or within 30 days after the Closing
Date (the "FRENCH PLEDGE AGREEMENT"), duly executed and delivered by
Carrier 1 UK Limited and Carrier 1 France Holding, together with:
(A) a favorable opinion of Debevoise & Plimpton, French counsel
for the Loan Parties, with respect to the effectiveness of the
security granted under the French Pledge Agreement in form and
substance reasonably satisfactory to the Security Agent;
(B) evidence of the completion of all recordings and filings of
or with respect to the French Pledge Agreement that the Security
Agent may deem reasonably necessary or desirable in order to
perfect and protect the Liens created thereby; and
(C) evidence that all other action that the Lenders may deem
reasonably necessary in order to perfect and protect the Liens
created under the French Pledge Agreement has been taken.
(ii) A Pledge of Shares dated on or within 30 days after the
Closing Date (the "SWISS PLEDGE AGREEMENT"), duly executed and
delivered by the Parent and Carrier 1 UK Limited, together with:
(A) a favorable opinion of Bill, Isenegger & Ackerman, Swiss
counsel for the Loan Parties, with respect to the effectiveness of
the security granted under the Swiss Pledge Agreement in form and
substance reasonably satisfactory to the Security Agent;
(B) evidence of the completion of all recordings and filings of
or with respect to the Swiss Pledge Agreement that the Security
<PAGE>
41
Agent may deem reasonably necessary or desirable in order to
perfect and protect the Liens created thereby; and
(C) evidence that all other action that the Lenders may deem
reasonably necessary in order to perfect and protect the Liens
created under the Swiss Pledge Agreement has been taken.
(iii) a Deed of Charge over shares dated on or within 30 days after
the Closing Date (the "DEED OF CHARGE") duly executed and delivered by
the Parent together with:
(A) certificates representing the entire issued share
capital of Carrier 1 UK Ltd together with undated stock transfer
forms executed in blank;
(B) a favorable opinion of Ashurst Morris Crisp, U.K. counsel
to the Loan Parties, with respect to the effectiveness of the
security granted pursuant to the Deed of Charge in form and
substance reasonably satisfactory to the Security Agent;
(C) a certified copy of the Register of Shareholders for
Carrier 1 UK Ltd evidencing that (i) the Parent is the sole
shareholder of record of Carrier 1 UK Ltd and (ii) all redeemable
preference shares issued by Carrier 1 UK Ltd have been redeemed in
full, or a certified copy of stock transfer forms evidencing the
transfer of all outstanding shares of Carrier 1 UK Limited to the
Parent;
(D) evidence of the completion of all recordings and filings of
or with respect to the Deed of Charge that the Security Agent may
deem reasonably necessary or desirable in order to perfect and
protect the Liens created thereby; and
(E) evidence that all other action that the Lenders may deem
reasonably necessary in order to perfect and protect the Liens
created under the Deed of Charge has been duly taken.
(iv) A Pledge Agreement dated on or within 30 days after the
Closing Date (the "GERMAN PLEDGE AGREEMENT") duly executed and
delivered by the Parent and Carrier 1 Holding GmbH together with:
(A) a favorable opinion of Hengeler Mueller Weitzel Wirtz,
German counsel to the Loan Parties with respect to the
effectiveness of the security granted pursuant to the German Pledge
Agreement, in form and substance reasonably satisfactory to the
Security Agent;
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(B) evidence of the completion of all recordings and filings of
or with respect to the German Pledge Agreement that the Security
Agent may deem reasonably necessary or desirable in order to
perfect and protection the Liens created thereby; and
(C) evidence that all other action that the Lenders may deem
reasonably necessary in order to perfect and protect the Liens
created under the German Pledge Agreement have been taken.
SECTION 3.03. CONDITIONS PRECEDENT TO EACH BORROWING. The obligation of
each Lender to make an Advance on the occasion of each Borrowing (including the
initial Borrowing) shall be subject to the additional conditions precedent:
(a) on the date of such Borrowing, the following statements shall be
true (and each of the giving of the applicable Notice of Borrowing and the
acceptance by each Borrower of the proceeds of such Borrowing shall
constitute a representation and warranty by such Borrower that on the date
of such Borrowing such statements are true):
(i) the representations and warranties contained in
Section 4.01 hereof are correct on and as of the date of such
Borrowing, before and after giving effect to such Borrowing
and to the application of the proceeds therefrom, as though
made on and as of such date, and
(ii) no event has occurred and is continuing, or
would result from such Borrowing or from the application of
the proceeds therefrom, that constitutes a Default or Event of
Default;
(b) each Acceding Borrower (if any) shall have signed an accession
agreement in the form of Exhibit E hereto and become an Acceding Guarantor
and, if so requested by the Administrative Agent, the shares of such
Acceding Borrower shall have been pledged pursuant to a Pledge Agreement;
and
(c) the Administrative Agent shall have received such other approvals,
opinions or documents as any Lender through the Administrative Agent may
reasonably request.
SECTION 3.04. DETERMINATIONS UNDER SECTION 3.01. For purposes of
determining compliance with the conditions specified in Section 3.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the transactions contemplated by
this Agreement shall have received notice from such Lender prior to the Closing
Date specifying its objection thereto.
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43
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES. The Parent represents and
warrants as follows:
(a) The Parent and each of its Subsidiaries (i) is duly incorporated or
organized and validly existing under the laws of the jurisdiction of its
formation, (ii) is duly qualified in each other jurisdiction in which it
owns or leases property or in which the conduct of its business requires it
to so qualify except where the failure to so qualify would not be reasonably
be expected to have a Material Adverse Effect and (iii) has all requisite
corporate or other power and authority (including, without limitation, all
governmental licenses, permits and other approvals other than those the
failure to have which would not reasonably be expected to have a Material
Adverse Effect) to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted. All of the
outstanding shares or other ownership interests in each Loan Party (other
than the Parent) have been validly issued, are fully paid and non-assessable
and (except for directors' and other qualifying shares) are owned by the
Parent or one or more of the Parent's subsidiaries free and clear of all
Liens. Attached as Schedule 4.01(a) is a complete and accurate corporate
structure chart of the Parent and its Subsidiaries, showing as of the date
hereof the percentage ownership of each class of shares or other ownership
interests of or in such companies.
(b) The execution, delivery and performance by each Loan Party of each
Loan Document to which it is a party and the consummation of the other
transactions contemplated by the Loan Documents are within such Loan Party's
corporate or other powers, have been duly authorized by all necessary
corporate or other action, and do not (i) contravene such Loan Party's
formation documents, (ii) violate any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award, (iii) conflict with or
result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting any Loan Party, any Loan Party's Subsidiaries or any
of their properties or (iv) except for the Liens under the Pledge Agreements
and the Permitted Liens, result in or require the creation or imposition of
any Lien upon or with respect to any of the properties of any Loan Party or
any of its Subsidiaries, other than, in the case of clauses (ii), (iii) and
(iv) above, any such contravention, conflict, breach, default or Lien that
does not arise under any agreement or instrument evidencing Indebtedness and
that, individually or in the aggregate, would not reasonably be expected to
have a Material Adverse Effect. No Loan Party or any of its Subsidiaries is
in violation of any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or other
instrument, the violation or breach of which would reasonably be expected to
have a Material Adverse Effect.
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44
(c) No authorization or approval or other action by, and no notice to
or filings with, any governmental authority or regulatory body or any other
third party is required (other than any such authorizations, approvals,
notices or filings, the absence of which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect) for (i)
the due execution, delivery, recordation, filing or performance by any Loan
Party of any Loan Document to which it is a party or the consummation of the
transactions contemplated by the Loan Documents, (ii) the grant by any Loan
Party of the Liens granted by it pursuant to the Pledge Agreements.
(d) Each of the Loan Documents has been duly executed and delivered by
each Loan Party thereto. Each of the Loan Documents is the legal, valid and
binding obligation of each Loan Party thereto enforceable against such Loan
Party in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and by
general equitable principles (regardless of whether enforcement is sought by
proceedings in equity or at law) and except as indicated in any customary
exceptions contained in the legal opinions delivered pursuant to Sections
3.01 and 3.02 hereof.
(e) The Consolidated balance sheet of the Parent and its Subsidiaries
as at December 31, 1998, and the related Consolidated statements of income
and cash flows of the Parent and its Subsidiaries for the fiscal year then
ended, accompanied by an opinion of Deloitte & Touche Experta AG,
independent public accountants, and the Consolidated balance sheet of the
Parent and its Subsidiaries as at September 30, 1999, and the related
Consolidated statements of income and cash flows of the Parent and its
Subsidiaries for the nine months then ended, duly certified by the chief
financial officer of the Parent, copies of which have been furnished to each
Lender, fairly present, subject, in the case of said balance sheet as at
September 30, 1999, and said statements of income and cash flows for the
nine months then ended, to year-end audit adjustments and the absence of
footnotes, the Consolidated financial condition of the Parent and its
Subsidiaries as at such dates and the Consolidated results of the operations
of the Parent and its Subsidiaries for the periods ended on such dates, all
in accordance with GAAP.
(f) Since December 31, 1998, there has been no Material Adverse Change.
(g) There is no action, suit, investigation, litigation or proceeding
pending or (to the Parent's knowledge) threatened in any court or before any
arbitrator or governing or regulatory agency affecting any Loan Party or any
of its Subsidiaries that (i) would reasonably be expected to have a Material
Adverse Effect or (ii) seeks to prohibit or restrain the consummation of the
transactions contemplated hereby.
(h) No Loan Party nor any of its Subsidiaries is engaged in the
business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any Advance
will be used to purchase or carry any margin
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45
stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock.
(i) Each Loan Party and such Loan Party's Subsidiaries have filed, have
caused to be filed or have been included in all material tax returns
required to be filed and has paid all material taxes shown thereon to be
due, together with applicable interest and penalties except for any such tax
that is being contested in good faith and by proper proceedings and as to
which appropriate reserves are being maintained.
(j) Each Loan Party is, individually and together with its
Subsidiaries, taken as a whole, immediately before and immediately after
giving effect to the initial Borrowings hereunder, Solvent.
(k) Neither the business nor the properties of any Loan Party or any of
its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) that would reasonably be expected to have a Material Adverse
Effect (after taking into consideration any applicable insurance coverage).
(l) Each Loan Party and each of its Subsidiaries complies, in all
respects, with all requirements of applicable Environmental Laws where
failure to do so has, or would reasonably be expected to have, a Material
Adverse Effect.
(m) No Loan Party nor any of its Subsidiaries is an "investment
company" (as such term is defined or used in the Investment Company Act of
1940, as amended).
(n) No Loan Party nor any Subsidiary thereof is a "holding company", a
"public utility company" or an "affiliate" or "subsidiary company" of a
"registered holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(o) The Information, taken as a whole, does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained therein not misleading as of the
Closing Date in light of the circumstances under which such statements were
made.
(p) Each Pledge Agreement creates or will create a valid and perfected
or otherwise effective first priority security interest in the Pledged
Shares, securing the payment of the obligations of the Loan Parties to the
extent provided therein and in this Agreement, and all filings and other
actions necessary to perfect and protect such security interest have been or
will be duly taken in accordance with this Agreement. The Loan Parties are
the legal and beneficial owners of the Pledged Shares free and clear of any
Lien, except for the liens and security interests created or permitted under
the Loan Documents.
<PAGE>
46
(r) All written financial, business and other projections, forecasts,
estimates, pro formas and other forward-looking information (the
"PROJECTIONS"), if any, that have been prepared by the Parent or on the
Parent's behalf or by any of its representatives and made available to the
Lenders on or prior to the Closing Date in connection with this Agreement
were prepared in good faith on the basis of the assumptions stated therein,
which assumptions were believed by the Parent to be reasonable in the light
of conditions existing at the time of delivery of such Projections (it being
understood that such Projections are subject to significant uncertainties
and contingencies, many of which are beyond the Parent's control), and
represented, at the time of delivery, the Parent's best estimate of its
future financial performance.
ARTICLE V
COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Parent will:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its Restricted
Subsidiaries to comply in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, compliance with ERISA and Environmental Laws, except where the
failure to so comply would not reasonably be expected to have a Material
Adverse Effect.
(b) PAYMENT OF TAXES, ETC. Pay or discharge, and cause each of its
Restricted Subsidiaries to pay or discharge, before the same shall become
delinquent, (i) all material taxes, assessments and governmental charges,
levied or imposed upon (A) the Parent or any such Restricted Subsidiary; (B)
the income or profits of any such Restricted Subsidiary which is a
corporation or other corporate entity; or (C) the property of the Parent or
any such Restricted Subsidiary; and (ii) all material lawful claims for
labor, materials, and supplies that, if unpaid, might by law become a lien
or an encumbrance upon the property of the Parent or any such Restricted
Subsidiary; PROVIDED, HOWEVER, that the Parent shall not be required to pay
or discharge, or cause to be paid or discharged, any such tax, assessment,
charge or claim (x) the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
reserves have been established to the extent required by GAAP or (y) if
failure to do so would not (as determined by the Parent in good faith)
reasonably be expected to have a Material Adverse Effect or (z) if any
resulting Lien constitutes a Permitted Lien or otherwise complies with
Section 5.02(g) hereof.
(c) MAINTENANCE OF INSURANCE. Provide or cause to be provided, for
itself and its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds customarily insured
against by corporations similarly situated and owning like properties,
including, but not limited to, products liability insurance and public
liability insurance, with reputable insurers, in such amounts, with
<PAGE>
47
such deductibles and by such methods as shall be customary for
corporations similarly situated in the industry in which the Parent or
any such Restricted Subsidiary, as the case may be, is then conducting
business; PROVIDED that in the judgment of the Parent such insurance is
available to the Parent on commercially reasonable terms and is
desirable.
(d) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and
keep in full force and effect, and cause each of its Restricted
Subsidiaries to preserve and keep in full force and effect, its
corporate existence, rights (charter and statutory) licenses and
franchises; PROVIDED, HOWEVER, that the Parent and its Subsidiaries may
consummate any merger or consolidation permitted under Section 5.02(j)
and PROVIDED, FURTHER, that the Parent shall not be required to
preserve any right, license or franchise, or the existence of any
Restricted Subsidiary, if the maintenance or preservation thereof is,
in the judgment of the Parent, no longer desirable in the conduct of
the business of the Parent and its Restricted Subsidiaries, taken as a
whole.
(e) MAINTENANCE OF PROPERTIES, ETC. Cause all properties used
or useful in the conduct of its business or the business of any of its
Restricted Subsidiaries to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and
cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the
Parent may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED that nothing in this Section 5.01(e) shall prevent the Parent
or any Restricted Subsidiary from omitting to take such action or
discontinuing the use, operation or maintenance of any of such
properties or disposing of any of them, if such omission,
discontinuance or disposal is, in the judgment of the Parent, desirable
in the conduct of the business of the Parent or such Restricted
Subsidiary.
(f) WHOLLY OWNED SUBSIDIARIES. Ensure that each Obligor shall
remain a Wholly Owned Subsidiary of the Parent.
(g) REPORTING REQUIREMENTS. Furnish to the Lenders:
(i) as soon as available and in any event within 45
days after the end of each of the first three quarters of each
fiscal year of the Parent, Consolidated balance sheets of the
Parent and its Subsidiaries as of the end of such quarter and
Consolidated statements of income and cash flows of the Parent
and its Subsidiaries for the period commencing at the end of
the previous fiscal year and ending with the end of such
quarter, duly certified (subject to year-end audit adjustments
and the absence of footnotes) by the chief financial officer
of the Parent as having been prepared in accordance with GAAP
and certificates of the chief financial officer of the Parent
as to compliance with the terms of this Agreement and setting
forth in reasonable detail the calculations necessary to
demonstrate compliance with Section 5.03 hereof, PROVIDED that
in the event of any change in GAAP used in the
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48
preparation of such financial statements, the Parent shall
also provide, if necessary for the determination of compliance
with Section 5.03 hereof, a statement of reconciliation
conforming such financial statements to GAAP as formerly in
effect;
(ii) as soon as available and in any event within 90
days after the end of each fiscal year of the Parent, a copy
of the annual report for such year for the Parent and its
Subsidiaries, containing audited Consolidated balance sheets
of the Parent and its Subsidiaries as of the end of such
fiscal year and audited Consolidated statements of income and
cash flows of the Parent and its Subsidiaries for such fiscal
year, in each case accompanied by a report of Deloitte &
Touche Experta AG or other independent public accountants
reasonably acceptable to the Initial Lenders, which report
shall be without a "going concern" or like qualification or
exception, or qualification arising out of the scope of the
audit, PROVIDED that in the event of any change in GAAP used
in the preparation of such financial statements, the Parent
shall also provide, if necessary for the determination of
compliance with Section 5.03 hereof, a statement of
reconciliation conforming such financial statements to GAAP as
formerly in effect;
(iii) as soon as available and in any event no later
than 30 days after the end of each fiscal year of the Parent,
forecasts prepared by management of the Parent, in form
reasonably satisfactory to the Administrative Agent, of
balance sheets, income statements and cash flow statements on
a monthly basis for the fiscal year following such fiscal year
then ended;
(iv) promptly after the end of each fiscal quarter, a
report from the Parent, in form reasonably satisfactory to the
Administrative Agent, comparing the aggregate amount of actual
sales of ducts, dark fiber, lit fiber and capacity and fiber
swaps to the business plan of the Parent most recently
presented to the Lenders from time to time.
(v) promptly after gaining knowledge of the
occurrence of each Default continuing on the date of such
statement, a statement of the chief financial officer of the
Parent setting forth details of such Default and the action
that the Parent has taken and proposes to take with respect
thereto;
(vi) promptly after the sending or filing thereof,
copies of all reports that any Loan Party sends to any of its
security holders, and copies of all reports and registration
statements that any Loan Party files with the Commission or
any national securities exchange;
(vii) promptly after the commencement thereof, notice
of all actions and proceedings before any court, governmental
agency or arbitrator affecting the Parent or any of its
Subsidiaries that would reasonably be expected to have
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49
a Material Adverse Effect or seek to prohibit or restrain the
consummation of the transactions contemplated hereby; and
(viii) such other information respecting the Parent
or any of its Subsidiaries as any Lender through the
Administrative Agent may from time to time reasonably request.
(h) DELIVERY OF SECURITY. Promptly, but in no event later than
30 days after the Closing Date, satisfy and cause each applicable
Subsidiary to satisfy, the conditions precedent provided in Section
3.02 hereof to the extent not satisfied on the Closing Date.
(i) GUARANTORS. Ensure that at the end of each quarter the
combined book value of the assets (other than cash, cash equivalents
and restricted investments) of the Guarantors represent at least 80% of
the Consolidated book value of the assets (other than cash, cash
equivalents and restricted investments) of the Parent and its
Subsidiaries taken as a whole.
SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance shall
remain unpaid or any Lender shall have any Commitment hereunder, the Parent
shall not, and shall cause its Restricted Subsidiaries not to:
(a) INDEBTEDNESS. (i) Incur any Indebtedness (other than the
Advances); PROVIDED, HOWEVER, that the Parent may incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the
receipt and application of the proceeds therefrom, the Consolidated
Leverage Ratio would be greater than zero and less than 6:1; PROVIDED,
FURTHER, that the Parent and any Restricted Subsidiary (except as
specified below) may Incur each and all of the following:
(A) Indebtedness under the High Yield Notes as in
effect on the date hereof and as amended from time to time in
accordance with the terms hereof;
(B) Indebtedness owed (x) to the Parent constituting
Permitted Intercompany Indebtedness or (y) to any Restricted
Subsidiary; PROVIDED that any event which results in any such
Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer of such Indebtedness (other than to
the Parent or another Restricted Subsidiary) shall be deemed,
in each case, to constitute an Incurrence of such Indebtedness
not permitted by this clause (B);
(C) Indebtedness issued in to refinance, then
outstanding Indebtedness (other than Indebtedness Incurred
under clause (B), (D), (E), (G), (J) or (K) of this Section
5.02(a)(i)) and any refinancings thereof in an amount not to
exceed the amount so refinanced (plus premiums, accrued
interest, fees and expenses); PROVIDED that Indebtedness the
proceeds of which are used to refinance the Advances in part
or Indebtedness that is pari passu with, or
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50
expressly subordinated in right of payment to, the Advances
shall only be permitted under this clause (C) if (x) in case
the Advances are refinanced in part or the Indebtedness to be
refinanced is pari passu with the Advances, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate
in right of payment to, the remaining Advances, (y) in case
the Indebtedness to be refinanced is subordinated in right of
payment to the Advances, such new Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to
which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the
Advances at least to the extent that the Indebtedness to be
refinanced is subordinated to the Advances and (z) such new
Indebtedness, determined as of the date of Incurrence of such
new Indebtedness, does not mature prior to the Stated Maturity
of the Indebtedness to be refinanced and the Average Life of
such new Indebtedness is at least equal to the remaining
Average Life of the Indebtedness to be refinanced; and
PROVIDED FURTHER that in no event may Indebtedness of the
Parent be refinanced by means of any Indebtedness of any
Restricted Subsidiary pursuant to this clause (C);
(D) Indebtedness (x) in respect of performance,
surety, appeal or similar bonds provided in the ordinary
course of business, and (y) arising from agreements providing
for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, bankers'
acceptances, surety or performance bonds or other similar
instruments securing any obligations of the Parent or any of
its Restricted Subsidiaries pursuant to such agreements, in
any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than
Guarantees of Indebtedness Incurred by any Person acquiring
all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in
a principal amount not to exceed the gross proceeds actually
received by the Parent or any Restricted Subsidiary in
connection with such disposition;
(E) Guarantees of the Advances by any Restricted
Subsidiary;
(F) Indebtedness (including Guarantees) incurred to
finance or refinance the cost (including the cost of design,
development, acquisition, construction, installation,
improvement, transportation or integration) to acquire
equipment, inventory or network asset (including leases on an
indefeasible right-to-use basis and multiple investment units)
(including acquisitions by way of Capitalized Lease and
acquisitions of the Capital Stock of a Person that becomes a
Restricted Subsidiary to the extent of the fair market value
of the equipment, inventory or network assets so acquired) by
the Parent or a Restricted Subsidiary and any other Network
Financing Borrowings not financed pursuant to an Advance
hereunder, in an aggregate amount outstanding at any time not
to exceed $75 million;
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51
(G) Indebtedness of the Parent not to exceed, at any
one time outstanding (after giving effect to any refinancing
thereof), two times the sum of (A) the Net Cash Proceeds
received by the Parent after the Closing Date as a capital
contribution or from the issuance and sale of its Capital
Stock (other than Disqualified Stock) to a Person that is not
a Subsidiary of the Parent, to the extent (I) such capital
contribution or Net Cash Proceeds have not been used pursuant
to clause (III)(2) of clause (i) or clause (C), (D), (E) or
(F) of clause (ii) of Section 5.02(b) to make a Restricted
Payment and (II) if such capital contribution or Net Cash
Proceeds are used to consummate a transaction pursuant to
which the Parent Incurs Acquired Indebtedness, the amount of
such Net Cash Proceeds exceeds one-half of the amount of
Acquired Indebtedness so Incurred and (B) 80% of the fair
market value of property (other than cash and cash
equivalents) received by the Parent after the Closing Date as
a capital contribution or from the sale of its Capital Stock
(other than Disqualified Stock) to a Person that is not a
Subsidiary of the Parent, to the extent (I) such capital
contribution or sale of Capital Stock has not been used
pursuant to clause (C), (D) or (G) of Section 5.02(b)(ii) to
make a Restricted Payment and (II) if such capital
contribution or Capital Stock is used to consummate a
transaction pursuant to which the Parent Incurs Acquired
Indebtedness, 80% of the fair market value of the property
received exceeds one-half of the amount of Acquired
Indebtedness so Incurred PROVIDED that such Indebtedness does
not mature prior to the Stated Maturity of the Advances and
has an Average Life longer than the Advances;
(H) Acquired Indebtedness;
(I) Strategic Subordinated Indebtedness;
(J) Indebtedness in respect of the German Network L/C
in excess of $85 million, bankers' acceptances and letters of
credit, all (other than incremental Indebtedness under the
German Network L/C) in the ordinary course of business, in an
aggregate amount outstanding at any time not to exceed $10
million;
(K) the German Network L/C; and
(L) subordinated Indebtedness of the Parent (in
addition to Indebtedness permitted under clauses (A) through
(K) above) in an aggregate principal amount outstanding at any
time (after giving effect to any refinancing thereof) not to
exceed $100 million and maturing no earlier than the Maturity
Date.
(ii) For purposes of determining compliance with any
Dollar-denominated restriction on the Incurrence of Indebtedness
denominated in another currency, the Dollar-equivalent principal amount
of such Indebtedness Incurred pursuant thereto
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52
shall be calculated based on the relevant currency exchange rate in
effect on the date that such Indebtedness was Incurred (or, in the case
of Indebtedness under a revolving credit facility, at the time of
commitment), PROVIDED that if such Indebtedness is Incurred to
refinance other Indebtedness denominated in a foreign currency, and
such refinancing would cause the applicable Dollar-denominated
restriction to be exceeded if calculated at the relevant currency
exchange rate in effect on the date of such refinancing, such
Dollar-denominated restriction shall be deemed not to have been
exceeded so long as the principal amount of such refinancing
Indebtedness does not exceed the principal amount of such Indebtedness
being refinanced. The principal amount of any Indebtedness Incurred to
refinance other Indebtedness, if Incurred in a different currency from
the Indebtedness being refinanced, shall be calculated based on the
currency exchange rate applicable to the currencies in which such
respective Indebtedness is denominated that is in effect on the date of
such refinancing.
(iii) For purposes of determining any particular amount of
Indebtedness under this Section 5.02(a), Guarantees, Liens or
obligations with respect to letters of credit, bankers' acceptances or
other similar instruments supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included. For
purposes of determining compliance with this 5.02(a), (1) any other
obligation of the obligor on such Indebtedness arising under any Lien
or letter of credit, bankers' acceptance or other similar instrument or
obligation supporting such Indebtedness shall be disregarded to the
extent that the same secures the principal amount of such Indebtedness
and (2) in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described in the above
clauses, the Parent, in its sole discretion, shall classify, and from
time to time may reclassify, such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in one of
such clauses (but may allocate portions of such Indebtedness between or
among such clauses).
(b) RESTRICTED PAYMENTS. (i) Directly or indirectly,
(A) declare or pay any dividend or make any
distribution on or with respect to its Capital Stock (other
than (x) dividends or distributions payable solely in shares
of its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to acquire shares of such
Capital Stock and (y) dividends or distributions on Capital
Stock of a Restricted Subsidiary held by minority interest
holders on no more than a pro rata basis, measured by value
and based on all outstanding Capital Stock of such Restricted
Subsidiary) held by Persons other than the Parent or any of
its Restricted Subsidiaries;
(B) purchase, redeem, retire or otherwise acquire for
value any shares of Capital Stock of (x) the Parent or an
Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any
Person other than the Parent or any Wholly Owned Restricted
Subsidiary or (y) a Restricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital
Stock) held by any
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53
Affiliate of the Parent (other than a Wholly Owned Restricted
Subsidiary) or any holder (or any Affiliate of such holder) of
5% or more of the Capital Stock of the Parent;
(C) make any voluntary or optional principal payment,
or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of (i)
Indebtedness of the Parent or (ii) Indebtedness of any
Restricted Subsidiary that is expressly subordinated in right
of payment to the Advances; or
(D) make any Investment, other than a Permitted
Investment, in any other Person (such payments or any other
actions described in clauses (A) through (D) above being
collectively "RESTRICTED PAYMENTS"),
if, at the time of, and after giving effect to, the proposed Restricted
Payment: (I) a Default or Event of Default shall have occurred and be
continuing , (II) the Parent could not Incur at least $1.00 of
Indebtedness under Section 5.02(a)(i) hereof or (III) the aggregate
amount of all Restricted Payments (the amount, if other than in cash,
to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) 50% of the
aggregate amount of the Adjusted Consolidated Net Income (or, if the
Adjusted Consolidated Net Income is a loss, minus 100% of the amount of
such loss) accrued on a cumulative basis during the period (taken as
one accounting period) beginning on the first day of the fiscal quarter
beginning immediately following the Closing Date and ending on the last
day of the last fiscal quarter preceding the Transaction Date for which
reports have been filed with the Commission or provided to the
Administrative Agent PLUS (2) the aggregate Net Cash Proceeds received
by the Parent after the Closing Date as a capital contribution or from
the issuance and sale permitted by this Agreement of its Capital Stock
(other than Disqualified Stock) to a Person who is not a Subsidiary of
the Parent, including the proceeds of an issuance or sale permitted by
this Agreement of Indebtedness of the Parent for cash subsequent to the
Closing Date upon the conversion of such Indebtedness into Capital
Stock (other than Disqualified Stock) of the Parent, or from the
issuance to a Person who is not a Subsidiary of the Parent of any
options, warrants or other rights to acquire Capital Stock of the
Parent (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of
the holder, or are required to be redeemed, prior to the Stated
Maturity of the Advances), in each case except to the extent such Net
Cash Proceeds are used to Incur Indebtedness pursuant to Section
5.02(a)(i)(G) PLUS (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments and
Investments under Section 5.02(b)(ii)(F), (H) or (L) in any Person
resulting from payments of interest on Indebtedness, dividends,
distributions, repayments of loans or advances, or other transfers of
assets, in each case to the Parent or any Restricted Subsidiary or from
the Net Cash Proceeds from the sale or other disposition of any such
Investment (except, in each case, to the extent of any gain on such
sale or other disposition that would be included in the calculation of
Adjusted Consolidated Net
<PAGE>
54
Income for purposes of clause (III)(1) above), or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "INVESTMENTS"), not to exceed, in
each case, the amount of Investments previously made by the Parent or
any Restricted Subsidiary in such Person or Unrestricted Subsidiary.
(ii) The foregoing provision shall not be violated by reason
of:
(A) the payment of any dividend within 60 days after
the date of declaration thereof if, at said date of
declaration, such payment would comply with the foregoing
paragraph;
(B) [Intentionally omitted];
(C) the repurchase, redemption or other acquisition
of Capital Stock of the Parent or any Subsidiary of the Parent
(or options, warrants or other rights to acquire such Capital
Stock) in exchange for, or out of the proceeds of a capital
contribution or a substantially concurrent offering of, shares
of Capital Stock (other than Disqualified Stock) of the Parent
(or options, warrants or other rights to acquire such Capital
Stock);
(D) the making of any principal payment on or the
repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness of the Parent which is
subordinated in right of payment to the Advances in exchange
for, or out of the proceeds of a capital contribution or a
substantially concurrent offering of, shares of the Capital
Stock (other than Disqualified Stock) of the Parent (or
options, warrants or other rights to acquire such Capital
Stock);
(E) payments or distributions to dissenting
shareholders pursuant to applicable law, pursuant to or in
connection with a consolidation, merger or transfer of assets
that complies with the provisions of Section 5.02(j) hereof;
(F) any Investment in any Person the primary business
of which is related, ancillary or complementary to the
business of the Parent and its Restricted Subsidiaries on the
date of such Investment; PROVIDED that the aggregate amount of
Investments made pursuant to this clause (F) does not exceed
the sum of (a) $25 million, plus (b) the amount of Net Cash
Proceeds received by the Parent after the Closing Date as a
capital contribution or from the sale of its Capital Stock
(other than Disqualified Stock) to a Person who is not a
Subsidiary of the Parent, except to the extent such Net Cash
Proceeds are used to Incur Indebtedness pursuant to Section
5.02(a)(i)(G) or to make Restricted Payments pursuant to
Section 5.02(b)(i)(III)(2) or Section 5.02(b)(ii)(C), (D) or
(J), plus (c) the net reduction in Investments made pursuant
to this clause (F) resulting from distributions on or
repayments of such Investments or from the Net Cash Proceeds
from the sale or other disposition
<PAGE>
55
of any such Investment (except in each case to the extent of
any gain on such sale or other disposition that would be
included in the calculation of Adjusted Consolidated Net
Income for purposes of Section 5.02(b)(i)(III)(1) above) or
from such Person becoming a Restricted Subsidiary (valued in
each case as provided in the definition of "INVESTMENTS"),
PROVIDED that the net reduction in any Investment shall not
exceed the amount of such Investment;
(G) Investments acquired as a capital contribution to
or in exchange for Capital Stock (other than Disqualified
Stock) of the Parent;
(H) Investments in Permitted Joint Ventures not
exceeding, at the time of the Investment, the sum of (A) $10
million and (B) the net reduction in Investments made pursuant
to this clause (H) resulting from distributions on or
repayments of such Investments or from the Net Cash Proceeds
from the sale or other disposition of any such Investment
(except in each case to the extent of any gain on such sale or
disposition that would be included in the calculation of
Adjusted Consolidated Net Income for purposes of Section
5.02(b)(i)(III)(1) above) or from such Person becoming a
Restricted Subsidiary (valued in each case as provided in the
definition of "INVESTMENTS"), PROVIDED that the net reduction
in any Investment shall not exceed the amount of such
Investment;
(I) repurchases of Warrants by the Parent pursuant to
a repurchase offer or within ten days of their expiration in
accordance with the terms of the Warrant Agreements in effect
on the Closing Date, and any purchase by the Parent of any
fractional shares of Common Stock (or other Capital Stock of
the Parent issuable upon exercise of the Warrants) in
connection with an exercise of the Warrants and any payments
in connection with the anti-dilution provisions of the Warrant
Agreements;
(J) the purchase, redemption, retirement or other
acquisition for value by the Parent of shares of Capital Stock
of the Parent or options, warrants or other rights to purchase
such shares held by Management Investors upon death,
disability, retirement, termination of employment or pursuant
to the terms of any agreement under which such shares of
Capital Stock or options, warrants or other rights were
issued; PROVIDED that the aggregate consideration paid for
such purchase, redemption, retirement or other acquisition for
value of such shares or options, warrants or other rights
after the Closing Date does not in the aggregate exceed (A) $5
million, plus (B) the aggregate Net Cash Proceeds received by
the Parent after the Closing Date as a capital contribution
from, or from the issuance or sale to, Management Investors of
Capital Stock of the Parent or any options, warrants or other
rights to acquire such Capital Stock, plus (C) the proceeds of
insurance policies used to effect any such purchase,
redemption, retirement or other acquisition;
(K) any purchase, redemption, retirement or other
acquisition of Capital Stock deemed to occur upon the exercise
of options, warrants or other
<PAGE>
56
rights if such Capital Stock represents a portion of the
exercise price thereof; or
(L) other Restricted Payments in an aggregate amount
not to exceed $5 million plus the net reduction in Investments
made pursuant to this clause (xii) resulting from
distributions on or repayments of such Investments or from the
Net Cash Proceeds from the sale or other disposition of any
such Investment (except in each case to the extent of any gain
on such sale or disposition that would be included in the
calculation of Adjusted Consolidated Net Income for purposes
of clause (III)(1) of clause (i) of Section 5.02(b) above) or
from such Person becoming a Restricted Subsidiary (valued in
each case as provided in the definition of "Investments"),
PROVIDED that the net reduction in any Investment shall not
exceed the amount of such Investment;
PROVIDED that, except in the case of Sections 5.02(b)(ii)(A), (C) or
(K), no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments set
forth therein.
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payment referred to in clause (B)
thereof, an exchange of Capital Stock for Capital Stock or Indebtedness
referred to in clause (C) or (D) thereof, an Investment referred to in
clause (G) thereof and a purchase, redemption, retirement or other
acquisition of Capital Stock referred to in clause (K) thereof), and
the Net Cash Proceeds from any capital contribution or any issuance of
Capital Stock referred to in clauses (C), (D) and (F) thereof, shall be
included in calculating whether the conditions of Section
5.02(b)(i)(III) have been met with respect to any subsequent Restricted
Payments.
(c) DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES. Create or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (i) pay dividends
or make any other distributions permitted by applicable law on any
Capital Stock of such Restricted Subsidiary owned by the Parent or any
other Restricted Subsidiary, (ii) pay any Indebtedness owed to the
Parent or any other Restricted Subsidiary, (iii) make loans or advances
to the Parent or any other Restricted Subsidiary or (iv) transfer any
of its property or assets to the Parent or any other Restricted
Subsidiary, other than any encumbrances or restrictions:
(A) existing on the Closing Date, including under the
Loan Documents, the Indentures or any other agreements or
instruments in effect on the Closing Date, and any
refinancings of such agreements or instruments; PROVIDED that
the encumbrances and restrictions in any such refinancings are
no less favorable in any material respect to the Lenders than
those encumbrances or restrictions that are then in effect and
that are being refinanced;
<PAGE>
57
(B) existing under or by reason of applicable law or
any requirement of any applicable governmental regulatory
authority;
(C) existing with respect to any Person, or any
property or assets, acquired by the Parent or any Restricted
Subsidiary, existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or
restrictions are not applicable (A) in the case of an
acquisition of such Person to any other Person or (B) in the
case of an acquisition of such property or assets any other
property or assets;
(D) in the case of clause (iv) above (and, solely
with respect to clauses (w), (x) and (z) of this clause (D),
clause (i) above), (w) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset
that is, or is subject to, a lease, license, conveyance or
contract or similar property or asset, (x) existing by virtue
of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the
Parent or any Restricted Subsidiary not otherwise prohibited
by this Agreement, (y) arising or agreed to in the ordinary
course of business, not relating to any Indebtedness, and that
do not, individually or in the aggregate, detract from the
value of property or assets of the Parent or any Restricted
Subsidiary in any manner material to the Parent or any
Restricted Subsidiary or (z) arising under the terms of
Indebtedness Incurred under Section 5.02(a)(i)(F) that
restrict the transfer of the property or assets acquired with
such Indebtedness;
(E) with respect to a Restricted Subsidiary and
imposed pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted
Subsidiary;
(F) contained in the terms of any Indebtedness or any
agreement pursuant to which such Indebtedness was issued, or
any agreement relating to the sale, disposition or financing
of receivables, if (x) either (1) the encumbrance or
restriction applies only in the event of a payment default or
a default with respect to a financial covenant contained in
the terms of such Indebtedness or agreement or (2) the Parent
in good faith determines (as set forth in a Board Resolution)
that any such encumbrance or restriction will not materially
affect the Parent's ability to make principal or interest
payments on the Advances and (y) the encumbrance or
restriction is not materially more disadvantageous to the
Lenders than is customary in comparable financings (as
determined by the Parent in good faith);
(G) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the
ordinary course of business; or
(H) customary provisions in joint venture agreements
and other similar agreements entered into in the ordinary
course of business.
<PAGE>
58
Nothing contained in this Section 5.02(c) shall prevent the Parent or
any Restricted Subsidiary from (x) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted under Section 5.02(g)
or (y) restricting the sale or other disposition of property or assets
of the Parent or any of its Restricted Subsidiaries that secure
Indebtedness of the Parent or any of its Restricted Subsidiaries.
(d) ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES. Issue or sell any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except:
(i) to the Parent or a Wholly Owned Restricted
Subsidiary;
(ii) issuances of director's qualifying shares or
issuances or sales to foreign nationals of shares of Capital
Stock of foreign Restricted Subsidiaries, to the extent
required by applicable law;
(iii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such
Person remaining after giving effect to such issuance or sale
would have been permitted to be made under Section 5.02(b) if
made on the date of such issuance or sale; or
(iv) issuances or sales of Common Stock of a
Restricted Subsidiary; PROVIDED that the Parent or such
Restricted Subsidiary applies the Net Cash Proceeds, if any,
of any such issuance or sale to prepay the Advances to the
extent required by Section 2.08(b) hereof.
(e) ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES. Allow
any Restricted Subsidiary to Guarantee (x) the High Yield Notes or any
other Indebtedness of the Parent (other than any such Indebtedness
indirectly arising (through subrogation or otherwise) as a result of a
Guarantee by the Parent of Indebtedness of a Restricted Subsidiary,
which Indebtedness of such Restricted Subsidiary is otherwise permitted
under this Agreement) or (y) any Permitted Intercompany Indebtedness or
any other Indebtedness of any Subsidiary Guarantor which is PARI PASSU
with or expressly subordinate in right of payment to the Advances
("GUARANTEED INDEBTEDNESS"), unless, in the case of a Guarantee by a
Restricted Subsidiary of Indebtedness of a Subsidiary Guarantor, (i)
such Restricted Subsidiary simultaneously executes and delivers a
supplemental guarantee to this Agreement providing for a Guarantee (a
"SUBSIDIARY GUARANTEE") of payment of the Advances by such Restricted
Subsidiary and (ii) such Restricted Subsidiary waives and will not in
any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights
against the Parent or any other Restricted Subsidiary as a result of
any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; PROVIDED that this paragraph shall not be applicable to any
Guarantee of any Restricted Subsidiary (a) that existed at the time
such Person became a Restricted Subsidiary and was not
<PAGE>
59
Incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or (b) of Indebtedness Incurred
pursuant to Section 5.02(a)(i)(A). If the Guaranteed Indebtedness is
(A) PARI PASSU with the Advances, then the Guarantee of such Guaranteed
Indebtedness shall be PARI PASSU with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Advances, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed
Indebtedness is subordinated to the Advances.
(f) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. (i) Enter
into, renew or extend any transaction (including, without limitation,
the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Parent or
with any Affiliate of the Parent or any Restricted Subsidiary, except
upon fair and reasonable terms that taken as a whole are no less
favorable to the Parent and such Restricted Subsidiary than could be
obtained, at the time of such transaction or, if such transaction is
pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction
with a Person that is not such a holder or an Affiliate.
(ii) The foregoing limitation does not limit, and shall not
apply to:
(A) transactions (x) approved by a majority of the
disinterested members of the Board of Directors or (y) for
which the Parent or a Restricted Subsidiary delivers to the
Administrative Agent a written opinion of a nationally
recognized investment banking firm stating that the
transaction is fair to the Parent (in a transaction not
involving a Restricted Subsidiary) or such Restricted
Subsidiary from a financial point of view, or is upon terms
that taken as a whole are no less favorable to the Parent (in
a transaction not involving a Restricted Subsidiary) or such
Restricted Subsidiary than could be obtained in a comparable
arm's-length transaction;
(B) any transaction solely between or among the
Parent and any of its Wholly Owned Restricted Subsidiaries to
the extent such transactions are in the ordinary course of
business or solely between or among between Wholly Owned
Restricted Subsidiaries;
(C) the payment of reasonable and customary regular
fees to directors of the Parent who are not employees of the
Parent;
(D) any payments or other transactions pursuant to
any tax-sharing agreement between the Parent and any other
Person with which the Parent files a consolidated tax return
or with which the Parent is part of a consolidated group for
tax purposes; or
(E) any Restricted Payments (or a transaction
excluded from the definition of the term "RESTRICTED
PAYMENTS") not prohibited by Section 5.02(b).
<PAGE>
60
(F) transactions consisting of or pursuant to
employment or benefit agreements, plans, programs or
arrangements for or with, or indemnification or contribution
obligations to, employees, officers or directors in the
ordinary course of business;
(G) the entering into of the Securities Purchase and
Cancellation Agreement, the 1999 Share Option Plan, the
Securities Purchase Agreement, the Registration Rights
Agreement and the Securityholders' Agreement, as described in
the Offering Memorandum dated February 12, 1999 as amended or
supplemented, and performance of the obligations and the
transactions contemplated thereby; or
(H) issuances or sales of Capital Stock (other than
Disqualified Stock) of the Parent or options, warrants or
other rights to acquire such Capital Stock.
(iii) Notwithstanding the foregoing, any transaction or series
of related transactions covered by paragraph (i) above and not covered
by clauses (B) through (H) of paragraph (ii), the aggregate amount of
which exceeds $2 million in value, must be approved or determined to be
fair in the manner provided for in clause (A)(x) or (y) above.
(g) LIENS. Create, incur, assume or suffer to exist any Lien
on any of its assets or properties of any character (including, without
limitation, licenses), or any shares of Capital Stock or Indebtedness
of any Restricted Subsidiary, other than:
(i) Liens existing on the Closing Date;
(ii) Liens granted on or after the Closing Date on
any assets or Capital Stock of the Parent or its Restricted
Subsidiaries created in favor of the Lenders;
(iii) Liens with respect to the assets of a
Restricted Subsidiary granted by such Restricted Subsidiary to
a Wholly Owned Restricted Subsidiary to secure Indebtedness
owing to such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is permitted
to be Incurred under Section 5.02(a)(i)(C) to refinance
secured Indebtedness; PROVIDED, that such Liens do not extend
to or cover any property or assets of the Parent or any
Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced;
(v) [Intentionally omitted]; or
(vi) Permitted Liens.
<PAGE>
61
(h) SALE-LEASEBACK TRANSACTIONS. Enter into any sale-leaseback
transaction involving any of its assets or properties whether now owned
or hereafter acquired, whereby the Parent or a Restricted Subsidiary
sells or transfers such assets or properties more than one year after
acquiring such assets or properties and then or thereafter leases such
assets or properties or any part thereof or any other assets or
properties which the Parent or such Restricted Subsidiary, as the case
may be, intends to use for substantially the same purpose or purposes
as the assets or properties sold or transferred, other than any
sale-leaseback transaction if (i) the lease is for a period, including
renewal rights, of not in excess of three years; (ii) the lease secures
or relates to industrial revenue or pollution control bonds; or (iii)
the transaction is solely between the Parent and any Wholly Owned
Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; PROVIDED, THAT the Parent or such Restricted Subsidiary
applies an amount not less than the Net Cash Proceeds received from
such sale to prepay the Advances to the extent required by Section
2.08(b) hereof.
(i) ASSET SALES. Consummate any Asset Sale, unless
(i) the consideration received by the Parent or such
Restricted Subsidiary (including any Released Indebtedness and
including by way of relief from or by any other Person
assuming responsibilities for any liabilities other than
Indebtedness ("RELEASED LIABILITIES")) is at least equal to
the fair market value of the assets sold or disposed of;
PROVIDED that this clause (i) shall not apply to any sale,
transfer or other disposition arising from foreclosure,
condemnation or similar action with respect to any assets; and
(ii) at least 75% of the consideration received
(including any Released Indebtedness and Released Liabilities)
consists of cash, Temporary Cash Investments or Released
Indebtedness and Released Liabilities; PROVIDED, HOWEVER, that
this clause (ii) shall not apply to long-term assignments in
capacity in a telecommunications network or other transfers of
indefeasible rights of use, multiple investment units or dark
fibers;
PROVIDED, that, the Parent shall or shall cause the relevant
Restricted Subsidiary to apply the Net Cash Proceeds of such
Asset Sale to prepay the Advances to the extent required by
Section 2.08(b) hereof:
(j) MERGERS, CONSOLIDATIONS, ETC. Consolidate with, merge with
or into, or sell, convey, transfer, lease or otherwise dispose of all
or substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into
the Parent unless:
(i) the Parent shall be the continuing Person, or the
Person (if other than the Parent) formed by such consolidation
or into which the Parent is merged or that acquired or leased
such property and assets of the Parent shall be a corporation
organized and validly existing under the laws of the Kingdom
<PAGE>
62
of the Netherlands (including the Netherlands Antilles),
Bermuda, Canada, Switzerland, any member state of the European
Union or the United States of America or any jurisdiction
thereof;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such
transaction on a pro forma basis, the Parent or any such
Person shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of the Parent immediately
prior to such transaction; PROVIDED that this clause (iii)
shall only apply to a sale of less than all of the assets of
the Parent;
(iv) immediately after giving effect to such
transaction on a pro forma basis the Parent, or any such
Person, as the case may be, could Incur at least $1.00 of
Indebtedness under Section 5.02(a)(i) hereof; PROVIDED that
this clause (iv) shall not apply to a consolidation, merger or
sale of all (but not less than all) of the assets of the
Parent if all Liens and Indebtedness of the Parent or any such
Person, as the case may be, and its Restricted Subsidiaries
outstanding immediately after such transaction would, if
Incurred at such time, have been permitted to be Incurred (and
all such Liens and Indebtedness, other than Liens and
Indebtedness of the Parent and its Restricted Subsidiaries
outstanding immediately prior to the transaction, shall be
deemed to have been Incurred) for all purposes of this
Agreement; and
(v) the Parent delivers to the Administrative Agent
an officers' certificate (attaching the arithmetic
computations to demonstrate compliance with clauses (iii) and
(iv) above) to the effect that such consolidation, merger or
transfer complies with this provision and that all conditions
precedent provided for in this paragraph relating to such
transaction have been complied with;
PROVIDED, HOWEVER, that clauses (iii) and (iv) above will not apply if,
in the good faith determination of the Board of Directors of the
Parent, whose determination shall be evidenced by a Board Resolution,
the principal purpose of such transaction is to change the jurisdiction
of organization of the Parent, and such transaction does not have as
one of its purposes the evasion of the foregoing limitations.
(k) NEGATIVE PLEDGE. Enter into or suffer to exist any
agreement prohibiting or conditioning the creation or assumption of any
Lien upon any of its property or assets other than an agreement in
favor of the Security Agent and the Lenders.
(l) PREPAYMENTS, ETC. OF INDEBTEDNESS. Prepay, redeem,
purchase, defease or otherwise satisfy prior to the scheduled maturity
thereof in any manner the High Yield Notes or any Permitted
Intercompany Indebtedness or amend, modify or change in any manner any
term or condition of the High Yield Notes or any Permitted
<PAGE>
63
Intercompany Indebtedness to increase the amount payable (in the case
of the High Yield Notes only) or accelerate the time of payment
thereunder.
(m) BOOK VALUE OF ASSETS. Permit any director, officer or
employee of the Parent or any of its Restricted Subsidiaries with
actual knowledge of Section 5.01(i) hereof to make any voluntary or
optional payment or any acquisition or disposition of assets that would
reasonably be expected at the end of the current quarter to cause the
combined book value of the assets (other than cash, cash equivalents
and restricted investments) of the Guarantors at the end of the current
quarter to be less than 80% of the Consolidated book value of the
assets (other than cash, cash equivalents and restricted investments)
of the Parent and its Subsidiaries taken as a whole.
SECTION 5.03. FINANCIAL COVENANT. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Parent will
maintain, as of the end of each quarter, Consolidated EBITDA of the Parent and
its Subsidiaries for the quarter then ended of not less than the amount set
forth below for such quarter:
<TABLE>
<CAPTION>
Quarter Minimum
Ending On Consolidated EBITDA
--------- -------------------
<S> <C>
March 31, 2000 -$16.2 million
June 30, 2000 -$12.2 million
September 30, 2000 -$7.8 million
</TABLE>
SECTION 5.04. LIMITATION ON PARENT ACTIVITIES. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder,
notwithstanding anything to the contrary in this Agreement or any other Loan
document, the Parent will not
(a) conduct, transact or otherwise engage in, or commit to
conduct, transact or otherwise engage in, any business or operations
other than (i) the provisions of administrative, legal, accounting and
management services to or on behalf of any of its Subsidiaries, (ii)
those incidental to its ownership of the Capital Stock of the Borrowers
or other ownership interests in its Subsidiaries (to the extent not
otherwise prohibited by this Agreement), and the exercise of rights and
performance of obligations in connection therewith, (iii) the entry
into, and exercise of rights and performance of obligations in respect
of, (A) this Agreement and any other Loan Document to which the Parent
is a party, and any Indebtedness or other obligations permitted
pursuant to this Agreement and such other Loan Documents, in each case
as amended, supplemented, waived or otherwise modified from time to
time, and any refinancings, refundings, renewals or extensions thereof,
(B) contracts and agreement with officers, directors and employees of
the Parent or a Subsidiary thereof relating to their employment or
directorships, (C) insurance policies and related contracts and
agreements, and (D) equity subscription agreements, registration rights
agreements,
<PAGE>
64
voting and other stockholder agreements, engagement letters,
underwriting agreements and other agreements in respect of its equity
securities or any offering, issuance or sale thereof, including but not
limited to in respect of purchases of equity by Management Investors,
(iv) the offering, issuance, sale and repurchase or redemption of, and
dividends or distributions on, its equity securities, (v) the filing of
registration statements, and compliance with applicable reporting and
other obligations, under federal, state or other securities laws, (vi)
the listing of its equity securities and its High Yield Notes and
compliance with applicable reporting and other obligations in
connection therewith, (vii) the retention of (and entry into, and
exercise of rights and performance of obligations in respect of,
contracts and agreements with) transfer agents, private placement
agents, underwriters, counsel, accountants and other advisors and
consultants, (viii) the performance of obligations under and compliance
with the requirements of its certificate of incorporation and by-laws
or other organizational documents, or any applicable law, ordinance,
regulation, rule, order, judgment, decree or permit, including without
limitation, as a result of or in connection with the activities of its
Subsidiaries, (ix) the incurrence and payment of its operating and
business expenses and any taxes for which it may be liable, (x) making
loans constituting Permitted Intercompany Indebtedness to or other
Investments constituting Capital Stock in, or incurrence of
Indebtedness in respect of advances in the ordinary course of business
to, its Restricted Subsidiaries, (xi) the ownership of, and exercise of
rights and performance of obligations in respect of, patents,
trademarks, trade names, copyrights, technology, know-how and processes
and licensing of such patents, trademarks, trade names, copyrights,
technology, know-how and processes (other than such patents,
trademarks, trade names, copyrights, technology, know-how and processes
which are material to the business of the Borrowers, which shall be
owned by the Borrowers and their respective Restricted Subsidiaries)
and (vii) other activities incidental or reasonably related to the
foregoing;
(b) Incur any Indebtedness or other liabilities or financial
obligations, except (i) nonconsensual obligations imposed by operation
of law, (ii) pursuant to this Agreement and the other Loan Documents to
which it is a party or as permitted by Section 5.04(a) hereof, (iii)
pursuant to the Indentures and the High Yield Notes, (iv) pursuant to
the Nortel Facility and the security and other arrangements related
thereto, (v) pursuant to the German L/C and obligations in respect
thereof and (vi) obligations with respect to its Capital Stock.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following
events ("EVENTS OF DEFAULT") shall occur and be continuing:
(a) default in the payment of principal of any Advance when
the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise;
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(b) default in the payment of interest on any Advance when the
same becomes due and payable, and such default continues for a period
of 5 Business Days;
(c) failure to pay any other amount which is due to be paid
under any Loan Documents and such default continues for a period of 5
Business Days;
(d) default in the performance or breach of the provisions of
Section 5.02(a), (b), (f), (g) or (j) hereof;
(e) any Loan Party defaults in the performance of or breaches
any other covenant or agreement of such Loan Party in the Loan
Documents (other than a default specified in clause (a), (b) (c) or (d)
above) and such default or breach continues for a period of 30
consecutive days after written notice by the Administrative Agent;
(f) any representations or warranty made by any Loan Party
under or pursuant to any Loan Document proving to be untrue in any
material respect when made;
(g) the Parent or any of its Restricted Subsidiaries shall
fail to pay any principal of or premium or interest on any uncontested
Indebtedness that is outstanding in a principal amount of at least $5
million in the aggregate (but excluding Indebtedness outstanding
hereunder) of the Parent or such Restricted Subsidiary (as the case may
be), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Indebtedness;
or any other event shall occur or condition shall exist under any
agreement or instrument relating to any such Indebtedness and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
Indebtedness; or any such Indebtedness shall be declared to be due and
payable, or required to be prepaid or redeemed (other than by a
regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or decease such
Indebtedness shall be required to be made, in each case prior to the
stated maturity thereof;
(h) the Parent or any of its Significant Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Parent or any of its Significant
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief
or debtors, or seeking the entry of an order for relief or the
appointment of a receiver , trustee, or other similar official for it
or for any substantial party of its property and, in the case of any
such proceeding instituted against it (but not instituted
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66
by it) that is being diligently contested by it in good faith, either
such proceeding shall remain undismissed or unstayed for a period of 30
days or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official
for, it or any substantial part of its property) shall occur; or the
Parent or any of its Significant Subsidiaries shall taken any corporate
action to authorize any of the actions set forth above in this
subsection; or
(i) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all
such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Parent or any Significant Subsidiary and shall not
be paid or discharged, and there shall be any period of 60 consecutive
days following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding and
not paid or discharged against all such Persons to exceed $10 million
during which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect; or
(j) any Pledge Agreement after delivery thereof pursuant to
Section 3.02, 3.03 or 5.01(i) shall for any reason (other than pursuant
to the terms thereof) cease to create a valid and perfected first
priority lien on and security interest in the collateral purported to
be covered thereby; or
(k) except in each case as would not be reasonably be expected
to have a Material Adverse Effect, the Parent or any of its ERISA
Affiliates shall incur, or shall be reasonably likely to incur
liability as a result of one or more of the following; (i) the
occurrence of any ERISA Event; (ii) the partial or complete withdrawal
of the Parent of its ERISA Affiliates from a Multiemployer Plan; or
(iii) the reorganization or termination of a Multiemployer Plan; or
(l) a Change of Control shall have occurred;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Parent,
declare the obligation of each Lender to make Advances to be terminated,
whereupon the same shall forthwith terminate, and (ii) shall at the request, or
may with the consent, of the Required Lenders, by notice to the Parent, declare
the Advances, all interest thereon and all other amounts payable under the Loan
Documents to be forthwith due and payable, whereupon the Advances, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by each Loan Party; PROVIDED, HOWEVER, that upon an
Event of Default with respect to the Parent under (h) above, (A) the obligation
of each Lender to make Advances shall automatically be terminated and (B) the
Advances, all such interest and all such amounts shall automatically become and
be due and payable, without presentment, demand, protest or any notice of any
kind, all of which are hereby expressly waived by each Loan Party.
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ARTICLE VII
THE AGENTS
SECTION 7.01. AUTHORIZATION AND ACTION. Each Lender hereby
appoints and authorizes the Agents to take such action as agent on its behalf
and to exercise such powers and discretion under the Loan Documents as are
delegated to the Agents by the terms hereof and thereof, together with such
powers and discretion as are reasonably incidental thereto. As to any matters
not expressly provided for by the Loan Documents (including, without limitation,
collection of the Advances), the Agents shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of the Required Lenders, and such instructions shall be
binding upon all Lenders; PROVIDED, HOWEVER, that no Agent shall be required to
take any action that exposes such Agent to personal liability or that is
contrary to the Loan Documents or applicable law. Each Agent agrees to give to
each Lender prompt notice of each notice given to it by the Parent pursuant to
the terms of this Agreement.
SECTION 7.02. AGENT'S RELIANCE, ETC. No Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with the Loan
Documents, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, each Agent: (i) may
consult with legal counsel (including counsel for any Loan Party), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (ii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations (whether written or oral) made in or
in connection with the Loan Documents; (iii) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of the Loan Documents on the part of any Loan Party or
to inspect the property (including the books and records) of any Loan Party; (v)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any lien or security interest created or purported to
be created under or in connection with, the Loan Documents or any other
instrument or document furnished pursuant hereto; and (vi) shall incur no
liability under or in respect of the Loan Documents by acting upon any notice,
consent, certificate or other instrument or writing (which may be by telecopier,
telegram or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
SECTION 7.03. MSSF AND AFFILIATES. With respect to its
Commitment and the Advances made by it, MSSF shall have the same rights and
powers under the Loan Documents as any other Lender and may exercise the same as
though it were not an Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include MSSF in its individual capacity. MSSF and
its Affiliates may accept deposits from, lend money to, act as trustee under
indentures of, accept investment banking engagements from and generally
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engage in any kind of business with, any Loan Party, any of its Subsidiaries and
any Person who may do business with or own securities of any Loan Party or any
such Subsidiary, all as if MSSF were not an Agent and without any duty to
account therefor to the Lenders.
SECTION 7.04. LENDER CREDIT DECISION. Each Lender acknowledges
that it has, independently and without reliance upon any Agent or any other
Lender and based on the financial statements referred to in Section 4.01 hereof
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into the Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon any
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents.
SECTION 7.05. INDEMNIFICATION. Each Lender severally agrees to
indemnify each Agent (to the extent not reimbursed by the Parent), ratably
according to the respective principal amounts of the Advances then owed to each
of them (or if no Advances are at the time outstanding, ratably according to the
respective amounts of their Commitments), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against such Agent in any way relating to
or arising out of this Agreement or any action taken or omitted by such Agent
under the Loan Documents (collectively, the "INDEMNIFIED COSTS"), PROVIDED that
no Lender shall be liable for any portion of the Indemnified Costs resulting
from such Agent's gross negligence or willful misconduct. Without limitation of
the foregoing, each Lender agrees to reimburse each Agent promptly upon demand
for its ratable share of any out-of-pocket expenses (including counsel fees)
incurred by such Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, the Loan Documents, to the extent that such
Agent is not reimbursed for such expenses by the Parent. In the case of any
investigation, litigation or proceeding giving rise to any Indemnified Costs,
this Section 7.05 applies whether any such investigation, litigation or
proceeding is brought by such Agent, any Lender or a third party.
SECTION 7.06. SUCCESSOR AGENT. Any Agent may resign at any
time by giving written notice thereof to the Lenders and the Parent. Upon any
such resignation or removal, the Required Lenders shall have the right to
appoint a successor Agent that is, unless a Default has occurred and is
continuing, reasonably acceptable to the Parent. If no successor Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Agent's giving of notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of at least $250 million that is, unless a Default has
occurred and is continuing, reasonably acceptable to the Parent. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its
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duties and obligations under the Loan Documents. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article VII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under the Loan Documents.
ARTICLE VIII
GUARANTEE
SECTION 8.01. GUARANTEE. (a) Except as otherwise set forth
herein, each of the Guarantors hereby unconditionally and irrevocably guarantees
the punctual payment when due, whether at stated maturity, by acceleration or
otherwise, of all obligations of each other Obligor now or hereafter existing
under the Loan Documents, whether for principal, interest, fees, expenses or
otherwise (such obligations being the "GUARANTEED OBLIGATIONS"), and agrees to
pay any and all expenses (including reasonable counsel fees and expenses)
incurred by the Administrative Agent in enforcing any rights hereunder. Without
limiting the generality of the foregoing, the liability of each of the
Guarantors shall extend to all amounts that constitute part of the Guaranteed
Obligations and would be owed by any Obligor to the Administrative Agent under
the Loan Documents but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving such Obligor.
(b) The liability of each Guarantor organized under the laws
of the Federal Republic of Germany under this Guarantee in respect of the
obligations of any other Person that is not a Subsidiary of such Guarantor shall
not exceed the amount by which, at any time a payment would have to be made by
such Guarantor, the sum of (i) its assets (the calculation of which shall take
into account the captions reflected in Section 266 para. 2, A and B, of the
German Commercial Code - HANDELSGESETZBUCH ("HGB")) exceeds (ii) the sum of (x)
its liabilities (the calculation of which shall take into account the captions
reflected in Section 266 para. 3, B and C, HGB) and (y) its registered share
capital (STAMMKAPITAL). The assets and liabilities of such Guarantor shall be
valued at the respective dates in accordance with German accepted accounting
principles consistently applied. The foregoing limitations shall apply MUTATIS
MUTANDIS with respect to each other legal entity organized under the laws of the
Federal Republic of Germany which becomes liable as a general partner of any
Guarantor under this Guarantee that is a limited partnership
(KOMMANDITGESELLSCHAFT) or general partnership (OFFENE HANDELSGESELLSCHAFT).
(c) The liability of each Guarantor organized under the laws
of France in respect of the obligations of any other Person that is not a
Subsidiary of such Guarantor shall not exceed, at any given time a payment would
have to be made by such Guarantor, 95% of such Guarantor's distributable
reserves, defined as the amount by which its equity exceeds the sum of its (i)
share capital, (ii) capital surplus, (iii) legal surplus and (iv) statutory
reserves.
(d) The liability of Carrier1 International GmbH arising from
or in connection with the Loan Documents shall not exceed in the aggregate, at
any given time a
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payment would have to be made by such Guarantor, 95% of its distributable
reserves, defined as the amount by which the sum of its assets exceeds the sum
of its (i) share capital, (ii) statutory reserves, (iii) legal reserves and (iv)
liabilities in accordance with GAAP including provisions for accrued
liabilities, non-declared transfer pricing, if applicable, and taxes in the
amount of 60% of the amount being guaranteed. Such Guarantee shall further be
limited to an amount the payment of which would be deemed to be in the direct
best interest of Carrier1 International GmbH.
(e) The liability of each Acceding Guarantor shall be limited
to the extent necessary to comply with any applicable law dealing with
fraudulent transfers, capital adequacy, financial assistance or similar matters
as set forth in the Accession Agreement pursuant to which such Acceding
Guarantor becomes a party to this Agreement.
SECTION 8.02. GUARANTEE ABSOLUTE. Each of the Guarantors
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of the Loan Documents, regardless of any law, regulation or order
now or hereafter in effect in any jurisdiction affecting any of the terms or the
rights of any Agent with respect thereto. The obligations of each of the
Guarantors under this Guarantee are independent of the Guaranteed Obligations,
and a separate action or actions may be brought and prosecuted against any of
the Guarantors, jointly or individually, to enforce this Guarantee, irrespective
of whether any action is brought against any other Obligor or whether any other
Obligor is joined in any such action or actions. The liability of each of the
Guarantors under this Guarantee shall be joint and several, irrevocable,
absolute and unconditional irrespective of, and each of the Guarantors hereby
irrevocably waives any defenses it may now or hereafter have in any way relating
to, any or all of the following:
(a) any lack of validity or enforceability of any Loan
Document or any agreement or instrument relating hereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from any Loan
Document;
(c) any taking, release or amendment or waiver of or consent
to departure from any other guarantee, for all or any of the Guaranteed
Obligations;
(d) any change, restructuring or termination of the corporate
structure or existence of any Obligor or any of its respective
Subsidiaries; or
(e) any other circumstance (including, without limitation, any
statute of limitations) or any existence of or reliance on any
representation by any Agent that might otherwise constitute a defense
(other than the defense of payment) available to, or a discharge of any
Obligor or any other guarantor or surety.
This Guarantee shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be
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returned by any upon the insolvency, bankruptcy or reorganization of any Obligor
or otherwise, all as though such payment had not been made.
SECTION 8.03. WAIVERS AND ACKNOWLEDGMENTS. (a) Each of the
Guarantors hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Guaranteed Obligations and this
Guarantee and any requirement that any Agent protect, secure, perfect or insure
any Lien or any property subject thereto or exhaust any right or take any action
against any Obligor or any other Person.
(b) Each of the Guarantors hereby waives any right to revoke
this Guarantee, and acknowledges that this Guarantee is continuing in nature and
applies to all Guaranteed Obligations, whether existing now or in the future.
(c) Each of the Guarantors acknowledges that it will receive
substantial direct and indirect benefits from the financing arrangements
contemplated hereunder and that the waivers set forth in this Section 8.03 are
knowingly made in contemplation of such benefits.
SECTION 8.04. SUBROGATION. Each of the Guarantors will not
exercise any rights that it may now or hereafter acquire against any Obligor or
any other insider guarantor that arise from the existence, payment, performance
or enforcement of the obligations of any of the Guarantors under or in respect
of this Guarantee or any Loan Document, including, without limitation, any right
of subrogation, reimbursement, exoneration, contribution or indemnification and
any right to participate in any claim or remedy of any Agent against any Obligor
or any other insider guarantor, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including, without
limitation, the right to take or receive from any Obligor or any other insider
guarantor, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim, remedy or right,
unless and until all of the obligations and all other amounts payable hereunder
shall have been paid in full in cash and the Commitments shall have expired or
terminated. If any amount shall be paid to any of the Guarantors in violation of
the preceding sentence at any time prior to the later of the payment in full in
cash of the Guaranteed Obligations and all other amounts payable hereunder and
the Maturity Date, such amount shall be held in trust for the benefit of the
Administrative Agent and shall forthwith be paid to the Administrative Agent to
be credited and applied to the Guaranteed Obligations and all other amounts
payable hereunder, whether matured or unmatured, in accordance with the terms
hereof, or such amounts payable hereunder thereafter arising. If (i) any of the
Guarantors shall make payment to the Administrative Agent of all or any part of
the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Guarantee shall be paid in full in cash and (iii) the
Maturity Date shall have occurred, the Administrative Agent will, at any such
Guarantor's request and expense, execute and deliver to such Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to such Guarantor of an
interest in the Guaranteed Obligations resulting from such payment by such
Guarantor.
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SECTION 8.05. CONTINUING GUARANTEE. The Guarantee under this
Article VIII is a continuing guarantee and shall (a) remain in full force and
effect until the earlier to occur of (i) the later of the payment in full in
cash of the Guaranteed Obligations and all other amounts payable hereunder and
the Termination Date and (ii) as to any Guarantor, the sale or disposition of
all of all of the Capital Stock of such Guarantor, (b) be binding upon each of
the Guarantors, their respective successors and assigns and (c) inure to the
benefit and be enforceable by each Agent and the other Lenders and their
respective successors, transferees and assigns.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC. No amendment or waiver of any
provision of the Loan Documents, nor consent to any departure by any Loan Party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; PROVIDED, HOWEVER, that no amendment, waiver or consent shall, unless in
writing and signed by each affected Lender, do any of the following: (a) waive
any of the conditions specified in Section 3.01 or 3.02 hereof, (b) increase the
Commitments of any Lender or subject any Lender to any additional obligations,
(c) reduce the principal of, or interest on, the Advances or any fees or other
amounts payable hereunder, (d) postpone any date fixed for any payment of
principal of, or interest on, the Advances or any fees or other amounts payable
hereunder, (e) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Advances, or the number of Lenders, that shall be
required for the Lenders or any of them to take any action hereunder, (f)
release substantially all of the collateral held or guarantees made to secure
the obligations of any Loan Party under the Loan Documents or (g) amend this
Section 9.01; and PROVIDED FURTHER that no amendment, waiver or consent shall,
unless in writing and signed by an Agent in addition to the Lenders required
above to take such action, affect the rights or duties of such Agent under the
Loan Documents.
SECTION 9.02. NOTICES, ETC. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed
or delivered, if to any Loan Party to such Loan Party in case of the Parent at
its address at Militarstrasse 36, CH-8004 Zurich, Switzerland, Attention:
General Counsel; if to any Initial Lender, at its address listed on Schedule I
hereto; if to any other Lender, at its address specified in the Assignment and
Acceptance pursuant to which it became a Lender; and if to the Administrative
Agent or Security Agent , at its address at 1585 Broadway, New York, New York
10036 USA, Attention: James Morgan; or, as to any Loan Party, to it in care of
the Parent at such other address of the Parent as shall be designated by such
party in a written notice to the other parties and, as to any Lender or Agent,
at such other address as shall be designated by such party in a written notice
to the Parent and the Administrative Agent. All such notices and communications
shall, when mailed, telecopied, telegraphed or telexed, be effective when
deposited in the mails, telecopied, delivered to the telegraph company or
confirmed by telex answerback, respectively, except
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that notices and communications to the Administrative Agent pursuant to Article
II, III or VII shall not be effective until received by the Administrative
Agent. Delivery by telecopier of an executed counterpart of any amendment or
waiver of any provision of this Agreement or of any Exhibit hereto to be
executed and delivered hereunder shall be as effective as delivery of a manually
executed counterpart thereof.
SECTION 9.03. NO WAIVER; REMEDIES. No failure on the part of
any Lender or any Agent to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 9.04. COSTS AND EXPENSES. (a) The Parent agrees to pay
on demand all reasonable out-of-pocket costs and expenses (inclusive of VAT
payable by the Administrative Agent or any Lender in respect of such costs, fees
and expenses to the extent that such VAT is not recovered by the Administrative
Agent or such Lender by way of credit or prepayment) of the Administrative Agent
or any Lender in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents and the other
documents to be delivered hereunder, including, without limitation, (A) all
out-of-pocket due diligence, duplication, search, filing and recording expenses
and (B) the reasonable fees and expenses of a single firm of counsel (together
with any local counsel) with respect thereto and with respect to advising the
Administrative Agent as to its rights and responsibilities under the Loan
Documents. The Parent further agrees to pay on demand all reasonable out-of
pocket costs and expenses (inclusive of VAT payable by any Lender in respect of
such costs, fees and expenses to the extent that such VAT is not recovered by
such Lender by way of credit or prepayment) of the Lenders, if any (including,
without limitation, reasonable fees and expenses of a single firm of counsel
(together with any local counsel)), in connection with the enforcement (whether
through negotiations, legal proceedings or otherwise) of the Loan Documents, and
the other documents to be delivered hereunder, including, without limitation,
reasonable fees and expenses of a single firm of counsel (together with any
local counsel) for such Lenders in connection with the enforcement of rights
under this Section 9.04(a).
(b) The Parent agrees to indemnify and hold harmless each Agent and
each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "INDEMNIFIED PARTY") from and against
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of a single firm of counsel
(together with any local counsel)) that may be incurred by or asserted or
awarded against any Indemnified Party, in each case arising out of or in
connection with or by reason of (including, without limitation, in connection
with any investigation, litigation or proceeding or preparation of a defense in
connection therewith) the Loan Documents, any of the transactions contemplated
herein or the actual or proposed use of the proceeds of the Advances, except to
the extent such claim, damage, loss, liability or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction (or by a settlement
tantamount to such a determination) to have resulted from an Indemnified Party's
gross negligence or willful misconduct. In the case of an investigation,
litigation or other proceeding to which the
<PAGE>
74
indemnity in this Section 9.04(b) applies, such indemnity shall be effective
whether or not such investigation, litigation or proceeding is brought by any
Loan Party, its directors, shareholders or creditors or an Indemnified Party or
any other Person and whether or not the transactions contemplated hereby are
consummated. Each Loan Party also agrees not to assert any claim against any
Agent, any Lender, any of their Affiliates, or any of their respective
directors, officers, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise relating to the Loan Documents, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Advances.
(c) If any payment of principal of any Advance is made by a Borrower to
or for the account of a Lender other than on the last day of the Interest Period
for such Advance, as a result of a payment pursuant to Section 2.08 or 2.10,
acceleration of the maturity of the Advances pursuant to Section 6.01 or for any
other reason, such Borrower shall, upon demand by such Lender (with a copy of
such demand to the Parent and the Administrative Agent), pay to the
Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including, without limitation, any
loss (including loss of anticipated profits), cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by any
Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of a Loan
Party hereunder, the agreements and obligations of such Loan Party contained in
Sections 2.09, 2.12 and 9.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder.
SECTION 9.05. RIGHT OF SET-OFF. Upon (i) the occurrence and
during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 hereof to
authorize the Administrative Agent to declare the Advances due and payable
pursuant to the provisions of Section 6.01 hereof, each Lender and each of its
Affiliates is hereby authorized at any time and from time to time thereafter, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender or such Affiliate to or for
the credit or the account of any Obligor against any and all of the obligations
of such Obligor now or hereafter existing under the Loan Documents, whether or
not such Lender shall have made any demand under the Loan Documents and although
such obligations may be unmatured. Each Lender agrees promptly to notify the
Parent after any such set-off and application, PROVIDED that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender and its Affiliates under this Section 9.05 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) that such Lender and its Affiliates may have.
SECTION 9.06. BINDING EFFECT. This Agreement shall become
effective (other than Section 2.01 hereof, which shall only become effective
upon satisfaction of the conditions precedent set forth in Section 3.01 and 3.02
hereof) when it shall have been
<PAGE>
75
executed by the Loan Parties and the Administrative Agent and when the
Administrative Agent shall have been notified by each Initial Lender that such
Initial Lender has executed it and thereafter shall be binding upon and inure to
the benefit of the Loan Parties, each Agent and each Lender and their respective
successors and assigns, except that no Loan Party shall have the right to assign
its rights hereunder or any interest herein without the prior written consent of
the Lenders.
SECTION 9.07. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender
may and, so long as no Default shall have occurred and be continuing, if
demanded by the Parent (following a demand by such Lender pursuant to Section
2.09 or 2.12 hereof) upon at least five Business Days' notice to such Lender and
the Administrative Agent, will assign to one or more Persons all or a portion of
its rights and obligations under the Loan Documents (including, without
limitation, all or a portion of its Commitment and the Advances owing to it);
PROVIDED, HOWEVER, that (i) each such assignment shall be of a constant, and not
a varying, percentage of all rights and obligations under the Loan Documents,
(ii) except in the case of an assignment to a Person that, immediately prior to
such assignment, was a Lender or an assignment of all of a Lender's rights and
obligations under the Loan Documents, the amount of the Commitment of the
assigning Lender being assigned pursuant to each such assignment (determined as
of the date of the Assignment and Acceptance with respect to such assignment)
shall in no event be less than $5 million, (iii) each such assignment shall be
to an Eligible Assignee, and (iv) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, subject to such
assignment and a processing and recordation fee of $2000; PROVIDED, FURTHER that
any assignments other than to a Lender or an Affiliate of a Lender shall be
subject to the Parent's prior written consent (which consent shall not be
unreasonably withheld), no such assignment shall increase the Obligors'
obligations under Sections 2.09 or 2.12 hereof and for each such assignment made
as a result of a demand by the Parent pursuant to this Section 9.07(a), the
Parent shall pay to the Administrative Agent the applicable processing and
recordation fee. Upon such execution, delivery, acceptance and recording, from
and after the effective date specified in each Assignment and Acceptance, (x)
the assignee thereunder shall be a party hereto and, to the extent that rights
and obligations hereunder have been assigned to it pursuant to such Assignment
and Acceptance, have the rights and obligations of a Lender hereunder and (y)
the Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Loan
Documents (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender's rights and obligations under the Loan
Documents, such Lender shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of, or the perfection or priority of any lien or security interest
created or purported to be
<PAGE>
76
created under or in connection with, the Loan Documents or any other instrument
or document furnished pursuant hereto; (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Loan Party or the performance or observance by such
Loan Party of any of its obligations under the Loan Documents or any other
instrument or document furnished pursuant hereto; (iii) such assignee confirms
that it has received a copy of the Loan Documents, together with copies of the
financial statements referred to in Section 4.01 hereof and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such assigning
Lender or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent and the Security Agent to take such action as agent on its
behalf and to exercise such powers and discretion under the Loan Documents as
are delegated to such Administrative Agent and Security Agent by the terms
hereof, together with such powers and discretion as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of the Loan Documents are
required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to
in Section 9.02 hereof a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitment of, and principal amount of the Advances owing
to, each Lender from time to time (the "REGISTER"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and
each Loan Party, the Administrative Agent, Security Agent, Lead Arrangers and
the Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of the Loan Documents. The Register shall be
available for inspection by any Loan Party or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
the Administrative Agent shall, if such Assignment and Acceptance has been
completed and is in substantially the form of Exhibit C hereto, (i) accept such
Assignment and Acceptance, (ii) record the information contained therein in the
Register and (iii) give prompt notice thereof to the Parent.
(e) Each Lender may sell participations to one or more banks or other
entities (other than any Loan Party or any of its Affiliates) in or to all or a
portion of its rights and obligations under the Loan Documents (including,
without limitation, all or a portion of its Commitment, the Advances owing to
it); PROVIDED, HOWEVER, that (i) such Lender's rights (including without
limitation its rights under Section 2.09 and 2.12 hereof) and obligations under
the Loan Documents (including, without limitation, its Commitment to each
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) each Loan Party, the Agents and the other Lenders shall continue to deal
solely and directly with such Lender in connection
<PAGE>
77
with such Lender's rights and obligations under the Loan Documents and (iv) no
participant under any such participation shall have any right to approve any
amendment or waiver of any provision of the Loan Documents, or any consent to
any departure by any Loan Party therefrom, except to the extent that such
amendment, waiver or consent would reduce the principal of, or interest on, the
Advances or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, or postpone any date fixed for any payment
of principal of, or interest on, the Advances or any fees or other amounts
payable hereunder, in each case to the extent subject to such participation.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 9.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to any Loan Party furnished to such Lender by or on behalf
of such Loan Party; PROVIDED that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree to preserve the
confidentiality of any Confidential Information relating to any Loan Party
received by it from such Lender.
(g) Notwithstanding any other provision set forth in the Loan
Documents, any Lender may at any time create a security interest in all or any
portion of its rights under the Loan Documents (including, without limitation,
the Advances owing to it) in favor of any Federal Reserve Bank in accordance
with Regulation A of the Board of Governors of the Federal Reserve System.
(h) For the avoidance of doubt, Morgan Stanley Dean Witter Bank Limited
is a party to this Agreement as an Affiliate of a Lender and MSSF may, at any
time, assign all or any of its rights and benefits hereunder or transfer in
accordance with this Section 9.07 all or any of its rights, benefits and
obligations hereunder to any of its Affiliates. References in this Agreement to
MSSF's Commitment shall also include the commitment of Morgan Stanley Dean
Witter Bank Limited (in such proportions as Morgan Stanley Dean Witter Bank
Limited notifies to the Administrative Agent from time to time) and MSSF is a
party to this Agreement to give effect to its Commitment.
SECTION 9.08. CONFIDENTIALITY. No Agent nor any Lender shall
disclose any Confidential Information to any other Person without the consent of
the Parent, other than (a) to any Agent's or such Lender's Affiliates and their
officers, directors, employees, agents and advisors and, as contemplated by
Section 9.07(f), to actual or prospective assignees and participants, and then
only on a confidential basis, (b) as required by any law, rule or regulation or
judicial process and (c) as requested or required by any state, federal or
foreign authority or examiner regulating banks or banking having jurisdiction
over such Lender.
SECTION 9.09. GOVERNING LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of New York.
SECTION 9.10. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together
<PAGE>
78
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this Agreement.
SECTION 9.11. JUDGMENT. (a) If for the purposes of obtaining
judgment in any court it is necessary to convert a sum due hereunder in Dollars
into another currency, the parties hereto agree, to the fullest extent that they
may effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Administrative Agent could
purchase Dollars with such other currency at Citibank, N.A.'s principal office
in London at 11:00 A.M. (London time) on the Business Day preceding that on
which final judgment is given.
(b) If for the purposes of obtaining judgment in any court it
is necessary to convert a sum due hereunder in a foreign currency into Dollars,
the parties agree to the fullest extent that they may effectively do so, that
the rate of exchange used shall be that at which in accordance with normal
banking procedures the Administrative Agent could purchase such foreign currency
with Dollars at Citibank, N.A.'s principal office in London at 11:00 A.M.
(London time) on the Business Day preceding that on which final judgment is
given.
(c) The obligation of each Loan Party in respect of any sum
due from it in any currency (the "PRIMARY CURRENCY") to any Lender or any Agent
hereunder shall, notwithstanding any judgment in any other currency, be
discharged only to the extent that on the Business Day following receipt by such
Lender or Agent (as the case may be), of any sum adjudged to be so due in such
other currency, such Lender or Agent (as the case may be) may in accordance with
normal banking procedures purchase the applicable Primary Currency with such
other currency; if the amount of the applicable Primary Currency so purchased is
less than such sum due to such Lender or Agent (as the case may be) in the
applicable Primary Currency, each Loan Party agrees, as a separate obligation
and notwithstanding any such judgment, to indemnify such Lender or Agent (as the
case may be) against such loss, and if the amount of the applicable Primary
Currency so purchased exceeds such sum due to any Lender or Agent (as the case
may be) in the applicable Primary Currency, such Lender or Agent (as the case
may be) agrees to remit to the Loan Party such excess.
SECTION 9.12. JURISDICTION, ETC. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to any Loan Document, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in any such New York State court or, to the extent permitted by
law, in such federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that any party
may otherwise have to bring any action or proceeding relating to the Loan
Documents in the courts of any jurisdiction. Each Loan Party agrees that the
process by which any suit, action or
<PAGE>
79
proceeding in the City of New York is begun may be served on it by being
delivered to the Person named as the process agent of such Party on Exhibit F
hereto at the address set forth therein as at the principal New York City office
of such process agent, if not the same.
(b) Each of the parties hereto irrevocably and unconditionally waives,
to the fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to the Loan Documents in any New York
State or federal court. Each of the parties hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
SECTION 9.13. WAIVER OF JURY TRIAL. Each of the Loan Parties,
each Agent and the Lenders hereby irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to the Loan Documents or the actions of
any Agent or any Lender in the negotiation, administration, performance or
enforcement thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
CARRIER 1 INTERNATIONAL S.A.,
as Parent
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 NETWORK FIBER GMBH
& CO. OHG as Borrower
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 GMBH & CO. KG,
as Borrower
By /s/ Edward Gross
-------------------------------------------
Name: Edward Gross
Title: Managing Director
CARRIER 1 FRANCE S.A.R.L.,
as Borrower
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 UK LIMITED, as Borrower
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 INTERNATIONAL GMBH,
as Borrower
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
<PAGE>
CARRIER 1 FIBER NETWORK GMBH & CO.
OHG, as Guarantor
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 GMBH & CO. KG,
as Guarantor
By /s/ Edward Gross
-------------------------------------------
Name: Edward Gross
Title: Managing Director
CARRIER 1 HOLDING GMBH,
as Guarantor
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 BETEILIGUNGS GMBH,
as Guarantor
By /s/ Edward Gross
-------------------------------------------
Name: Edward Gross
Title: Managing Director
CARRIER 1 FIBER NETWORK
BETEILIGUNGS GMBH, as Guarantor
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
<PAGE>
CARRIER 1 FRANCE S.A.R.L., as Guarantor
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 FRANCE HOLDING, as Guarantor
By /s/ I. Russier
-------------------------------------------
Name: I. Russier
Title: Gerante
CARRIER 1 UK LIMITED, as Guarantor
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
CARRIER 1 INTERNATIONAL GMBH,
as Guarantor
By /s/ Stig Johansson
-------------------------------------------
Name: Stig Johansson
Title:
MORGAN STANLEY SENIOR
FUNDING, INC., as Administrative Agent
By /s/ Philippe Lagarde
-------------------------------------------
Name: Philippe Lagarde
Title: Vice President
MORGAN STANLEY SENIOR
FUNDING, INC., as Security Agent
By /s/ Philippe Lagarde
-------------------------------------------
Name: Philippe Lagarde
Title: Vice President
<PAGE>
MORGAN STANLEY SENIOR
FUNDING, INC., as Lead Arranger
By /s/ Philippe Lagarde
-------------------------------------------
Name: Philippe Lagarde
Title: Vice President
CITIBANK, N.A, as Lead Arranger
By /s/ Peder Oien
-------------------------------------------
Name: Peder Oien
Title: Vice President
MORGAN STANLEY SENIOR
FUNDING, INC., as Initial Lender
By /s/ Philippe Lagarde
-------------------------------------------
Name: Philippe Lagarde
Title: Vice President
CITIBANK, N.A., as Initial Lender
By /s/ Peder Oien
-------------------------------------------
Name: Peder Oien
Title: Vice President
MORGAN STANLEY DEAN WITTER BANK
LIMITED, as Lender
By /s/ Kevin M. Adeeon
-------------------------------------------
Name: Kevin M. Adeeon
Title: Executive Director
<PAGE>
SCHEDULE 1
LIST OF INITIAL LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
INITIAL LENDER ADDRESS COMMITMENT
<S> <C> <C>
Morgan Stanley Senior 1585 Broadway $100 million
Funding, Inc. New York, New York 10036
Citibank, N.A. 336 Strand $100 million
London WC2R 1HB
$200 million Total of
Commitments
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 4.01(a) - CORPORATE STRUCTURE OF THE CARRIER 1 GROUP
----------------------------------------------------
Carrier 1 International S.A.
(Luxembourg)(1,2,3,6,7)
----------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Carrier 1 B.V. Carrier 1 UK Limited Carrier 1 International
(Amsterdam) (1,3,6,7) GmbH Carrier 1 Holding GmbH (4)
(London) (Zurich)(1,2,5)
- ------------------------------------------------------------------------------------------------------------------------------------
Carrier 1 Carrier 1 Belgium SPRL (6) Carrier 1 Networks Carrier 1 Beteiligungs GmbH Carrier 1 Fiber Network
Telecommunikation GmbH (Brussels) GmbH (Frankfurt) Beteiligungs GmbH
(Vienna) (Zurich)(5) (Frankfurt)
- ------------------------------------------------------------------------------------------------------------------------------------
Carrier 1 Iberia Carrier 1 SaP Carrier 1 International Carrier 1 GmbH & Co KG Carrier 1 Fiber Network
(Madrid) (Copenhagen) Management S.A. GmbH & Co. oHG
(in progress) (in progress) (Luxembourg) (Frankfurt)
- ------------------------------------------------------------------------------------------------------------------------------------
Carrier Nordics Ab Carrier 1 Italia Srl (7) Carrier 1 Inc.
(Stockholm) (Milano) (Delaware)
- ------------------------------------------------------------------------------------------------------------------------------------
Carrier 1 Nordics AB Carrier 1 International
(Norwegian Management S.A.
Branch Office) (Swiss Branch Office)
- -------------------------
Carrier 1 France
Holding (2,3)
(Paris)
- -------------------------
Carrier 1 France
S.A.R.L.(3)
(Paris)
- -------------------------
1. Carrier 1 International GmbH holdings is held by Carrier 1 International S.A. (98%) and Carrier 1 UK Limited (2%).
2. Carrier 1 France Holding is held by Carrier 1 International S.A. (99.99%) and Carrier 1 International GmbH (0.01%).
3. Carrier 1 France S.A.R.L. is held by Carrier 1 France Holding (99.99%) and Carrier 1 UK Limited (0.01%).
4. The economic value of Carrier 1 GmbH & Co KG and Carrier 1 Fiber GmbH & Co. oHG is solely held by Carrier 1 Holding GmbH.
5. Carrier 1 Networks GmbH is held by Carrier 1 International GmbH (95%) and by Mr. Philip Walter (5%).
6. Carrier 1 Belgium SPRL is held by Carrier 1 International S.A. (99.933%) and Carrier 1 UK Limited (0.66%).
7. Carrier 1 Italia Srl is held by Carrier 1 International S.A. (99%) and Carrier 1 UK Limited (1%).
</TABLE>
<PAGE>
EXHIBIT A-1
LIST OF BORROWERS
Carrier 1 Fiber Network GmbH & Co. oHG
Carrier 1 GmbH & Co. KG
Carrier 1 France S.A.R.L.
Carrier 1 UK Limited
Carrier 1 International GmbH
<PAGE>
EXHIBIT A-2
LIST OF GUARANTORS
Carrier 1 Fiber Network GmbH & Co. oHG
Carrier 1 GmbH & Co. KG
Carrier 1 Holding GmbH
Carrier 1 Beteiligungs GmbH
Carrier 1 Fiber Network Beteiligungs GmbH
Carrier 1 France S.A.R.L.
Carrier 1 France Holding
Carrier 1 UK Limited
Carrier1 International GmbH
<PAGE>
EXHIBIT B
FORM OF NOTICE OF BORROWING
Morgan Stanley Senior Funding, Inc., as Administrative Agent
for the Lenders parties
to the Credit Agreement
referred to below
1585 Broadway
New York, NY 10036 [Date]
Attention: ____________________
Ladies and Gentlemen:
The undersigned, [Name of Borrower], refers to the Credit
Agreement, dated as of December 21, 1999 (as amended or modified from time to
time, the "CREDIT AGREEMENT", the terms defined therein being used herein as
therein defined), among Carrier1 International, S.A. (the "PARENT"), certain
Subsidiaries of the Parent (including the undersigned), certain Lenders
parties thereto and Morgan Stanley Senior Funding, Inc., as Administrative
Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to
Section 2.02 of the Credit Agreement that the undersigned hereby requests a
Borrowing under the Credit Agreement, and in that connection sets forth below
the information relating to such Borrowing (the "PROPOSED BORROWING") as
required by Section 2.02(a) of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is
_______________, 2000.
(ii) The Proposed Borrowing shall be made in [Dollars]
[Euros].
(iii) The aggregate amount of the Proposed Borrowing is [$]
[Euro] __________________
(iv) The initial Interest Period for each Advance made as part
of the Proposed Borrowing is __________ month[s].
The Parent hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section
4.01 of the Credit Agreement are correct, before and after giving
effect to the Proposed Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date; and
(B) no event has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds
therefrom, that constitutes a Default.
<PAGE>
Very truly yours,
[NAME OF BORROWER]
By
-------------------------------------------
Name:
Title:
CARRIER1 INTERNATIONAL S.A.
By
-------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of
December 21, 1999 (as amended or modified from time to time, the "CREDIT
AGREEMENT"; the terms defined therein being used herein as therein defined)
among Carrier1 International S.A., as Parent, the Borrowers and Guarantors
named therein, the Lead Arrangers, the Security Agent, the Lenders (as
defined in the Credit Agreement) and Morgan Stanley Senior Funding, Inc., as
administrative agent for the Lenders (the "ADMINISTRATIVE AGENT").
The "Assignor" and the "Assignee" referred to on Schedule I
hereto agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and
the Assignee hereby purchases and assumes from the Assignor, an
interest in and to the Assignor's rights and obligations under the Loan
Documents as of the date hereof equal to the percentage interest
specified on Schedule 1 hereto of all outstanding rights and
obligations under such Loan Documents. After giving effect to such sale
and assignment, the Assignee's Commitment and the amount of the
Advances owing to the Assignee will be as set forth on Schedule 1
hereto.
2. The Assignor (i) represents and warrants that it is the
legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse
claim; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with the Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency
or value of, or the perfection or priority of any lien or security
interest created or purported to be created under or in connection
with, such Loan Documents or any other instrument or document furnished
pursuant thereto; (iii) makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Loan
Parties or the performance or observance by any Loan Party of any of
its obligations under the Loan Documents or any other instrument or
document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of
the Loan Documents, together with copies of the financial statements
referred to in Section 4.01 of the Credit Agreement and such other
documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor or any other
Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents; (iii) confirms
that it is an Eligible Assignee; (iv) appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to
exercise such powers and discretion under the Loan Documents as are
delegated to the Administrative Agent by the terms thereof, together
with such powers and discretion
<PAGE>
as are reasonably incidental thereto; (v) agrees that it will perform
in accordance with their terms all of the obligations that by the terms
of the Loan Documents are required to be performed by it as a Lender.
4. Following the execution of this Assignment and Acceptance,
it will be delivered to the Parent for its acceptance and, if so
accepted, to the Administrative Agent for acceptance and recording by
the Administrative Agent. The effective date for this Assignment and
Acceptance (the "EFFECTIVE DATE") shall be the date of acceptance
hereof by the Administrative Agent, unless otherwise specified on
Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative
Agent, as of the Effective Date, (i) the Assignee shall be a party to
the Loan Documents and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and
(ii) the Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations
under the Loan Documents.
6. Upon such acceptance and recording by the Administrative
Agent, from and after the Effective Date, the Administrative Agent
shall make all payments under the Loan Documents in respect of the
interest assigned hereby (including, without limitation, all payments
of principal, interest and facility fees with respect thereto) to the
Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Loan Documents for periods prior to
the Effective Date directly between themselves.
7. This Assignment and Acceptance shall be governed by, and
construed in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the
same agreement. Delivery of an executed counterpart of Schedule 1 to
this Assignment and Acceptance by telecopier shall be effective as
delivery of a manually executed counterpart of this Assignment and
Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused
Schedule 1 to this Assignment and Acceptance to be executed by their officers
thereunto duly authorized as of the date specified thereon.
<PAGE>
Schedule 1
to
Assignment and Acceptance
Percentage interest assigned: _____%
Assignee's Commitment:
$_______________
Aggregate outstanding principal amount of Advances assigned
$_______________
Principal amount of Advances payable to Assignee:
$_______________
Principal amount of Advances payable to Assignor:
$_______________
Effective Date: _______________, 2000
[NAME OF ASSIGNOR], as Assignor
By
-------------------------------------------
Name:
Title:
Dated: _______________, 2000
[NAME OF ASSIGNEE], as Assignee
By
-------------------------------------------
Name:
Title:
[Address]
Accepted and Approved this
__________ day of _______________, 2000
MORGAN STANLEY SENIOR FUNDING, INC.,
as Administrative Agent
<PAGE>
By
--------------------------------------
Name:
Title:
Approved this __________ day
of _______________, 2000
Carrier1 International S.A. as Parent
By
--------------------------------------
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF OPINION OF THE LOAN PARTIES' LOCAL COUNSEL
[For German, Swiss, French and U.K. counsel]
[Date]
To the Lenders party to the Credit Agreement
referred to below and to Morgan Stanley
Senior Funding, Inc. as Administrative Agent
and as Security Agent for such Lenders
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section
3.01(i)(iv) and Section 3.02[ ] of the Credit Agreement dated December 21, 1999,
(the "CREDIT AGREEMENT"), among Carrier1 International S.A., the Borrowers and
Guarantors named therein, the Initial Lenders and Lenders named therein, Morgan
Stanley Senior Funding, Inc. and Citibank, N.A. as lead arrangers (the "LEAD
ARRANGERS") and Morgan Stanley Senior Funding, Inc., as administrative agent
(the "ADMINISTRATIVE AGENT") and security agent (the "SECURITY AGENT"). Terms
defined in the Credit Agreement are used herein as therein defined.
We have acted as [name of jurisdiction] counsel to [name of
company] (the "COMPANY") in connection with the preparation, execution and
delivery of, and the initial Advances made under, the Credit Agreement and in
connection with the preparation, execution and delivery of the [name of
jurisdiction] Pledge Agreement (the "PLEDGE AGREEMENT").
In that connection, we have examined counterparts of the
Credit Agreement and the Pledge Agreement, executed by each of the parties
thereto, and the other documents furnished by the Company pursuant to Article
III of the Credit Agreement, including:
(a) the certificate of incorporation and bylaws of the Company
as amended through the date hereof;
(b) a certified copy of the resolutions of the Company
approving the Loan Documents to which it is a party and of all
documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to the Loan Documents;
(c) an officer's certificate of the Company certifying the
names and true signatures of the officers of the Company authorized to
sign the Loan Documents to which it is a party.
In addition, we have examined the originals, or copies
certified to our satisfaction, of such other corporate records of the Company,
certificates of public officials and of officers of the Company and agreements,
instruments and other documents as we have
<PAGE>
deemed necessary as a basis for the opinions expressed below. As to questions of
fact material to such opinions, we have, when relevant facts were not
independently established by us, relied upon certificates of the Company or of
its officers or of public officials.
In our examination of the documents referred to above, we have
assumed (i) the due execution and delivery, pursuant to due authorization, of
each of the documents referred to above by all parties thereto other than the
Company, (ii) the authenticity of all such documents submitted to us as
originals and (iii) the conformity to originals of all such documents submitted
to us as copies.
We are qualified to practice law in [name of jurisdiction] and
we do not purport to be experts on any laws other than the laws of [name of
jurisdiction].
Based upon the foregoing and upon such investigation as we
have deemed necessary, we are of the following opinion:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
2. The execution, delivery and performance by the Company of
each of the Loan Documents to which it is a party, and the consummation
of the transactions contemplated by the Loan Documents are within the
Company's corporate powers, have been duly authorized by all necessary
corporate action, and do not (a) contravene the Company's charter or
bylaws, (b) violate any law, rule, regulation or any order, writ,
judgment, injunction, decree, determination or award, (c) conflict with
or result in the breach of, or constitute a default under, any
agreement or instrument to which the Company is a party or (d) except
for the Liens created by the Pledge Agreement result in or require the
creation or imposition of any Lien upon or with respect to any of the
properties of the Company or any of its Subsidiaries.
3. No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body, is required for (a) the due execution, delivery, recordation,
filing or performance by the Company of the Loan Documents to which it
is a party or for the consummation of the transactions contemplated by
the Loan Documents, (b) the grant by the Company of the Liens granted
by it pursuant to the Pledge Agreement, (c) the perfection or
maintenance of the Liens created by the Pledge Agreement, or (d) the
exercise by the Security Agent or any of the Lenders of its rights
under the Loan Documents or the remedies in respect of the Collateral
pursuant to the Pledge Agreement.
4. Each of the Credit Agreement and the Pledge Agreement has
been duly executed and delivered by the Company. The Pledge Agreement
is the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms.
5. The Pledge Agreement creates a valid and perfected security
interest in the Collateral, securing payment of the secured obligations
referred to in the Pledge
<PAGE>
Agreement. All of the Pledged Shares have been validly issued and are
fully paid and non-assessable.
6. All taxes and governmental fees and charges, the payment of
which is required in connection with the execution, delivery and
recording of the Credit Agreement or the Pledge Agreement have been
paid.
7. The governing law clause, subjecting the Credit Agreement
to New York law, is valid under [name of jurisdiction] law.
8. Under [name of jurisdiction] law, New York law will be
applied to an agreement, such as the Credit Agreement, which under
[name of jurisdiction] law has been validly subjected to New York law,
unless any terms of such agreement or any provisions of New York law
applicable to such agreement violate the public policy of [name of
jurisdiction].
9. None of the terms of the Credit Agreement violates the
public policy of [name of jurisdiction].
10. Assuming that the Credit Agreement is legal, valid and
binding and enforceable under New York law, the Credit Agreement is
enforceable against the Company in accordance with its terms, the rules
of civil procedure of [name of jurisdiction] and, subject to the
opinions in paragraphs 7-9, the applicable provisions of the chosen law
of New York.
11. Any final and conclusive judgment for a definite sum of
the Supreme Court of the State of New York, New York County, or of the
United States District Court for the Southern District of New York
rendered in a suit, action or proceeding against the Company arising
out of the Credit Agreement should be enforceable against the Company
by courts of [name of jurisdiction] provided that the requirements of
[enumerate appropriate sections of applicable procedural law] are met.
12. The submission by the Company, under the Credit Agreement,
to the jurisdiction of the courts of the State of New York and the
United States sitting in New York County is valid and effective.
13. The obligations of the Company under the Credit Agreement
rank at least pari passu in priority of payment with all other
obligations of the Company which are not secured and which have not
been accorded by law preferential rights, subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the
enforcement of creditors' rights and remedies against the Company.
Very truly yours,
<PAGE>
[For Luxembourg counsel]
[Date]
To the Lenders party to the Credit Agreement
referred to below and to Morgan Stanley
Senior Funding, Inc. as Administrative Agent
and as Security Agent for such Lenders
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section
3.01(i)(iv) of the Credit Agreement dated December 21, 1999, (the "CREDIT
AGREEMENT"), among Carrier1 International S.A., the Borrowers and Guarantors
named therein, the Initial Lenders and Lenders named therein, Morgan Stanley
Senior Funding, Inc. and Citbank, N.A., as lead arrangers (the "LEAD
ARRANGERS") and Morgan Stanley Senior Funding, Inc., as administrative agent
(the "ADMINISTRATIVE AGENT") and security agent (the "SECURITY AGENT"). Terms
defined in the Credit Agreement are used herein as therein defined.
We have acted as Luxembourg counsel to Carrier1
International S.A. (the "COMPANY") in connection with the preparation,
execution and delivery of, and the initial Advances made under, the Credit
Agreement and in connection with the preparation, execution and delivery of
each other Loan Document to which it is a party.
In that connection, we have examined counterparts of each of
the Loan Documents executed by each of the parties thereto, and the other
documents furnished by the Company pursuant to Article III of the Credit
Agreement, including:
(a) the certificate of incorporation and bylaws of the Company
as amended through the date hereof;
(b) a certified copy of the resolutions of the Company
approving the Loan Documents to which it is a party and making the
determinations required by clause (vi) of the second paragraph of
Section 4.05 of the Indentures, and of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to the Loan Documents;
(c) an officer's certificate of the Company certifying the
names and true signatures of the officers of the Company authorized to
sign the Loan Documents to which it is a party.
In addition, we have examined the originals, or copies
certified to our satisfaction, of such other corporate records of the Company,
certificates of public officials
<PAGE>
and of officers of the Company and agreements, instruments and other documents
as we have deemed necessary as a basis for the opinions expressed below. As to
questions of fact material to such opinions, we have, when relevant facts were
not independently established by us, relied upon certificates of the Company or
of its officers or of public officials.
In our examination of the documents referred to above, we have
assumed (i) the due execution and delivery, pursuant to due authorization, of
each of the documents referred to above by all parties thereto other than the
Company, (ii) the authenticity of all such documents submitted to us as
originals and (iii) the conformity to originals of all such documents submitted
to us as copies.
We are qualified to practice law in Luxembourg and we do not
purport to be experts on any laws other than the laws of Luxembourg.
Based upon the foregoing and upon such investigation as we
have deemed necessary, we are of the following opinion:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
2. The execution, delivery and performance by the Company of
each of the Loan Documents to which it is a party, and the consummation
of the transactions contemplated by the Loan Documents are within the
Company's corporate powers, have been duly authorized by all necessary
corporate action, and do not (a) contravene the Company's charter or
bylaws, (b) violate any law, rule, regulation or any order, writ,
judgment, injunction, decree, determination or award, (c) conflict with
or result in the breach of, or constitute a default under, any
agreement or instrument to which the Company is a party or (d) except
for the Liens created by the Loan Documents result in or require the
creation or imposition of any Lien upon or with respect to any of the
properties of the Company or any of its Subsidiaries.
3. No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body, is required for (a) the due execution, delivery, recordation,
filing or performance by the Company of the Loan Documents to which it
is a party or for the consummation of the transactions contemplated by
the Loan Documents, (b) the grant by the Company or any of its
Subsidiaries of the Liens granted pursuant to the Loan Documents, (c)
the perfection or maintenance of the Liens created by the Loan
Documents, or (d) the exercise by the Security Agent or any of the
Lenders of its rights under the Loan Documents or the remedies in
respect of the Collateral pursuant to the Loan Documents.
4. Each of the Loan Documents to which the Company is a party
have been duly executed and delivered by the Company.
<PAGE>
5. All taxes and governmental fees and charges, the payment of
which is required in connection with the execution, delivery and
recording of the Loan Documents have been paid.
6. The governing law clause, subjecting the Credit Agreement
to New York law, is valid under Luxembourg law.
7. Under Luxembourg law, New York law will be applied to an
agreement, such as the Credit Agreement, which under Luxembourg law has
been validly subjected to New York law, unless any terms of such
agreement or any provisions of New York law applicable to such
agreement violate the public policy of Luxembourg.
8. None of the terms of the Credit Agreement violates the
public policy of Luxembourg.
9. Assuming that the Credit Agreement is legal, valid and
binding and enforceable under New York law, the Credit Agreement is
enforceable against the Company in accordance with its terms, the rules
of civil procedure of Luxembourg and, subject to the opinions in
paragraphs 7-9, the applicable provisions of the chosen law of New
York.
10. Any final and conclusive judgment for a definite sum of
the Supreme Court of the State of New York, New York County, or of the
United States District Court for the Southern District of New York
rendered in a suit, action or proceeding against the Company arising
out of the Credit Agreement should be enforceable against the Company
by courts of Luxembourg provided that the requirements of [enumerate
appropriate sections of applicable procedural law] are met.
11. The submission by the Company, under the Credit Agreement,
to the jurisdiction of the courts of the State of New York and the
United States sitting in New York County is valid and effective.
12. The obligations of the Company under the Credit Agreement
rank at least pari passu in priority of payment with all other
obligations of the Company which are not secured and which have not
been accorded by law preferential rights, subject to the effect of
applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the
enforcement of creditors' rights and remedies against the Company.
Very truly yours,
<PAGE>
EXHIBIT E
FORM OF ACCESSION AGREEMENT
Morgan Stanley Senior Funding, Inc., as Administrative Agent
[Date]
Attention: ____________________
Ladies and Gentlemen:
Reference is made to the Credit Agreement, dated as of
December 21, 1999 (as amended or modified from time to time, the "CREDIT
AGREEMENT", the terms defined therein being used herein as therein defined),
among Carrier1 International S.A. and the Borrowers and Guarantors named
therein, the Lenders named therein, the Lead Arrangers named therein, the
Security Agent named therein and Morgan Stanley Senior Funding, Inc., as
administrative agent (the "Administrative Agent").
The Acceding Borrower and Guarantor hereby agrees to become,
as of the date hereof, an Obligor under the Credit Agreement as if it were an
original party thereto and agrees that each reference in the Credit Agreement to
Borrower, Guarantor and Obligor shall also mean and be a reference to the
undersigned. By its acknowledgment and agreement below, the Administrative Agent
agrees that the undersigned shall become a party to the Credit Agreement from
the date hereof.
The Acceding Borrower and Guarantor hereby further:
(A) confirms receipt of a copy of the Credit Agreement,
together with such other documents and information as it has
required in connection herewith and therewith;
(B) undertakes to perform its obligations as Borrower or
Guarantor, as the case may be, under the Credit Agreement;
(C) agrees to be bound as an Obligor by all of the terms and
provisions of the Credit Agreement; and
(D) delivers to the Administrative Agent (i) certified copies
of its organizational documents, (ii) a certified copy of its
board resolutions approving the execution, delivery and
performance by the undersigned of the Accession Agreement in
the form hereof and authorizing a named person or persons to
sign the Accession Agreement, (iii) a certified copy of
authorized signatories, (iv) an officer's certificate
confirming that each of the representations and warranties in
the Loan Documents is true and correct as of
<PAGE>
the date hereof, (v) an opinion of counsel to substantially
the effect of Exhibit D of the Credit Agreement, (vi) a
solvency certificate from its chief financial officer on
behalf of it in form and substance satisfactory to the Lenders
and (vii) evidence that _______________ has agreed to act as
the undersigned's process agent for service of process in New
York.
The Acceding Borrower and Guarantor hereby agrees, jointly and
severally, to indemnify the Lender, its officers, directors, employees and
agents in the manner set forth in Section 9.04 of the Credit Agreement.
Carrier1 International, S.A. hereby confirms that each
representation and warranty set forth in Section 4.01 of the Credit Agreement
is true and correct as of the date hereof.
This Accession Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
Very truly yours,
[NAME OF ACCEDING BORROWER AND
GUARANTOR]
By______________________________
Name:
Title:
CARRIER1 INTERNATIONAL, S.A.
By______________________________
Name:
Title:
Accepted and Approved this
____________ day of __________, 2000
MORGAN STANLEY SENIOR FUNDING INC.,
as Administrative Agent
By________________________________
Name:
Title:
<PAGE>
EXHIBIT F
SERVICE OF PROCESS AGENT
CT Corporation System
111 8th Avenue, 13th Floor
New York, NY 10011
<PAGE>
Exhibit 21.1
<TABLE>
<CAPTION>
Incorporation or
Subsidiary Organization
- ---------- -----------------
<S> <C>
Carrier 1 International GmbH Switzerland
Telecommunikation Carrier 1 GmbH Austria
Carrier 1 Belgium SPRL Belgium
Carrier 1 Holding Sarl France
Carrier 1 France Sarl France
Carrier 1 Holding GmbH Germany
Carrier 1 GmbH & Co. KG Germany
Carrier 1 Beteiligungs GmbH Germany
Carrier 1 Fiber Network Beteiligungs GmbH Germany
Carrier 1 Fiber NetworkGmbH & Co. oHG Germany
Carrier 1 UK Ltd. Great Britain
Carrier 1 Italia Srl Italy
Carrier 1 International Management S.A. Luxembourg
Carrier 1 B.V. The Netherlands
Carrier 1 Nordics AB Sweden
Carrier 1 Networks GmbH Switzerland
Carrier 1, Inc. Delaware, the United States of America
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Carrier1 International
S.A. on Form S-1 of our report dated January 5, 2000, appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Summary Consolidated
Financial Data," "Selected Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE EXPERTA AG
/s/ David Wilson /s/ Jeffrey A. Swormstedt
David Wilson Jeffrey A. Swormstedt
Erlenbach, Switzerland
January 11, 2000
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Stig Johansson, Joachim W. Bauer, Kees van Ophem, Neil
E. Craven, Eugene A. Rizzo and Terje Nordahl and each of them (with full power
to act alone) the undersigned's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for and in the name and on behalf
of the undersigned, to execute any and all instruments and documents, and to do
any and all other acts and things, that any such attorney-in-fact and agent may
deem necessary or advisable, in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under the Securities Act of common stock by Carrier1 International
S.A. (the "Common Stock") pursuant to a registration statement on Form S-1 (the
"Registration Statement") to be filed with the Commission relating to an
underwritten offering to the public by Carrier1 International S.A. of its
capital stock (and any depositary receipts in respect thereof); including
specifically, but without limiting the generality of the foregoing, the power
and authority to execute, for and in the name and on behalf of the undersigned
in any and all capacities, the Registration Statement, and any and all
supplements and amendments (including, without limitation, any pre-effective and
post-effective amendments and any subsequent registration statements pursuant to
Rule 462(b) under the Securities Act) to such Registration Statement, and any
and all other instruments or documents filed as a part of, or in connection
with, such Registration Statement and supplements and amendments thereto
(including, without limitation, registration under the Securities Act of
depositary shares represented by American depositary receipts filed on Form
F-6); and the undersigned hereby ratifies and confirms all that such
attorneys-in-fact and agents, or any of them, shall do or cause to be done by
virtue hereof.
Signed this 31st day of December, 1999.
/s/ Glenn M. Creamer
----------------------
Name: Glenn M. Creamer
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Stig Johansson, Joachim W. Bauer, Kees van Ophem, Neil
E. Craven, Eugene A. Rizzo and Terje Nordahl and each of them (with full power
to act alone) the undersigned's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for and in the name and on behalf
of the undersigned, to execute any and all instruments and documents, and to do
any and all other acts and things, that any such attorney-in-fact and agent may
deem necessary or advisable, in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under the Securities Act of common stock by Carrier1 International
S.A. (the "Common Stock") pursuant to a registration statement on Form S-1 (the
"Registration Statement") to be filed with the Commission relating to an
underwritten offering to the public by Carrier1 International S.A. of its
capital stock (and any depositary receipts in respect thereof); including
specifically, but without limiting the generality of the foregoing, the power
and authority to execute, for and in the name and on behalf of the undersigned
in any and all capacities, the Registration Statement, and any and all
supplements and amendments (including, without limitation, any pre-effective and
post-effective amendments and any subsequent registration statements pursuant to
Rule 462(b) under the Securities Act) to such Registration Statement, and any
and all other instruments or documents filed as a part of, or in connection
with, such Registration Statement and supplements and amendments thereto
(including, without limitation, registration under the Securities Act of
depositary shares represented by American depositary receipts filed on Form
F-6); and the undersigned hereby ratifies and confirms all that such
attorneys-in-fact and agents, or any of them, shall do or cause to be done by
virtue hereof.
Signed this 16th day of December, 1999.
/s/ Jonathan E. Dick
-----------------------
Name: Jonathan E. Dick
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Stig Johansson, Joachim W. Bauer, Kees van Ophem, Neil
E. Craven, Eugene A. Rizzo and Terje Nordahl and each of them (with full power
to act alone) the undersigned's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for and in the name and on behalf
of the undersigned, to execute any and all instruments and documents, and to do
any and all other acts and things, that any such attorney-in-fact and agent may
deem necessary or advisable, in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under the Securities Act of common stock by Carrier1 International
S.A. (the "Common Stock") pursuant to a registration statement on Form S-1 (the
"Registration Statement") to be filed with the Commission relating to an
underwritten offering to the public by Carrier1 International S.A. of its
capital stock (and any depositary receipts in respect thereof); including
specifically, but without limiting the generality of the foregoing, the power
and authority to execute, for and in the name and on behalf of the undersigned
in any and all capacities, the Registration Statement, and any and all
supplements and amendments (including, without limitation, any pre-effective and
post-effective amendments and any subsequent registration statements pursuant to
Rule 462(b) under the Securities Act) to such Registration Statement, and any
and all other instruments or documents filed as a part of, or in connection
with, such Registration Statement and supplements and amendments thereto
(including, without limitation, registration under the Securities Act of
depositary shares represented by American depositary receipts filed on Form
F-6); and the undersigned hereby ratifies and confirms all that such
attorneys-in-fact and agents, or any of them, shall do or cause to be done by
virtue hereof.
Signed this 31st day of December, 1999.
/s/ Stig Johansson
--------------------
Name: Stig Johansson
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Stig Johansson, Joachim W. Bauer, Kees van Ophem, Neil
E. Craven, Eugene A. Rizzo and Terje Nordahl and each of them (with full power
to act alone) the undersigned's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for and in the name and on behalf
of the undersigned, to execute any and all instruments and documents, and to do
any and all other acts and things, that any such attorney-in-fact and agent may
deem necessary or advisable, in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under the Securities Act of common stock by Carrier1 International
S.A. (the "Common Stock") pursuant to a registration statement on Form S-1 (the
"Registration Statement") to be filed with the Commission relating to an
underwritten offering to the public by Carrier1 International S.A. of its
capital stock (and any depositary receipts in respect thereof); including
specifically, but without limiting the generality of the foregoing, the power
and authority to execute, for and in the name and on behalf of the undersigned
in any and all capacities, the Registration Statement, and any and all
supplements and amendments (including, without limitation, any pre-effective and
post-effective amendments and any subsequent registration statements pursuant to
Rule 462(b) under the Securities Act) to such Registration Statement, and any
and all other instruments or documents filed as a part of, or in connection
with, such Registration Statement and supplements and amendments thereto
(including, without limitation, registration under the Securities Act of
depositary shares represented by American depositary receipts filed on Form
F-6); and the undersigned hereby ratifies and confirms all that such
attorneys-in-fact and agents, or any of them, shall do or cause to be done by
virtue hereof.
Signed this 31st day of December, 1999.
/s/ Mark A. Pelson
----------------------
Name: Mark A. Pelson
<PAGE>
EXHIBIT 24.5
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Stig Johansson, Joachim W. Bauer, Kees van Ophem, Neil
E. Craven, Eugene A. Rizzo and Terje Nordahl and each of them (with full power
to act alone) the undersigned's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for and in the name and on behalf
of the undersigned, to execute any and all instruments and documents, and to do
any and all other acts and things, that any such attorney-in-fact and agent may
deem necessary or advisable, in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under the Securities Act of common stock by Carrier1 International
S.A. (the "Common Stock") pursuant to a registration statement on Form S-1 (the
"Registration Statement") to be filed with the Commission relating to an
underwritten offering to the public by Carrier1 International S.A. of its
capital stock (and any depositary receipts in respect thereof); including
specifically, but without limiting the generality of the foregoing, the power
and authority to execute, for and in the name and on behalf of the undersigned
in any and all capacities, the Registration Statement, and any and all
supplements and amendments (including, without limitation, any pre-effective and
post-effective amendments and any subsequent registration statements pursuant to
Rule 462(b) under the Securities Act) to such Registration Statement, and any
and all other instruments or documents filed as a part of, or in connection
with, such Registration Statement and supplements and amendments thereto
(including, without limitation, registration under the Securities Act of
depositary shares represented by American depositary receipts filed on Form
F-6); and the undersigned hereby ratifies and confirms all that such
attorneys-in-fact and agents, or any of them, shall do or cause to be done by
virtue hereof.
Signed this 13th day of December, 1999.
/s/ Victor A. Pelson
----------------------
Name: Victor A. Pelson
<PAGE>
EXHIBIT 24.6
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Stig Johansson, Joachim W. Bauer, Kees van Ophem, Neil
E. Craven, Eugene A. Rizzo and Terje Nordahl and each of them (with full power
to act alone) the undersigned's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for and in the name and on behalf
of the undersigned, to execute any and all instruments and documents, and to do
any and all other acts and things, that any such attorney-in-fact and agent may
deem necessary or advisable, in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under the Securities Act of common stock by Carrier1 International
S.A. (the "Common Stock") pursuant to a registration statement on Form S-1 (the
"Registration Statement") to be filed with the Commission relating to an
underwritten offering to the public by Carrier1 International S.A. of its
capital stock (and any depositary receipts in respect thereof); including
specifically, but without limiting the generality of the foregoing, the power
and authority to execute, for and in the name and on behalf of the undersigned
in any and all capacities, the Registration Statement, and any and all
supplements and amendments (including, without limitation, any pre-effective and
post-effective amendments and any subsequent registration statements pursuant to
Rule 462(b) under the Securities Act) to such Registration Statement, and any
and all other instruments or documents filed as a part of, or in connection
with, such Registration Statement and supplements and amendments thereto
(including, without limitation, registration under the Securities Act of
depositary shares represented by American depositary receipts filed on Form
F-6); and the undersigned hereby ratifies and confirms all that such
attorneys-in-fact and agents, or any of them, shall do or cause to be done by
virtue hereof.
Signed this 11th day of December, 1999.
/s/ Thomas J. Wynne
---------------------
Name: Thomas J. Wynne
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned hereby
constitutes and appoints Stig Johansson, Joachim W. Bauer, Kees van Ophem, Neil
E. Craven, Eugene A. Rizzo and Terje Nordahl and each of them (with full power
to act alone) the undersigned's true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for and in the name and on behalf
of the undersigned, to execute any and all instruments and documents, and to do
any and all other acts and things, that any such attorney-in-fact and agent may
deem necessary or advisable, in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
and any rules, regulations and requirements of the Securities and Exchange
Commission (the "Commission") in respect thereof, in connection with the
registration under the Securities Act of common stock by Carrier1 International
S.A. (the "Common Stock") pursuant to a registration statement on Form S-1 (the
"Registration Statement") to be filed with the Commission relating to an
underwritten offering to the public by Carrier1 International S.A. of its
capital stock (and any depositary receipts in respect thereof); including
specifically, but without limiting the generality of the foregoing, the power
and authority to execute, for and in the name and on behalf of the undersigned
in any and all capacities, the Registration Statement, and any and all
supplements and amendments (including, without limitation, any pre-effective and
post-effective amendments and any subsequent registration statements pursuant to
Rule 462(b) under the Securities Act) to such Registration Statement, and any
and all other instruments or documents filed as a part of, or in connection
with, such Registration Statement and supplements and amendments thereto
(including, without limitation, registration under the Securities Act of
depositary shares represented by American depositary receipts filed on Form
F-6); and the undersigned hereby ratifies and confirms all that such
attorneys-in-fact and agents, or any of them, shall do or cause to be done by
virtue hereof.
Signed this 14th day of December, 1999.
/s/ Joachim W. Bauer
----------------------
Name: Joachim W. Bauer
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR SEPTEMBER 30, 1999 AND FOR THE PERIOD FROM FEBRUARY 20, 1998
(DATE OF INCEPTION) TO DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 21,148 5,702
<SECURITIES> 103,743 0
<RECEIVABLES> 33,388 2,862
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 149,947 14,757
<PP&E> 142,350 31,091
<DEPRECIATION> 9,196 1,402
<TOTAL-ASSETS> 341,462 51,434
<CURRENT-LIABILITIES> 82,308 32,245
<BONDS> 265,017 0
0 0
0 0
<COMMON> 62,038 37,770
<OTHER-SE> (67,901) (18,581)
<TOTAL-LIABILITY-AND-EQUITY> 341,462 51,434
<SALES> 59,798 2,792
<TOTAL-REVENUES> 59,798 2,792
<CGS> 0 0
<TOTAL-COSTS> 90,402 22,055
<OTHER-EXPENSES> 5,656 (53)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21,323 11
<INCOME-PRETAX> (52,496) (19,235)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (52,496) (19,235)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (52,496) (19,235)
<EPS-BASIC> (1.83) (2.61)
<EPS-DILUTED> (1.83) (2.61)
</TABLE>
