<PAGE>
As filed with the Securities and Exchange Commission on August 27, 1999
File No. 333-82305
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMENDMENT NO. 1
Issuer of Senior Discount Notes Registered hereby
COMPLETEL EUROPE N.V.
(Exact Name of Registrant as Specified in its Charter)
AMSTERDAM, THE NETHERLANDS 4813 98-0202823
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code)
Organization)
WASHINGTON PLAZA--IMMEUBLE ARTOIS, 44 RUE WASHINGTON
75408 PARIS CEDEX 08, FRANCE
33-1-53-53-83-83
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Guarantor of Senior Discount Notes Registered hereby
COMPLETEL LLC
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 4813 52-2073805
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code)
Organization)
6300 SOUTH SYRACUSE WAY, SUITE 335
ENGLEWOOD, COLORADO 80111
(303) 741-4788
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID E. LACEY
CHIEF FINANCIAL OFFICER
6300 SOUTH SYRACUSE WAY, SUITE 335
ENGLEWOOD, COLORADO 80111
(303) 741-4788
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE FOR THE REGISTRANT)
COPIES TO:
LINDA WACKWITZ, ESQ.
W. DEAN SALTER, ESQ.
MARIA V. WOODS, ESQ.
HOLME ROBERTS & OWEN LLP
1700 LINCOLN STREET, SUITE 4100
DENVER, COLORADO 80203
(303) 861-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Title of each class of Amount to be Proposed maximum offering Proposed maximum Amount of
securities to be registered registered price per unit (1) aggregate offering price registration fee
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<S> <C> <C> <C> <C>
14% Series B Senior Discount Notes $147,500,000 $505.67 $74,585,953 $20,734.89
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Guarantees of the Notes (2) N/A N/A N/A N/A
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</TABLE>
(1) Calculated pursuant to Rule 457(f)(2) based on the book value on July 2,
1999 of the notes to be received by the Registrant in the exchange
described herein.
(2) Pursuant to Rule 457(n) no separate fee is required.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, 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 PRELIMINARY 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
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 27, 1999
PRELIMINARY PROSPECTUS [LOGO]
OFFER TO EXCHANGE ALL OUTSTANDING
14% SENIOR DISCOUNT NOTES DUE 2009
FOR
14% SERIES B SENIOR DISCOUNT NOTES DUE 2009
OF
COMPLETEL EUROPE N.V.
- There is no existing public market for your old notes, and there will
be no public market for the new notes issued in the exchange offer.
- The exchange offer expires at 5:00 p.m. New York City time on _______,
1999, unless we extend the offer.
YOU SHOULD CAREFULLY REVIEW THE RISK FACTORS BEGINNING ON
PAGE 8 OF THIS PROSPECTUS.
------------------------------
The date of this prospectus is __________, 1999
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
<PAGE>
TABLE OF CONTENTS
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PAGE
<S> <C>
Available Information . . . . . . . . . . . . . . . . . . . . . . i
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . 1
Organizational Chart of the CompleTel Group of Companies. . . . . 7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . 19
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 26
Selected Consolidated Financial Data of CompleTel Europe . . . . 27
Unaudited Pro Forma Condensed Consolidated Financial Statements . 28
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . 30
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Certain Relationships and Related Transactions . . . . . . . . . 67
Security Ownership of Certain Beneficial Owners and Management . 70
Description of Certain Indebtedness . . . . . . . . . . . . . . . 72
Description of the Notes . . . . . . . . . . . . . . . . . . . . 73
Description of the Share Capital and Corporate Structure of
CompleTel Europe . . . . . . . . . . . . . . . . . . . . . . 111
Description of Equity Registration and Other Rights . . . . . . . 112
Registration Rights Agreement . . . . . . . . . . . . . . . . . . 113
Book-Entry; Delivery and Form . . . . . . . . . . . . . . . . . . 115
Material Tax Considerations . . . . . . . . . . . . . . . . . . . 118
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 123
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . A-1
Index to Financial Statements . . . . . . . . . . . . . . . . . . F-1
</TABLE>
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THIS PROSPECTUS IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY, ANY SECURITIES OTHER THAN THESE REGISTERED SECURITIES. IT IS ALSO NOT
AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT WE HAVE HAD NO CHANGE IN OUR BUSINESS SINCE THE DATE OF THIS
PROSPECTUS OR THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS
OF ANYTIME AFTER THE DATE OF THIS PROSPECTUS.
AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form S-4 to
register this exchange offer. This prospectus which forms a part of the
registration statement does not contain all of the information included in
that registration statement. This prospectus contains summaries of the
material terms and provisions of documents filed as exhibits to the
registration statement. For further information about CompleTel Europe,
CompleTel LLC and the new notes offered in this prospectus, you should refer
to the registration statement and the exhibits.
You may read and copy any document we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549. Copies of the registration statement may be obtained from the
Commission at prescribed rates from the Public Reference Section of the
Commission at such address, and at the Commission's regional offices located
at 7 World Trade Center, 13th Floor, New York, New York 10048, and at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. We file our SEC
materials electronically with the SEC, so you can also review our filings by
accessing the web site maintained by the SEC at http://www.sec.gov. This
site contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC.
i
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD
- CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE CAPTION "RISK
FACTORS,"
- READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL STATEMENTS AND THE
NOTES TO THE FINANCIAL STATEMENTS, AND
- READ THE ENTIRE LETTER OF TRANSMITTAL.
In this prospectus, except where otherwise indicated, references to "$" or
"U.S. dollars" are to the lawful currency of the United States. References
to "FF" or "French francs" are to the lawful currency of the Republic of
France. Unless otherwise indicated, amounts in U.S. dollars over $1 million
and amounts in French francs over FF1 million have been rounded to one
decimal place and amounts in U.S. dollars under $1 million and amounts in
French francs under FF1 million have been rounded to the nearest thousand.
Certain terms used in our business are explained in the "Glossary" at the end
of this prospectus.
WHO WE ARE
We are a startup company with a strategic objective of becoming a
leading facilities-based operator of a technologically advanced,
high-bandwidth, fiber optic communications infrastructure and provider of
telecommunications and related services to business and government end-users,
carriers and Internet service providers in targeted metropolitan areas across
Western Europe. A facilities-based operator uses mainly its own
telecommunications facilities to provide service, in contrast with
non-facilities-based resellers who purchase the services of other providers
and then retail the services to customers.
Initially, we are focusing on building high bandwidth fiber optic
networks in France and Germany. Additionally we intend to provide Internet
access services in France, Germany and the United Kingdom. In June 1999, we
initiated commercial services in two markets in France and plan to be
operational in Germany by the end of 1999.
We are:
- focusing on providing facilities-based local exchange services
- selectively targeting major metropolitan markets throughout Western
Europe
- seeking to achieve early market entry
- targeting business and government end-users, carriers and Internet
service providers
- employing an approach to network deployment based on demand for
services
In our target markets, we intend to deploy our fiber optic
communications networks linking our state-of-the-art switching equipment with
our customers, and to interconnect our networks with those of the incumbent
public telecommunications operator and other providers. We are building
these advanced networks in order to offer a broad range of fully integrated
telecommunications services. We are seeking to augment those services with
an emphasis on superior sales, marketing, customer care and information
management systems.
France and Germany are two of the three largest telecommunication
markets in Western Europe in terms of telecommunication revenue and telephone
access lines. Our initial target markets include four metropolitan markets
in France (Paris, Lyon, Lille and Marseilles), and one market in Germany
(Berlin). If we obtain additional financing and regulatory approvals, we
intend to deploy networks in additional areas within France and Germany, and
to further deploy networks in markets throughout Western Europe.
<PAGE>
To establish an early competitive position in our initial markets, we
are employing a flexible deployment strategy tailored to each market. We are
seeking to capitalize on the size, growth potential and increasing
liberalization of competition in Western Europe telecommunications markets.
Considerable liberalization of competition has already taken place in the
United Kingdom, and liberalization is rapidly increasing in other Western
European countries, driven by European Commission directives requiring
European Union member states to liberalize the provision of telephony
services.
CompleTel Europe's principal executive offices are located at Washington
Plaza-Immeuble Artois, 44 rue Washington, 75408 Paris CEDEX 08, France, and
its telephone number is 33-1-53-53-83-83.
CompleTel LLC's principal executive offices are located at 6300 S.
Syracuse Way, Suite 355, Englewood, Colorado 80111, and its telephone number
is (303) 751-4788.
2
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Offer. . . . . . On February 16, 1999, we issued
$147.5 million aggregate principal amount at
maturity of notes in a transaction exempt
from the registration requirements of the
Securities Act. We are offering to exchange
$1,000 principal amount at maturity of new
notes in exchange for each $1,000 principal
amount at maturity of old notes. The terms
of the new notes and the old notes are
substantially identical, except that the new
notes will not be subject to contractual
restrictions on transferability. In order to
be exchanged, an old note must be properly
tendered and accepted. We will exchange all
old notes validly tendered and not validly
withdrawn.
Expiration Date . . . . . . . The exchange offer will expire at 5:00 p.m.,
New York City time, ________, 1999 or a later
date and time to which we extend it.
Withdrawal. . . . . . . . . . You may withdraw any old notes that you have
tendered in the exchange offer at any time
prior to 5:00 p.m., New York City time, on
the expiration date.
Resales of Exchange Notes . . We believe that you may offer new notes for
resale without compliance with the
registration and prospectus delivery
requirements of the Securities Act of 1933,
under the conditions we describe in the
section entitled "Exchange Offer -- Resale of
the New Notes."
Procedures for Tendering
Old Notes . . . . . . . . . . To accept the exchange offer, you must:
- complete, sign and date a copy of
the letter of transmittal and mail
or otherwise deliver it, together
with the old notes and any other
required documentation, to the
exchange agent at the address set
forth in this prospectus; or
- if you hold old notes through The
Depository Trust Company, you must
arrange for your notes to be
tendered under The Depository Trust
Company's automated tender offer
program.
Under The Depository Trust Company's
automated tender offer program, each
tendering participant will agree to be
bound by the letter of transmittal.
Exchange Agent. . . . . . . . U.S. Bank Trust National Association.
Income Tax Considerations . . We have received opinions of Arthur Andersen
Belastingadviseurs regarding material Dutch
tax consequences and Holme Roberts & Owen LLP
regarding U.S. federal income tax
consequences to the effect that the exchange
should not be a taxable exchange. You should
not recognize any taxable gain or loss or any
interest income as a result of such exchange.
The opinions have been filed as exhibits to
this registration statement.
Effect of not Tendering . . . Old notes that are not tendered or that are
tendered but not accepted will continue to be
subject to the existing
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
restrictions on transfer. We have,
however, agreed to register under the
Securities Act any sale of old notes that
are not exchanged for new notes or new
notes that are not freely tradeable after
the exchange offer. We have agreed to
keep such registration in effect for two
years.
Selling Restrictions. . . . . We are not making this exchange offer in any
jurisdictions where it is not permitted. In
particular, each purchaser represents and
agrees that (i) it has not offered, sold or
transferred and will not offer, sell or
transfer any notes, whether directly or
indirectly, other than to persons or
entities, located in or outside of The
Netherlands that trade or invest in
securities as a business (including banks,
securities firms, investment institutions,
insurance companies, pension funds and other
institutional investors or businesses which
regularly invest in securities as an
ancillary activity to their business) and
(ii) it has mentioned or will mention this
selling restriction in all offers, offer
advertisements, publications and other
documents in which an offer is made or a
forthcoming offer is announced.
</TABLE>
THE NEW NOTES
THE NEW NOTES TO BE ISSUED TO YOU IN THE EXCHANGE OFFER WILL EVIDENCE THE
SAME OBLIGATIONS OF COMPLETEL EUROPE AS THE NOTES YOU CURRENTLY HOLD. THE
INDENTURE THAT CURRENTLY GOVERNS YOUR EXISTING NOTES IS THE SAME INDENTURE THAT
WILL GOVERN THE NEW NOTES. THE TERMS OF THE NEW NOTES WILL BE THE SAME AS THE
EXISTING NOTES, EXCEPT THAT THERE WILL BE NO LEGENDS ON THE NEW NOTES
RESTRICTING THEIR TRANSFER AND THE NEW NOTES WILL BE REGISTERED UNDER THE
SECURITIES ACT INSTEAD OF HAVING REGISTRATION RIGHTS. YOU SHOULD READ THE
"DESCRIPTION OF THE NOTES" SECTION OF THIS PROSPECTUS BEGINNING ON PAGE 73 FOR A
DETAILED DESCRIPTION OF THE TERMS AND CONDITIONS OF THE NEW NOTES.
<TABLE>
<S> <C>
Issuer. . . . . . . . . . . . CompleTel Europe N.V.
Notes Offered . . . . . . . . $147,500,000 aggregate principal amount at
maturity of 14% Series B Senior Discount
Notes due 2009. The notes will be issued in
a minimum denomination of $100,000 and in
increments of $1,000 above $100,000.
Maturity Date . . . . . . . . February 15, 2009.
Original Issue Discount . . . For U.S. federal income tax purposes, a note
will be treated as having been issued with
"original issue discount" equal to the
difference between the issue price and the
sum of all cash payments (whether denominated
as principal or interest) to be made on the
note. Each U.S. holder of a note must include
as gross income for U.S. federal income tax
purposes a portion of such original issue
discount for each day during each taxable
year in which a note is held even though cash
interest payments will not be received prior
to August 15, 2004. The accretion of the
notes from their original issue price to
their principal amount will produce taxable
ordinary interest income in the amount of the
accretion for holders of the notes during the
accretion period. The Internal Revenue Code
calls this original issue discount "OID".
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Accretion, Interest Rates and
Payment Dates . . . . . . . . The notes will not accrue cash interest
before February 15, 2004. The principal
amount represented by each note will accrete
from $508.54 at the date of issuance of the
old notes to $1,000 at February 15, 2004.
Cash interest will accrue at a rate of 14%
per annum after February 15, 2004. Cash
interest will be payable every six months on.
February 15 and August 15 of each year,
beginning on August 15, 2004.
Withholding Taxes . . . . . . All payments with respect to the notes made
by CompleTel Europe will be made without
withholding or deduction for Netherlands
taxes or taxes of any other jurisdiction in
which CompleTel Europe is engaged in business
unless required by law. If withholding is
required, CompleTel Europe will generally be
required to pay such additional amounts as
may be necessary so that the net amount
received by the holders after such
withholding or deduction will not be less
than the amount that would have been received
in the absence of such withholding or
deduction.
Ranking . . . . . . . . . . . Except for the parent guaranty described
below, the notes:
- are unsecured obligations of
CompleTel Europe;
- rank equally in right of payment
with all existing and future
unsecured and unsubordinated debt
of CompleTel Europe; and
- rank senior in right of payment to
any existing and future debt
expressly subordinated to the new
notes.
The notes will be effectively subordinated to
all secured indebtedness of CompleTel Europe
to the extent of the value of the assets
securing such indebtedness and structurally
subordinated to all indebtedness (including
trade payables) of subsidiaries of CompleTel
Europe. Currently no debt exists that ranks
equal to the note. When implemented, the
credit facilities pursuant to the existing
$90 million commitments will be senior to the
notes.
Parent Guaranty . . . . . . . To comply with certain Netherlands laws, the
notes are guaranteed on a senior unsecured
basis by CompleTel LLC, the ultimate parent
of CompleTel Europe. Because CompleTel LLC
is a holding company with no operations other
than the operations conducted by subsidiaries
of CompleTel Europe, it is unlikely that
CompleTel LLC could satisfy its obligations
under the parent guaranty if CompleTel Europe
is unable to satisfy its obligations on the
notes.
Sinking Fund. . . . . . . . . None.
Optional Redemption . . . . . We may not elect to redeem the notes prior to
February 15, 2004, except as set forth below.
On or
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5
<PAGE>
<TABLE>
<S> <C>
after February 15, 2004, we may elect to
redeem the notes, in whole or in part, at
any time prior to maturity at the
redemption prices set forth under
"Description of Notes--Optional
Redemption."
In addition, prior to February 15, 2002, we
may redeem up to one-third of the aggregate
principal amount at maturity of the notes
with the proceeds of certain public equity
offerings at a redemption price of 114% of
the accreted value of the notes being
redeemed, plus accrued interest, if any. Our
ability to do so, however, is subject to the
requirement that at least $98,334,000
aggregate principal amount at maturity of the
notes remains outstanding after the
redemption.
Redemptions for Changes
in Netherlands Withholding
Taxes . . . . . . . . . . . . In the event CompleTel Europe has or would
become obligated to pay additional amounts of
interest as a result of changes affecting
Netherlands withholding taxes, CompleTel
Europe may elect to redeem the notes in
whole, but not in part, at 100% of the
accreted value of the notes to be redeemed,
with accrued interest, if any, to the date of
redemption.
Change of Control . . . . . . If an event treated as a change of control
under the indenture for the notes occurs, you
have the right to require us to repurchase
all or a portion of your notes at a price
equal to 101% of the accreted value, with
accrued interest, if any, to the date of
purchase. We may not have sufficient funds
available to satisfy our obligations to
purchase the notes if a change of control
occurs.
Risk Factors. . . . . . . . . We urge you to carefully review the following
risk factors for a discussion of factors you
should consider before exchanging your old
notes for new notes.
</TABLE>
6
<PAGE>
ORGANIZATIONAL CHART
OF COMPLETEL LLC AND
COMPLETEL EUROPE N.V.
[CHART]
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CONSIDER
THE FOLLOWING RISK FACTORS CAREFULLY IN EVALUATING US AND OUR BUSINESS AND
BEFORE DECIDING TO PARTICIPATE IN THE EXCHANGE OFFER.
OUR LIMITED HISTORY OF OPERATIONS MAY NOT BE A RELIABLE BASIS FOR EVALUATING
OUR PROSPECTS
You will have limited operating and financial data on which to evaluate
our performance and determine whether you should invest in the new notes. We
commenced operations in January 1998 and have a limited operating history.
As a result, you have limited information on which to base a prediction
whether we will be able to achieve our business objectives and generate
sufficient revenues to make principal and interest payments on the notes and
our other indebtedness.
WE HAVE EXPERIENCED OPERATING LOSSES IN OUR OPERATIONS TO DATE
We are a start up company that has generated operating losses and
negative cash flow from our activities to date. We generated our first
revenues of $321,000 in the quarter ended June 30, 1999. From the
commencement of our operations through June 30, 1999, we have incurred
operating losses of $23.7 million and have a negative cash flow of $20.7
million. We expect to continue to experience operating losses and negative
earnings as we expand our operations and enter new markets If we fail to
generate sufficient revenues, we may default in the payment of our
outstanding indebtedness, including the notes. If we default in the payment
of our indebtedness, you could lose your investment.
WE WILL NEED ADDITIONAL CAPITAL TO EXPAND OUR BUSINESS AND INCREASE REVENUE
AND THE FAILURE TO SECURE ADDITIONAL FINANCING COULD RESTRICT OUR GROWTH AND
PROFITABILITY
We will need additional capital to achieve our business objectives. We
may not be successful in raising sufficient additional capital at all or on
terms that we will consider acceptable to develop our business. If we do not
receive additional financing, we may be unable to complete the deployment of
networks in all of our targeted markets and we may have to modify, delay, or
abandon some of our planned expansion or expenditures, which could adversely
effect our ability to pay amounts due on the notes. Our principal capital
expenditure requirements will involve the construction, leasing and
maintenance of our telecommunications networks, the purchase, installation
and maintenance of network switches and switch electronics and network
operations center expenditures.
Based on our current plans and projections, we expect our aggregate
capital requirements to fund the deployment and operation of fixed networks
in our five initial target markets through the end of 2001 will total
approximately $240 million. We currently expect to be able to fund
deployment and operations in our four initial French markets through the end
of 2001 with the proceeds from the issuance of the old notes, the funding
expected to be available from senior credit facilities for which we have
received bank and vendor commitments and equity contributions received to
date. Cost overruns or our inability to complete the final documentation for
the senior credit facilities could cause us to suffer a funding shortfall
that would prevent us from deploying our planned networks in France. We
expect to fund a portion of the deployment and operations of our initial
market in Germany through the end of 2001 with proceeds from the issuance of
the old notes. We are currently seeking $15 million in additional bank and
vendor financing necessary to fund the German market. We are not certain
that we will secure adequate additional financing. If we are unsuccessful, we
may have to alter our initial deployment plans. We are also seeking
additional equity, senior bank financing and vendor financing of
approximately $150 million in order to complete planning and begin network
deployment and operations in six additional target markets in France and
Germany. We cannot be certain that we will get the financing we need to
deploy networks and begin operations in our additional target markets.
In addition, the actual amount and timing of our future capital
requirements may differ materially from our estimates. We may need
additional financing if we suffer:
8
<PAGE>
- cost overruns;
- demand for our services that varies from our expectations;
- adverse regulatory, technological, or competitive developments;
- adverse changes in interest or currency exchange rates;
- engineering design changes and changes in technology; and
- unforeseen delays.
The size and timing of any future acquisitions will also effect our capital
requirements, revenues and costs. These factors may cause actual revenues
and costs to vary from our expectations to a material degree, which would
affect our future capital requirements. We may also need additional capital
if we alter the schedule or targets of our market deployment plan.
OUR ROLL-OUT PLAN IS PRELIMINARY AND WE MAY HAVE TO REALLOCATE FUNDS
Our network deployment plan is preliminary in nature. We may decide to
change our network deployment plan if the additional target markets that we
are investigating appear to be more effective uses of our resources. If we
decide to reallocate any funds to deploy networks in other markets, we may
delay deployment in one or more of our initial target markets and we may need
additional financing to complete our network deployment in our initial target
markets. We may find that additional financing is not available at all or is
not available on terms we can reasonably accept. Our ability to make
principal and interest payments on the notes and to pursue our business plans
and complete network deployment in our initial target markets could be
adversely affected if we fail to obtain such additional financing.
Our continuing evaluation of our business and network deployment plans
in light of evolving competitive and market conditions may lead us to alter
our plans and reallocate funds in order to accelerate deployment of networks
in other metropolitan markets to accommodate:
- changes or inaccuracies in our research or assumptions;
- unexpected results of operations in our initial target markets;
- regulatory, technological, market and competitive developments; or
- changes in or discoveries of specific market conditions favoring
expedited deployment into other attractive Western European
metropolitan markets.
DEPLOYMENT OF OUR NETWORKS INVOLVES MANY CHALLENGES THAT COULD STOP OR SLOW
OUR GROWTH
Impediments to the deployment of our networks could prevent or
significantly delay the deployment of one or more planned networks. These
impediments could also significantly increase our costs for deploying our
planned networks.
Our success will depend upon our ability:
- to assess and enter potential markets;
- to design network routes and install facilities;
- to lease necessary facilities; and
- to develop a sufficient customer base.
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Moreover, our success will depend on our ability to complete those tasks
in a timely manner, at reasonable and anticipated costs and on acceptable
terms and conditions. The successful implementation of our business strategy
is subject to a variety of risks, including:
- operating and technical problems;
- regulatory uncertainties;
- possible delays in the full implementation of the European Commission
directives regarding telecommunications liberalization;
- increased competition; and
- the availability of capital.
For example, we are likely to encounter various difficulties in
acquiring necessary rights-of-way and building permits while we deploy our
networks and we may face construction delays caused by factors outside our
control. We may also encounter difficulties presented by the existence of
differing technical standards among the Western European countries in which
we intend to deploy networks.
IF WE ARE UNABLE TO DEVELOP WIRELESS TRANSMISSIONS SYSTEMS, WE MAY NOT BE
ABLE TO SERVE OUR TARGETED MARKETS OR CUSTOMERS
We plan to include wireless transmission systems in a certain portion of
our networks. If we are unable to develop our planned wireless transmissions
systems, we may not be able to serve targeted markets or customers. To
obtain wireless frequencies in certain of our initial target markets, we must
obtain a license from the government. We have no guarantee that we will
obtain the bandwidth necessary to establish and operate wireless local
telecommunications networks in the geographic areas in which we plan to
establish and operate such systems. Moreover, we may not be able to obtain
the bandwidth economically.
Wireless transmission systems require a direct line of sight between two
antennas constituting a link and are subject to distance and rain attenuation
as well as line of sight limitations. Consequently, our ability to integrate
the planned wireless portions of our networks depends upon securing suitable
roof rights. If we cannot obtain suitable rights, we may be forced to forego
a wireless link, which could result in additional expense or prevent us from
serving a particular customer or area. Please refer to the section entitled
"Business -- Overview" for a discussion of the wireless licenses we have
obtained.
IF WE DO NOT EFFECTIVELY MANAGE RAPID EXPANSION OF OUR BUSINESS, OUR
FINANCIAL CONDITION WILL SUFFER
Our business plan calls for a rapid expansion and considerable increases
in the complexity of our operations. This rapid expansion and increased
complexity may strain our management, operational, financial and other
resources. If we fail to manage our growth effectively, our network
deployment plans could be delayed and we could lose customers and revenues.
Our ability to manage future growth will depend upon many factors, including
our ability
- to develop efficient operations support and other back office
systems,
- to monitor operations,
- to control costs,
- to maintain regulatory compliance,
- to maintain effective quality controls,
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- to significantly expand our internal management, technical,
information and accounting systems and
- to attract, assimilate and retain additional qualified personnel.
OUR SUBSTANTIAL DEBT COULD MAKE US UNABLE TO SERVICE OUR DEBT AND MEET OUR
OTHER REQUIREMENTS AND COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH
We are incurring substantial debt in order to develop and deploy our
initial networks and we expect to incur significant additional debt to deploy
additional networks. If we are unable to make the required payments under
any of our financing arrangements, a default under the indenture could be
triggered.
Our substantial debt could:
- limit our ability to adjust to rapidly changing market conditions,
invest in new or developing technologies or take advantage of business
opportunities as they arise;
- limit our ability to obtain additional financing needed for working
capital, capital expenditures, acquisitions and general corporate
purposes; and
- require us to use a substantial portion of our cash flow from
operations to the payment of principal and interest on debt, which
would reduce the funds available for deployment of our networks.
The successful implementation of our business plan is essential for us
to meet our working capital, capital expenditure and debt service
requirements. We cannot assure you that we will be able to meet those
requirements. In addition, our committed senior financing will, and future
financings are likely to, bear interest at floating rates. An increase in
those interest rates could adversely affect our ability to make our required
debt payments.
OUR EARNINGS CURRENTLY ARE INADEQUATE TO COVER FIXED CHARGES.
Our historical earnings were insufficient to cover our fixed charges for
the year ended December 31, 1998. An inability to cover our fixed charges
could mean we are unable to service our debt. The amount of our fixed
monthly charges on a pro forma basis equal $0.9 million. We estimate that we
will need approximately $10.1 million to cover fixed charges during the year
ended December 31, 1999. Since 1998 when we commenced operations, cash from
equity investments and proceeds from the issuance of old notes have been used
to meet our working capital and capital expenditure requirements. We intend
to finance our debt service, working capital and capital expenditures through
a combination of cash from operations, equity investments and indebtedness.
PAYMENT OF PRINCIPAL AND INTEREST EFFECTIVELY DEPENDS ON RECEIVING INCOME
FROM OUR OPERATING SUBSIDIARIES WHICH HAVE NO OBLIGATIONS TO MAKE ANY
PAYMENTS ON THE NOTES
CompleTel Europe is a holding company with few significant assets other
than interests in its operating subsidiaries. As such, CompleTel Europe is
dependent on the cash flows of its subsidiaries to meet its obligations. The
subsidiaries are legally distinct from CompleTel Europe and will have no
obligation to pay amounts due on the notes or to make funds available for
such payment. CompleTel Europe's subsidiaries have not guaranteed the notes.
CompleTel Europe's subsidiaries will only be able to make such payments to
CompleTel Europe if
- funds are available,
- the terms of such subsidiaries' indebtedness and/or other agreements
allow them to make such payments, and
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- local corporate and other laws and regulations permit the subsidiary
to pay dividends or make loan repayments to related companies.
Claims of creditors of CompleTel Europe's subsidiaries, including trade
creditors, will have priority as to the assets of the subsidiaries over the
claims of the holders of the notes. Accordingly, the notes will be
effectively subordinated in right of payment to all existing and future
indebtedness and other liabilities of the subsidiaries of CompleTel Europe,
including liabilities that may be incurred under senior bank and vendor
financings.
To comply with certain Netherlands laws, the notes are unconditionally
and irrevocably guaranteed on a senior unsecured basis by CompleTel LLC.
Because CompleTel LLC is a holding company, it is unlikely that CompleTel LLC
could satisfy its obligations under its guaranty if CompleTel Europe is
unable to satisfy its obligations on the notes.
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO OUR CURRENT AND FUTURE SECURED
DEBT
Any senior debt we incur could impair our ability to repay the notes.
The notes are not secured by any of our assets. We currently have bank and
vendor commitments for $90 million of senior financing for network deployment
and operations in France. When incurred, our obligations under the senior
financing will be secured by a perfected security interest in our assets in
France. The notes will be subordinated to this debt, and any other future
secured debt, to the extent of such security interests. The indenture allows
us to have $170 million of senior financing and $225 million of network
financing.
In the event that a default were to occur with respect to any of our
secured debt and the holders were to foreclose on the collateral, or in the
event of our bankruptcy, liquidation, or reorganization, the holders of this
debt would be entitled to payment out of the proceeds of their collateral
prior to the holders of the notes. Also, if the value of such collateral is
insufficient to satisfy such secured debt, holders of amounts remaining
outstanding on the secured debt may be entitled to share the same priority
with holders of the notes with respect to other assets of CompleTel Europe.
The assets may not be sufficient to pay amounts due on any or all of the
notes then outstanding.
LIMITATIONS IMPOSED BY OUR DEBT AGREEMENT COULD SIGNIFICANTLY LIMIT HOW WE
CONDUCT BUSINESS AND A DEFAULT UNDER OUR INDENTURE AND FINANCING AGREEMENTS
COULD SIGNIFICANTLY IMPACT OUR ABILITY TO REPAY OUR DEBT
The indenture for the notes contains a number of significant covenants.
These covenants will limit our ability to, among other things:
- borrow additional money,
- pay dividends and make other distributions,
- make capital expenditures and other investments,
- consolidate, merge or dispose of our assets, and
- enter into sale and leaseback transactions.
If we fail to comply with these covenants we will default under the
indenture. A default, if not waived, could result in acceleration of our
indebtedness, in which case the debt would become immediately due and
payable. If this occurs, we may not be able to repay our debt or borrow
sufficient funds to refinance it. Even if new financing is available, it may
not be on terms that are acceptable to us. Complying with these covenants
may cause us to take actions that we otherwise would not take, or not take
actions that we otherwise would take. Please refer to the sections of this
prospectus entitled "Management's Discussion and Analysis of Financial
Conditions and Results of
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Operations -- Liquidity and Capital Resources," "Business -- Business
Strategy" and "Description of the Exchange Notes."
IF WE DO NOT CONTINUALLY ADAPT TO TECHNOLOGICAL CHANGE, WE COULD LOSE
CUSTOMERS AND MARKET SHARE
The telecommunications industry is subject to rapid and significant
changes in technology, and we rely on outside vendors for the development of
and access to new technology. The effect of technological changes on our
business cannot be predicted. We believe our future success will depend, in
part, on our ability to anticipate or adapt to such changes and to offer, on
a timely basis, services that meet customer demands. We cannot assure you
that we will obtain access to new technology on a timely basis or on
satisfactory terms. If we fail to obtain new technology we could lose
customers and market share.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL AND WE MAY NOT BE ABLE TO REPLACE
KEY EXECUTIVES WHO LEAVE
We are managed by a small number of key executive officers including
James Dovey, William Pearson and Richard Clevenger. Due to their extensive
experience in the telecommunications industry and their unique management
abilities and, in the case of Mr. Clevenger his technical knowledge, the loss
of the services of one or more of these key individuals could materially and
adversely affect our business and its prospects. We are securing key person
life insurance for three of our executive officers, but insurance alone will
not avoid the impact of the loss of any of those employees. We also believe
that our future growth and success will depend in large part on our ability
to attract, retain and motivate highly skilled and qualified managerial,
sales, marketing, administrative, operating, and technical personnel.
Competition for qualified personnel in the telecommunications industry in
Europe is intense. Consequently, we cannot assure you that we will be able
to hire or retain necessary personnel in the future.
WE ARE DEPENDENT ON EFFECTIVE BILLING, CUSTOMER SERVICE AND INFORMATION
SYSTEMS AND WE MAY HAVE DIFFICULTIES IN DEVELOPING THESE SYSTEMS
Sophisticated "back office" information and processing systems are vital
to our operations and potential for growth. Such systems are essential for
us to monitor costs, bill customers, initiate, implement and track customer
orders and achieve operating efficiencies. If these systems are not
effective, it could slow down the growth of our market share and our
collection of revenues. We cannot assure you that these systems will be
successfully implemented on a timely basis or at all or will perform as
expected.
YEAR 2000 ISSUES MAY ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR NETWORKS AND
SERVICE OUR CUSTOMERS
Until well into the year 2000, we will not be certain that all of our
computer systems will function adequately after December 31, 1999. A failure
of our customers or vendors, including other telecommunications operators, to
cause their software and systems to be year 2000 compliant could adversely
effect our ability to operate our networks or bill our customers. Our
customers' operations could also be affected in ways that could reduce their
usage of our networks or cause them to delay payments or fail to pay us. Any
of those factors could reduce our revenues and adversely affect our ability
to service our indebtedness. For a discussion on how we are preparing for
the year 2000, please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Impact of the Year 2000."
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TRANSACTING BUSINESS IN EUROS AND NATIONAL CURRENCIES MAY CREATE LOGISTICAL
PROBLEMS
In the countries belonging to the European and Monetary Union that have
adopted the euro as their common legal currency, we are required to transact
business in both the euro and the participating countries' respective
individual currencies. This requirement imposes significant logistical
problems on us, our suppliers and customers. While we are working to minimize
and eliminate these problems where possible, we may incur increased
operational costs from having to transact business in euros as well as each
national currency. We are selecting and purchasing our computer and
operational systems with a view to their ability to transact business without
impairment from the introduction of the euro. While we believe that our
systems will not be adversely impacted by the euro conversion, accounting,
billing and logistical difficulties may still arise. We may also be adversely
affected if our suppliers or customers fail to successfully manage the euro
conversion. Please refer to the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Euro
Conversion."
BECAUSE THE NOTES ARE OBLIGATIONS OF A FOREIGN ISSUER, YOU COULD EXPERIENCE
DIFFICULTY OR ADDITIONAL EXPENSE IN ENFORCING CIVIL JUDGMENTS AGAINST US THAT
YOU WOULD NOT EXPERIENCE IF WE WERE A DOMESTIC COMPANY
Investors seeking to file suit may find it difficult to enforce
judgments obtained in United States courts against CompleTel Europe or its
director in United States courts. There are no treaties between The
Netherlands and the United States of America on the recognition and
enforcement of civil or commercial judgments. In absence of an applicable
treaty or convention providing for the recognition and enforcement of
judgments in civil or commercial matters which is binding in The Netherlands,
a judgment rendered by a foreign court against CompleTel Europe will not be
recognized and enforced by the courts of The Netherlands. Consequently, in
order to obtain a judgment that is enforceable against CompleTel Europe, it
may be necessary to relitigate the matter before the competent court of The
Netherlands and to submit the judgment rendered by the foreign court in the
course of such proceedings, in which case the Netherlands court may give such
effect to the foreign judgment as it deems appropriate.
According to current practice, based upon case law, Netherlands courts
will generally recognize and render a judgment in accordance with a foreign
judgment if certain conditions are met. Nevertheless, we cannot assure you
that United States investors will be able to enforce against CompleTel
Europe, or members of its management board, or certain experts named herein
who are residents of the Netherlands or other countries outside the United
States, any judgments in civil and commercial matters, including judgments
under the United States federal securities laws. CompleTel Europe has
consented to service of process in the borough of Manhattan, the City of New
York, for claims based upon the indenture or the notes.
TO CONDUCT OUR BUSINESS, WE MUST INTERCONNECT WITH OUR PRIMARY COMPETITORS,
THE PUBLIC TELECOMMUNICATIONS OPERATORS, AND OTHER COMPETITORS WHO MAY TRY TO
USE INTERCONNECTIONS TO THEIR COMPETITIVE ADVANTAGE
Our ability to provide local-exchange telecommunications service depends
on our ability to secure and maintain interconnection arrangements with the
incumbent public telecommunications operators and other facilities-based
providers. Negotiating and obtaining favorable interconnection agreements in
our initial target markets may be difficult and may delay our ability to
offer services to potential customers, make our operations more expensive or
reduce the profit margins for our services. We have entered into
interconnection agreements with France Telecom and Deutsche Telekom.
European Union law mandates that member nations ensure that market dominant
telecommunications operators provide interconnection rates that are
transparent and cost-justified.
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WE MAY NOT BE ABLE TO OBTAIN AND MAINTAIN LICENSES, PERMITS, RIGHTS-OF-WAY
AND LEASED CAPACITY TO SUCCESSFULLY BUILD AND OPERATE OUR BUSINESS
We must obtain licenses and permits, as well as rights-of-way or other
agreements to display underground conduit, use aerial pole space and building
roof access from various parties, including our competitors, governments and
private parties to build, expand, and operate our local networks. In
addition, in some of our initial target markets, we may seek to lease local
fiber trunking capacity or wireless transmission systems in order to achieve
rapid network deployment and maximize speed to market. If we cannot complete
those arrangements on favorable terms in any of our target markets, we may
not be able to implement our business plan and planned network buildout of
that market on acceptable terms.
OUR COMPETITORS' ADVANTAGES MAY ADVERSELY AFFECT OUR ABILITY TO ACHIEVE
REVENUE GROWTH
We expect to compete with public telecommunications operators, cable
communications companies, wireless communications companies, electric and
other utilities with rights-of-way, railways, microwave carriers, and large
end-users that have private networks. If our competitors devote significant
additional resources to the provision of facilities-based local exchange
telecommunications services to our target customer base, we may not be able
to compete effectively and could fail to achieve revenue growth. Many of our
current and potential competitors have financial, technical, marketing,
personnel and other resources and competitive advantages, including brand
name recognition, substantially greater than ours. Competition for the
provision of local services in Western Europe is still in the early stages of
development. We believe that the ongoing liberalization of the Western
European telecommunications market will induce more competitive
telecommunications service providers, including large, pan-European
providers, to enter the market and increase the intensity of competition.
Public telecommunications operators have become and may continue to become
competitive in the local exchange markets outside of their home countries.
Consequently, We do not expect to achieve a significant market share relative
to established public telecommunications operators for any of our services in
the foreseeable future. For a more detailed discussion regarding
competition, please see the section entitled "Business -- Competition."
LACK OF NECESSARY EQUIPMENT COULD DELAY OR IMPAIR THE CONSTRUCTION OF OUR
NETWORKS
If we cannot obtain the equipment needed for our planned networks and
services, delivery of the equipment is delayed or the price of the equipment
is increased, the deployment of our network operations could be disrupted or
our capital or operating costs could increase. We depend upon third party
suppliers to provide switching equipment, wireline and wireless transmission
facilities, and billing and other information management and operations
support systems to buildout our networks and operate our business.
OUR NEED TO COMPLY WITH EXTENSIVE GOVERNMENT REGULATION COULD INCREASE OUR
COSTS AND SLOW OUR GROWTH
France, Germany, the United Kingdom and the other Western European
countries in which we intend to operate subject the telecommunications
industry to a significant degree of regulation. We need telecommunications
licenses or equivalent authorizations to begin and to carry on business in
each of these countries. Our ability to deploy networks and to provide
services in these countries depends on our ability to obtain appropriate
licenses and other authorizations or permissions. We must keep our licenses
and other authorizations in force in order to continue providing services in
each country. Moreover, we must keep our licenses in our initial target
markets in force or we will be in default under the indenture for the notes.
In most cases, these licenses and other authorizations or permissions are of
fixed duration, and we must comply with regulations and technical
requirements in order to maintain them in force. For example, in France we
must comply with French and European Community regulations and technical
standards regarding interconnection, secrecy, neutrality, nondiscrimination,
security, environmental protection, limitations on ownership, and public
service.
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We cannot assure you that we will successfully obtain, maintain, or
renew licenses and other authorizations we require for services we provide or
plan to provide. In addition, we cannot assure you that such licenses and
other authorizations will be issued or renewed on commercially viable terms.
We have not yet secured financing in the amount required to deploy and
operate networks in all of the markets contemplated by our French license.
We have been advised that this does not, by itself, constitute a violation of
our requirements under the French licenses. However, the French regulatory
authorities may take this into account, together with any other relevant
items, when assessing whether there exists a material adverse variation to
the financial or technical capacity of our French operating subsidiary and
could seek to modify or revoke the licenses in whole or in part. Our German
licenses, which cover the metropolitan and surrounding areas of Berlin,
Frankfurt, Munich, Nuremberg and The Ruhr are subject to a similar risk of
revocation if we are not able to secure adequate financing to deploy and
operate networks in the areas covered by the licenses. For a further
discussion regarding our licenses in these markets, please see the section
entitled "Regulation."
FLUCTUATIONS IN LOCAL CURRENCIES RELATIVE TO THE U.S. DOLLAR COULD ADVERSELY
AFFECT OUR RESULTS OF OPERATIONS
We expect that our revenue and expenses will be largely denominated in
European currencies. Investments of most of our equity investors and our
indebtedness are denominated in U.S. dollars. As a result, we and our
investors, including the holders of the notes, will be exposed to foreign
exchange risks, because our results of operations will be affected by
fluctuations in the value of the local currencies where we transact business
relative to the U.S. dollar. The terms of our existing commitments for senior
financing require us to enter into and maintain hedging arrangements in an
attempt to reduce our exposure to currency fluctuations. We cannot assure
you that these hedging transactions will be successful.
Additionally, non-U.S. investors should be aware that an investment in a
security that is denominated and payable in U.S. dollars entails significant
currency exchange risks to non-U.S. investors. Such risks include the
possibility of significant changes in rates of exchange between U.S. dollars
and the investors' home currency. Such risks generally depend on economic and
political events over which we have no control.
WE FACE POTENTIAL CONFLICTS OF INTEREST CAUSED BY INVESTOR CONTROL WHICH
COULD BE DETRIMENTAL TO HOLDERS OF THE NOTES
Conflicts may arise between the interests of our equity investors and
the interests of the holders of the notes. Our equity investors control the
Board of Directors of CompleTel LLC, which indirectly controls CompleTel
Europe, the issuer of the notes. From time to time, some decisions about our
operations or financial structure may present conflicts of interest between
our equity investors and the holders of the notes. For example, if we
encounter financial difficulties, our equity investors may have interests
that conflict with those of the holders of notes. In addition, our equity
investors may have an interest in pursuing transactions that could eventually
enhance the value of their equity investment, even though such transactions
might involve increased risk to the holders of the notes. In addition to
their investment in us, our private equity investors currently have
significant investments in other telecommunications companies and may in the
future invest in other entities engaged in the telecommunications business.
As a result, these investors have, and may develop, relationships with
businesses that are or may become our competitors, or we may develop
relationships with companies in which our investors have an interest, and
conflicts may arise. Such conflicts, for example, may arise if we seek to
enforce our rights against a supplier or competitor in which our equity
investors hold an interest.
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IF WE ARE SUBJECT TO THE INVESTMENT COMPANY ACT, IT COULD ADVERSELY AFFECT
OUR FINANCING ACTIVITIES AND FINANCIAL RESULTS
The Investment Company Act of 1940 requires the registration of, and
imposes various substantive restrictions on, certain companies ("investment
companies") that are, that are deemed to be or that hold themselves out as
being, engaged primarily, or propose to engage primarily, in the business of
investing, reinvesting or trading in securities. Application of the
provisions of the Investment Company Act to cause us to require to register
as an "investment company" would result in a default under the notes and have
a material adverse effect on our business and prospects. Additionally, if we
were required to register as an investment company under the Investment
Company Act, we would become subject to substantial regulation with respect
to our capital structure, management, operations and other matters.
We believe that we are primarily engaged in a business other than
investing, reinvesting, owning, holding, or trading securities, and we intend
to invest our funds so as not to be an investment company within the meaning
of the Investment Company Act. If found to be an investment company, we may
be able to rely upon an exemption from the Investment Company Act for certain
"transient" or temporary investment companies. However, such exemption would
only be available to us, if at all, for a limited period of time.
ORIGINAL ISSUE DISCOUNT MAY CAUSE UNFAVORABLE TAX AND OTHER LEGAL
CONSEQUENCES FOR HOLDERS OF NOTES AND FOR US
The old notes were, and the new notes will be, issued at a substantial
discount from their stated amount at maturity. Although cash interest will
not accrue on the notes prior to February 15, 2004, and there will be no
payments of cash interest on the notes prior to August 15, 2004, original
issue discount, equal to the difference between the stated redemption price
at maturity and the issue price of the notes, will accrue from the issue date
of the old notes. Original issue discount will be includable as interest
income periodically in gross income for United States federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable.
If a bankruptcy case under the U.S. Bankruptcy Code were to be commenced
by or against us, the claim of a holder of notes with respect to the
principal amount thereof may be limited to an amount equal to the sum of (1)
the initial offering price and (2) that portion of the original issue
discount that is not deemed to constitute "unmatured interest" for purposes
of the U.S. Bankruptcy Code. Any original issue discount that was not
amortized as of the time of any such bankruptcy filing would constitute
"unmatured interest." Similarly, if CompleTel Europe were to be declared
bankrupt (FAILLIET VERKLAARD) or be granted a suspension of payments
(SURSEANCE VAN BETALING) under the laws of The Netherlands, the claim of a
holder of notes could be limited to an amount equal to the sum of (1) the
initial offering price of such notes and (2) that portion of the original
issue discount of such notes that can be deemed to constitute interest
amortized on the initial offering price until the date of the bankruptcy or
suspension of payments of CompleTel Europe.
THE NOTES HAVE NO PUBLIC MARKET, SO YOU MAY NOT BE ABLE TO SELL THEM WHEN YOU
WISH OR YOU MAY NOT BE ABLE TO SELL THE NOTES AT A FAVORABLE PRICE
There is no active trading market for the notes. We cannot assure you
that any such market will develop. If any such market develops, we do not
know whether it will be active enough to provide you adequate liquidity. If
any of the notes are traded after their initial issuance, they may trade at a
discount from their initial offering price, depending upon prevailing
interest rates, the market for similar securities, our financial condition
and prospects and other factors outside of our control.
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WE MAY NOT HAVE THE FUNDS NECESSARY TO FINANCE ANY CHANGE OF CONTROL OFFER
THAT MAY BE REQUIRED BY THE INDENTURE
The indenture for the notes provides that upon a change of control, each
note holder will have the right to require us to purchase all or a portion of
such holder's notes. We would be required to purchase the notes at a
purchase price of 101% of the accreted value of the notes, plus any accrued
and unpaid interest to the date of repurchase. We cannot assure you that we
would have sufficient funds at that time to repurchase our notes.
OUR FORWARD-LOOKING STATEMENTS MAY MATERIALLY DIFFER FROM ACTUAL EVENTS OR
RESULTS
This prospectus contains "forward-looking statements," which you
generally can identify by our use of forward-looking words such as
"anticipates," "believes," "could," "expects," "may," "plans," "should" and
"will" or the negative or other variations of such terms or comparable
terminology, or by discussion of strategy that involve risks and
uncertainties. We often use these types of statements when discussing our
plans and strategies, our anticipation of revenues from designated markets
and statements regarding the development of our businesses, the markets for
our services and products, our anticipated capital expenditures, operations
support systems, changes in regulatory requirements and other statements
contained in this prospectus regarding matters that are not historical facts.
We caution you that these forward-looking statements are only
predictions and estimates regarding future events and circumstances. We
cannot assure you that we will achieve the future results reflected in these
statements. The risks we face that could cause us not to achieve these
results include, but are not limited to, our ability to do the following in a
timely manner, at reasonable costs and on satisfactory terms and conditions:
- successfully market our services to current and new customers;
- interconnect with and develop cooperative working relationships with
incumbent local exchange carriers;
- develop efficient operations support systems and other back office
systems;
- successfully and efficiently transfer new customers to our networks
and access new geographic markets;
- identify, finance and complete suitable acquisitions;
- secure additional financing necessary to carry out our deployment and
operations plans;
- install new switching facilities and other network equipment; and
- obtain leased fiber optic line capacity, rights-of-way, building
access rights and any required governmental authorizations, franchises
and permits.
Regulatory, legislative and judicial developments could also cause actual
results to differ materially from the future results reflected in such
forward-looking statements. You should consider all of our current and
subsequent written and oral forward-looking statements only in light of such
cautionary statements. You should not place undue reliance on these
forward-looking statements and you should understand that they reflect our
understanding of circumstances on the date of this prospectus and may not
reflect our understanding of circumstances at a later date.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
On February 16, 1999, we originally issued and sold units in an offering
that was exempt from registration under the Securities Act in reliance upon
the exemptions provided by Section 4(2) of the Securities Act, and on Rule
144A and Regulation S of the Securities Exchange Commission under the
Securities Act. Each unit consisted of an old note and 10 non-voting Class B
membership interests of CompleTel Holding LLC. As a result of the sale being
exempt from the Securities Act, the old notes may not be transferred in the
United States unless registered or unless an exemption from the registration
requirements of the Securities Act and applicable state securities laws is
available.
As a condition to the sale of the old notes, we and the initial
purchasers of the old notes entered into a registration rights agreement as
of February 16, 1999. In the registration rights agreement, we agreed that we
would:
- file, by July 16, 1999, a registration statement with the SEC
registering the exchange of the new notes for the old notes;
- use our best efforts to cause the registration statement to be
declared effective under the Securities Act by October 14, 1999; and
- keep the offer of the new notes in exchange for surrender of the old
notes open for at least 30 days after the effectiveness of the
registration statement.
We have filed a copy of the registration rights agreement as an exhibit
to the registration statement of which this prospectus is a part. The
registration statement satisfies certain of our obligations under the
registration rights agreement.
RESALE OF THE NEW NOTES
Based on no-action letters issued by the staff of the Securities
Exchange Commission to other issues, we believe that the new notes issued in
the exchange offer will be freely transferable after the exchange offer
without further registration under the Securities Act if the holder of the
new notes:
- is not one of our "affiliates," as defined in Rule 405 of the
Securities Act,
- is acquiring the new notes in the ordinary course of its business, and
- has made no arrangement to participate in the distribution, within the
meaning of the Securities Act, of the new notes.
Each holder tendering old notes will be required to make representations
to CompleTel to this effect.
The SEC has not, however, considered this exchange offer and we cannot
assure you that the staff of the SEC would make a similar determination with
respect to this exchange offer. Holders of old notes wishing to accept this
exchange offer must represent to us that the above conditions have been met.
If the holder is a broker-dealer that will receive new notes for its own
account in exchange for old notes that were acquired as a result of
market-making activities or other trading activities, the holder may be
deemed to be an "underwriter" within the meaning of the Securities Act. Those
holders will be required to acknowledge in the letter of transmittal that
they will deliver a prospectus in connection with any resale of the new
notes. However, by so acknowledging and by delivering a prospectus, the
holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
19
<PAGE>
We have agreed that we will make this prospectus available to any
broker-dealer for use in connection with a resale for a period of one year
after closing the exchange offer. A broker-dealer that delivers a prospectus
to purchasers in connection with resales will be subject to the civil
liability provisions under the Securities Act and will be bound by the
provisions of the registration rights agreement, including indemnification
and contribution rights and obligations.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
This prospectus and the accompanying letter of transmittal together make
up the exchange offer. On the terms and subject to the conditions set forth
in this prospectus and the letter of transmittal, we will accept for exchange
any old notes that are properly tendered on or before the expiration date
unless they are withdrawn as permitted below. We will issue new notes in
denominations of $1,000 principal amount at maturity in exchange for each
$1,000 principal amount at maturity of outstanding old notes surrendered in
the exchange offer. Old notes may be exchanged only in integral multiples of
$1,000. The minimum denomination of any note is $100,000. The form and
terms of the new notes are the same as the form and terms of the old notes
except that the exchange will be registered under the Securities Act and so
the new notes will not bear legends restricting their transfer. The new notes
will evidence the same debt as the old notes and will be issued under the
same indenture.
As of the date of this prospectus, an aggregate of $147,500,000 in
principal amount at maturity of the old notes is outstanding. This prospectus
is first being sent on or about ________, 1999, to all holders of old notes
known to us.
Holders of the old notes do not have any appraisal or dissenters' rights
under the indenture in connection with the exchange offer.
We may, at any time or from time to time, extend the period of time
during which the exchange offer is open and delay acceptance for exchange of
any old notes, by giving written notice of the extension to the holders as
described below. During the extension, all old notes previously tendered will
remain subject to the exchange offer and may be accepted for exchange by us.
Any old notes not accepted for exchange for any reason will be returned
without expense to the tendering holder as promptly as practicable after the
expiration of the exchange offer.
We reserve the right to amend or terminate the exchange offer. We will
give written notice of any extension, amendment, nonacceptance or termination
to the holders of the old notes as promptly as practicable. Any extension
that we intend to issue by means of a press release or other public
announcement will be issued no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
PROCEDURES FOR TENDERING OLD NOTES
The tender by a holder of old notes as set forth below and our
acceptance of such notes will create a binding agreement between us and the
tendering holder upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal. Except as set
forth below, a holder who wishes to tender old notes for exchange must send a
completed and signed letter of transmittal, including all other documents
required by the letter of transmittal, to the exchange agent at one of the
addresses specified below on or before the expiration date. In addition:
- the exchange agent must receive before the expiration date
certificates for the old notes along with the letter of transmittal;
or
- the exchange agent must receive confirmation before the expiration
date of a book-entry transfer of the old notes into the exchange
agent's account at The Depository Trust Company as described below; or
- the holder must comply with the guaranteed delivery procedures
described below.
20
<PAGE>
The method of delivery of old notes, letters of transmittal and all
other required documents is at the election and risk of the holders. If the
delivery is by mail, we recommend that holders use registered mail, properly
insured, with return receipt requested. In all cases, holders should allow
sufficient time to assure timely delivery. Holders should send letters of
transmittal and old notes only to the exchange agent and NOT to CompleTel.
If your old notes are registered in the name of a broker, dealer, commercial
bank, trustee or other nominee, and if you wish to tender your old notes for
exchange, you should contact the registered holder of the old notes promptly
and instruct the registered holder to tender your notes on your behalf. If
your notes are registered in the name of a nominee and you wish to tender on
your own behalf, then before completing and signing the letter of transmittal
and delivering your old notes, you must either register ownership of the old
notes in your name or obtain a properly completed power of attorney from the
registered holder of your old notes. The transfer of record ownership may
take considerable time. If the letter of transmittal is signed by a person
other than the registered holder of the old notes, the old notes must be
endorsed or accompanied by appropriate powers of attorney. In either case the
letter of transmittal must be signed exactly as the name of the registered
holder that appears on the old notes.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old notes surrendered for exchange are tendered:
- by a registered holder of the old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal; or
- for the account of a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an eligible guarantor institution. Eligible
guarantor institutions include:
-- a member of a registered national securities exchange;
-- a member of the National Association of Securities Dealers, Inc.;
or
-- a commercial bank or trustee having an office or correspondent in
the United States.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantees must be by an eligible guarantor
institution.
If old notes are registered in the name of a person other than the
person that signs the letter of transmittal, the old notes surrendered for
exchange must be endorsed by the registered holder with the signature
guaranteed by an eligible guarantor institution. Alternatively, the old notes
may be accompanied by a written assignment, signed by the registered holder
with the signature guaranteed by an eligible guarantor institution.
We will determine all questions as to the validity, form, eligibility,
time of receipt and acceptance of old notes tendered for exchange in our sole
discretion, and our determination shall be final and binding. We reserve the
absolute right to reject any tenders of any particular old notes not properly
tendered or not to accept any particular old notes whose acceptance might, in
our judgment of or the judgment of our counsel, be unlawful. We also reserve
the absolute right to waive any defects or irregularities or conditions of
the exchange offer as to any particular old notes either before or after the
expiration date. Our interpretation of the terms and conditions of the
exchange offer as to any particular old notes either before or after the
expiration date will be binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of old notes for exchange must be
cured within a reasonable period of time as we shall determine. Neither
CompleTel, the exchange agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
old notes for exchange.
If the letter of transmittal or any old notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive this
requirement, those persons must submit satisfactory evidence of their
authority to act.
21
<PAGE>
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will accept, promptly after the expiration date, all old notes
properly tendered and will issue the new notes promptly after acceptance of
the old notes. We will be deemed to have accepted properly tendered old notes
for exchange when we have given oral or written notice to the exchange agent.
The issuance of new notes for old notes that are accepted for exchange
will be made only after timely receipt by the exchange agent of certificates
for the old notes or a timely book-entry confirmation of the old notes into
the exchange agent's account at the book-entry transfer facility, a completed
and signed letter of transmittal and all other required documents. If any
tendered old notes are not accepted for any reason set forth in the terms and
conditions of the exchange offer, or if old notes are submitted for a greater
amount than the holder desires to exchange, the unaccepted or non-exchanged
old notes will be returned without expense to the tendering holder as
promptly as practicable after the exchange offer expires or terminates. In
the case of old notes tendered by book-entry procedures described below, the
non exchanged old notes will be credited to an account maintained with the
book-entry transfer facility.
CONDITIONS OF THE EXCHANGE OFFER
We will not be required to accept for exchange any old notes and may
terminate or amend the exchange offer prior to the expiration date, if we
determine that we are not permitted to effect the exchange offer because of:
- any changes in law, or applicable interpretations by the SEC; or
- any action or proceeding is instituted or threatened in any court or
governmental agency with respect to the exchange offer.
Holders may have certain rights and remedies under the registration
rights agreement if we fail to close the exchange offer, whether or not the
conditions stated above occur. These conditions are not intended to modify
those rights or remedies.
ACCRETION; INTEREST
The old notes were issued at a substantial discount to their stated
principal amount. Principal of the old notes tendered and accepted for
exchange will continue to accrete from the original discounted principal
amount to the stated amount at maturity (the "accretion amount") at the
nominal rate of 14% per annum to, but excluding the date of issuance of the
new notes and will cease to accrete upon the cancellation of the old notes
and issuance of the new notes. Any old notes not tendered or accepted for
exchange will continue to accrete at the rate of 14% per annum in accordance
with their terms. From and after the date of issuance of the new notes, the
principal of the new notes will accrete at the rate of 14% per annum, but no
cash interest will be payable in respect of the new notes prior to February
15, 2004. From and after February 15, 2004, interest on the new notes will
accrue on the principal amount at maturity at the rate of 14% per annum and
will be payable semi-annually in arrears on each February 15 and August 15,
beginning August 15, 2004.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account for the
old notes at the book-entry transfer facility for the exchange offer within
two business days after the date of this prospectus, and any financial
institution that is a participant in the book-entry transfer facility's
systems may make book-entry delivery of old notes by causing the book-entry
transfer facility to transfer the old notes into the exchange agent's account
at the book-entry transfer facility under the book-entry transfer facility's
procedures for transfer. However, although delivery of old notes may be
effected through book-entry transfer at the book-entry transfer facility, the
letter of transmittal or
22
<PAGE>
facsimile, or an agent's message, with any required signature guarantees and
any other required documents, must be received by the exchange agent on or
before the expiration date or the guaranteed delivery procedures described
below must be complied with.
The term "agent's message" means a message, transmitted by Depository
Trust Company to the exchange agent and forming a part of a book-entry
confirmation, that states that The Depository Trust Company has received an
express acknowledgment from the tendering participant stating that the
participant has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce the letter of transmittal against the
participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes wishes to tender the old notes
and the old notes are not immediately available, or time will not permit the
holder's old notes or other required documents to reach the exchange agent
before the expiration date, or the procedure for book-entry transfer cannot
be completed on time, the old notes may nevertheless be exchanged if:
- the tender is made through an eligible guarantor institution;
- before the expiration date, the exchange agent has received from the
eligible guarantor institution a completed and signed letter of
transmittal, or a facsimile, and a notice of guaranteed delivery,
substantially in the form we are providing to you. Delivery may be
made by telegram, telex, facsimile transmission, mail or hand
delivery. The letter of transmittal and notice of guaranteed delivery
must set forth the name and address of the holder of the old notes and
the amount of old notes, state that the tender is being made and
guarantee that within five trading days on the New York Stock Exchange
after the date of signing of the notice of guaranteed delivery, the
certificates for all physically tendered old notes, in proper form for
transfer, or a book-entry confirmation, and any other documents
required by the letter of transmittal, will be deposited by the
eligible guarantor institution with the exchange agent; and
- the certificates for all physically tendered old notes, in proper form
for transfer, or a book-entry confirmation and all other documents
required by the letter of transmittal, are received by the exchange
agent within five New York Stock Exchange trading days after the date
of signing the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw your tender of old notes at any time prior to the
expiration date.
For a withdrawal to be effective, the exchange agent must have received
a written notice of withdrawal. Any notice of withdrawal must:
- specify the name of the person who tendered the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the amount of the
old notes; and
- where certificates for old notes have been transmitted, specify the
name in which the old notes are registered, if different from that of
the withdrawing holder.
If certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of the
certificates the withdrawing holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an eligible guarantor institution unless the
holder is an eligible guarantor institution. If old notes have been tendered
under the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at the book-entry
transfer facility to be credited with the withdrawn old notes and otherwise
comply with the procedures of the facility. We will determine all questions
as to the validity, form, eligibility and
23
<PAGE>
time of receipt of the notices and our determination will be final and
binding on all parties. Any old notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the exchange offer. Any
old notes that have been tendered for exchange but that are not exchanged for
any reason will be returned to the holder without cost to the holder as soon
as practicable after withdrawal, rejection of tender or termination of the
exchange offer. In the case of old notes tendered by book-entry transfer into
the exchange agent's account at the book-entry transfer facility under the
book-entry transfer procedures described above, the old notes will be
credited to an account with the book-entry transfer facility specified by the
holder. Properly withdrawn old notes may be retendered by following one of
the procedures described under "--Procedures for Tendering Old Notes" above
at any time on or before the expiration date.
EXCHANGE AGENT
U.S. Bank Trust Company has been appointed as the exchange agent for the
exchange offer. All signed letters of transmittal should be directed to the
exchange agent at the addresses set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should
be directed to the exchange agent addressed as follows:
By Mail: By Overnight Courier:
U.S. Bank Trust National Association U.S. Bank Trust National Association
180 East Fifth Street 180 East Fifth Street
St. Paul, MN 55101 St. Paul, MN 55101
Attn: Specialized Finance Dept. Attn: Specialized Finance Dept.
By Hand:
U.S. Bank Trust National Association
4th Floor Bond Drop Window
180 East Fifth Street
St. Paul, MN 55101
By Facsimile Transmission
(for Eligible Institutions only):
(651) 244-1537
Attention: Specialized Finance Department
Confirm by Telephone:
(651) 244-5011
For Information Call:
(651) 244-5011
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer.
We will pay the expenses that will be incurred in connection with the
exchange offer. We estimate the expense will be approximately $280,000
24
<PAGE>
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a result
of the exchange offer. The expenses of the exchange offer will be amortized
over the term of the new notes.
TRANSFER TAXES
Holders who instruct us to register new notes in the name of a person
other than the registered tendering holder will be responsible for paying any
applicable transfer tax, as will holders who request that old notes not
tendered or not accepted in the exchange offer be returned to a person other
than the registered tendering holder. In all other cases, no transfer taxes
will be due.
REGULATORY MATTERS
We are not aware of any governmental or regulatory approvals that are
required in order to complete the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. Old notes that are
not exchanged for new notes will remain restricted securities. As a result,
those old notes may only be transferred:
- to a person who the seller reasonably believes is a qualified
institutional buyer under Rule 144A,
- in an offshore transaction under Rule 903 or Rule 904 of Regulation S
under the Securities Act,
- under Rule 144 under the Securities Act, if available, or
- pursuant to an effective registration statement under the Securities
Act;
and after complying with all applicable securities laws of the states of the
United States. We are required to file a shelf registration statement under
the Securities Act to register the sale of any old notes that are not
exchanged for new notes in the exchange offer. We have agreed to keep such
registration statement effective for two years. Nevertheless, if we fail to
cause such a registration statement to become effective or if a holder of old
notes fails to sell such notes under the registration statement while it is
effective, the old notes will remain restricted securities.
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULTS
If we fail to meet our obligations to complete the exchange offer or
file a shelf registration statement, in each case additional interest will
accrue on the notes.
25
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new notes
in exchange for the old notes. In exchange for the new notes, we will
receive old notes in an equal principal amount. The old notes surrendered
for exchange will be retired and canceled and cannot be reissued.
Accordingly, the issuance of the new notes will not result in any change in
our outstanding indebtedness.
We are using the net proceeds of the issuance of the old notes, together
with other available funds and funds expected to be available from senior
financing to be provided by banks and vendors, to fund the deployment and
operation of our initial networks through the end of 2001. CompleTel Europe
is required for purposes of Netherlands law to lend to or to invest in its
operating subsidiaries at least 95% of its balance sheet total assets,
including the net proceeds from the offering of the old notes.
Any one or more factors could lead management to determine that funds on
hand or funds from future financings should be redirected to markets other
than our initial target markets. We have described this potential for
reallocation more thoroughly in the section entitled "Our Roll-out Plan is
Preliminary and We May Have to Reallocate Funds" under "Risk Factors."
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF COMPLETEL EUROPE
The following selected consolidated financial data for CompleTel Europe
have been derived from CompleTel Europe's audited and unaudited consolidated
financial statements included elsewhere in this prospectus. The selected
consolidated financial data set forth below are qualified by reference to and
should be read in conjunction with the consolidated financial statements of
CompleTel Europe and notes thereto and also with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. Operating results for this period are not necessarily
indicative of the results that may be expected for the entire year.
CompleTel Europe is a development stage company and has generated
operating losses and negative cash flow from its limited operating activities
to date. As a result of CompleTel Europe's limited operating history,
prospective investors have limited operating and financial data about
CompleTel Europe upon which to base an evaluation of CompleTel Europe's
performance and an investment in the notes.
<TABLE>
<CAPTION>
COMMENCEMENT COMMENCEMENT
OF OPERATIONS FOR THE OF OPERATIONS
(JANUARY 8, 1998) SIX MONTHS (JANUARY 8, 1998)
TO ENDED TO
DECEMBER 31, 1998 JUNE 30, 1999 JUNE 30, 1999
----------------- --------------- ----------------
(AUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $---- $321 $321
Network costs . . . . . . . . . . . . . . . . . . . . . . . ---- 564 564
Selling, general and administrative expense . . . . . . . . 4,552 10,599 15,151
Management fees to affiliated party . . . . . . . . . . . . 2,963 2,011 4,974
Depreciation and amortization . . . . . . . . . . . . . . . 46 423 469
---------- ---------- -----------
Operating loss . . . . . . . . . . . . . . . . . . . . . . (7,561) (13,276) (20,837)
Other income (expense) . . . . . . . . . . . . . . . . . . ---- (2,896) (2,896)
---------- ---------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $(7,561) $(16,172) $(23,733)
---------- ---------- -----------
---------- ---------- -----------
Basic and diluted loss per common share . . . . . . . . . . $(1.55) $(0.89) $(2.54)
---------- ---------- -----------
---------- ---------- -----------
Deficiency of earnings available to cover fixed charges . . $(7,561) $(16,172) $(23,733)
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1998 JUNE 30, 1999
----------------- --------------
(AUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . . . . . . . . $1,718 $84,826
Property and equipment, net . . . . . . . . . . . . . . . $3,371 $28,261
Licenses and other intangibles . . . . . . . . . . . . . $950 $3,198
Total assets . . . . . . . . . . . . . . . . . . . . . . $7,870 $127,250
Affiliate payables . . . . . . . . . . . . . . . . . . . $10,470 $3,315
Accrued liabilities . . . . . . . . . . . . . . . . . . . $1,453 $2,350
Total liabilities . . . . . . . . . . . . . . . . . . . . $13,882 $90,999
Total shareholder's equity (deficit) . . . . . . . . . . $(6,012) $36,251
</TABLE>
- ---------------
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On March 24, 1999, CompleTel SAS (a wholly owned subsidiary of the
Company) acquired all of the outstanding stock of Acces Internet et Solutions
("ASI"), an Internet service provider based in Lyon, for approximately $2.1
million in cash. The transaction was recorded under the purchase method of
accounting as of March 31, 1999. The purchase price was first allocated to
the fair value of the net tangible assets acquired of $73,000. The resulting
excess cost over the fair value of tangible net assets acquired, or goodwill,
was recorded in the amount of $2.0 million. We are amortizing the goodwill
under the straight-line method over a ten-year period. On our Consolidated
Balance Sheet for June 30, 1999, we have reflected $73,000 of the purchase
price as property and equipment and the remaining $2.0 million of the
purchase price as goodwill under "licenses and other intangibles."
The following unaudited pro forma condensed consolidated statements of
operations for the period from commencement of operations (January 8, 1998)
to December 31, 1998, and for the six months ended June 30, 1999, reflect the
pro forma effects of the ASI acquisition as if the acquisition occurred on
January 8, 1998. For purposes of the pro forma statements of operations, the
acquisition is assumed to have been financed through an equity contribution
from the Company's ultimate parent.
The unaudited pro forma condensed consolidated statements of operations
are based on, and should be read in conjunction with, the historical
consolidated financial statements of the Company and ASI, giving effect to
the assumptions and adjustments noted above and in the accompanying notes to
the unaudited pro forma condensed consolidated statements of operations.
These unaudited pro forma condensed consolidated statements of operations are
presented for illustrative purposes and they do not purport to represent what
the Company's results of operations would actually have been had the
acquisition been consummated as of January 8, 1998, and is not indicative of
the results that may be obtained in the future.
<TABLE>
<CAPTION>
For the Period from Commencement of Operations
(January 8, 1998) to December 31, 1998
------------------------------------------------------------------------------
Historical
-------------------------------------
Pro Forma
The Pro Forma As
Company ASI Adjustments Adjusted
--------------- -------------- ------------------ ---------------
(unaudited) (unaudited)
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Revenues $ - $ 1,020 $ - $ 1,020
Operating Expenses:
Network costs and costs of goods sold - 324 - 324
Selling, general and administrative 4,552 551 - 5,103
Management fees to affiliate 2,963 - - 2,963
Depreciation and amortization 46 35 200(1) 281
--------------- -------------- ------------------ ---------------
Total operating expenses 7,561 910 200 8,671
--------------- -------------- ------------------ ---------------
Income (Loss) Before Income Taxes (7,561) 110 (200) (7,651)
Income Tax Provision - (48) - (48)
--------------- -------------- ------------------ ---------------
Net Income (Loss) $ (7,561) $ 62 $ (200) $ (7,699)
--------------- -------------- ------------------ ---------------
--------------- -------------- ------------------ ---------------
Basic and Diluted Loss Per Share $ (1.55) $ (1.57)
--------------- ---------------
--------------- ---------------
Weighted Average Number of Common Shares
Outstanding 4,888,964 4,888,964
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------
(1) Reflects amortization of the $2 million of goodwill recorded in connection
with the acquisition of ASI.
28
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999 (unaudited)
-------------------------------------------------------------------------------
Historical
-------------------------------------
Pro Forma
The Pro Forma As
Company(1) ASI(2) Adjustments Adjusted
--------------- -------------- ------------------ ---------------
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C>
Revenues $ 321 $ 257 $ - $ 578
Operating Expenses:
Network costs 564 116 - 680
Selling, general and administrative 10,599 178 - 10,777
Management fees to affiliated party 2,011 - - 2,011
Depreciation and amortization 423 10 50(3) 483
--------------- -------------- ------------------ ---------------
Total operating expenses 13,597 304 50 13,951
Loss from Operations (13,276) (47) (50) (13,373)
--------------- -------------- ------------------ ---------------
Other income (expense), net (2,896) - - (2,896)
--------------- -------------- ------------------ ---------------
Loss Before Income Taxes (16,172) (47) (50) (16,269)
Income Tax Provision - - - -
--------------- -------------- ------------------ ---------------
Net Loss $ (16,172) $ (47) ($50) $ (16,269)
--------------- -------------- ------------------ ---------------
--------------- -------------- ------------------ ---------------
Basic and Diluted Loss per Share $ (0.89) $ (0.90)
--------------- ---------------
--------------- ---------------
Weighted Average Number of Common Shares
Outstanding 18,174,249 18,174,249
--------------- ---------------
--------------- ---------------
</TABLE>
- -----------------
(1) Reflects the consolidated results of the Company for the six months ended
June 30, 1999, including the results of ASI for the three months ended June
30, 1999.
(2) Reflects the results of ASI for the three months ended March 31, 1999.
(3) Reflects amortization of the $2 million of goodwill recorded in connection
with the acquisition of ASI for the three months ended March 31, 1999.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS ALONG WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THAT BEGIN ON PAGE
F-1 OF THIS PROSPECTUS. COMPLETEL LLC'S ONLY MATERIAL ASSETS CONSIST OF ITS
93% EQUITY INTEREST IN COMPLETEL HOLDINGS, WHICH (THROUGH ITS WHOLLY OWNED
SUBSIDIARY COMPLETEL (N.A.) N.V.) OWNS 100% OF THE OUTSTANDING CAPITAL STOCK
OF COMPLETEL EUROPE.
INTRODUCTION
CompleTel Europe N.V. is the European holding company for a group of
companies whose ultimate parent is CompleTel LLC, a Delaware limited
liability company. CompleTel LLC indirectly owns 93% of CompleTel Europe
and its subsidiaries. We began our present business in January 1998 when we
formed CompleTel LLC. CompleTel Europe was incorporated in December 1998 in
connection with a reorganization of the holding company structure to permit
the issuance of the high yield notes described below. We accounted for these
transactions as a reorganization of entities under common control, similar to
a pooling of interests. This discussion reviews the financial position of
CompleTel Europe and its subsidiaries as if they had been formed and were a
consolidated entity since January 1998. In this discussion "we" and "our"
refer to CompleTel Europe N.V. and its subsidiaries.
RESULTS OF OPERATIONS
Our consolidated net loss during the second quarter and the six-month
period ended June 30, 1999, was $10.3 million and $16.2 million,
respectively, compared to $1.2 and $1.5 million in the corresponding periods
of 1998. The increase was primarily the result of substantial start-up costs
of the operating subsidiaries, especially our French subsidiary. Start-up
facilities-based telecommunications companies, such as ours, typically incur
large capital expenditures to construct their networks, obtain operating
licenses, and obtain equipment, hardware and software to operate their
networks. Start-up telecommunications companies also normally incur
significant marketing and other expenses as they begin commercial operations.
We began to depreciate and amortize our telecommunications network capital
costs upon the launch of our services in June 1999. We have expensed and
will continue to expense all other start-up and organization costs in
accordance with generally accepted accounting principles.
In view of our highly leveraged capital structure, we consider EBITDA to
be an important performance measure. Conceptually, EBITDA measures the
amount of income generated each period that could be used to service debt,
because EBITDA is independent of the actual leverage employed by the
business; but EBITDA ignores funds needed for capital expenditures and
expansion. Some investment analysts track the relationship of EBITDA to
total debt as one measure of financial strength. However, EBITDA does not
represent cash provided or used by operating activities and you should not
consider EBITDA in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
You also should be aware that EBITDA may differ significantly from cash
flows from operating activities as reflected in a statement of cash flows
computed in accordance with generally accepted accounting principles. Cash
from operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash (vs. accrual) basis,
exclusive of non-cash items of income and expenses such as depreciation and
amortization. In contrast, EBITDA is derived from accrual basis income and
is not adjusted for changes in working capital or accruals for interest and
taxes. Consequently, EBITDA is not affected by the timing of receivable
collections or when accrued expenses are paid. We are not aware of any
uniform standards for determining EBITDA. Presentations of EBITDA may not be
calculated consistently by different companies in the same or similar
businesses. As a result, our reported EBITDA may not be comparable to
similarly titled measures used by other companies.
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During this start-up stage, we have experienced significant operating
losses and negative EBITDA. We expect to continue to generate negative
EBITDA in each market, as we emphasize development, construction and
expansion of our business, until we have established a sufficient
revenue-generating customer base in that market. We expect to experience
increasing operating losses and negative cash flows from operations as we
expand our operations and enter new markets, even if and after we have
achieved positive cash flow from operations in our initial markets. From
inception (January 8, 1998) through June 30, 1999, we had operating losses of
$20.8 million, net losses of $23.7 million, and negative EBITDA of $20.6
million.
REVENUES
We generated no revenues from inception (January 8, 1998) through March
31, 1999. For the three months ended June 30, 1999, revenues totaled
$321,000. Since January 1998, we have developed and refined our business
plans, procured regulatory and governmental authorizations for our initial
five markets, raised capital, hired management and other key personnel,
designed, developed and begun installing our fiber-optic networks and
operation support systems, obtained bank and vendor financing commitments and
negotiated equipment and facilities agreements. During the same time period,
our French operating subsidiary has entered into an interconnection agreement
with France Telecom, has procured most of the rights-of-way agreements for
the initial French markets, has begun installing switches and fiber, has
completed one acquisition and in June 1999 launched commercial services in
two markets.
We expect to generate most of our revenues from local access, local
usage, special access and private line services, from long-distance resale
and from Internet access sales, all to high-volume end-users. We may also
pursue additional acquisitions during 1999, which will supplement our core
strategy in our initial markets.
We intend to price our services competitively and we may offer combined
service discounts designed to give customers incentives to buy a portfolio of
services from us. We plan generally to price our costs for local service at
a discount to the incumbent providers. However, although pricing will be an
important part of our strategy, we believe that customer relationships,
customer care, and consistent quality will be the keys to generating customer
loyalty and to minimizing customer churn. Our marketing plan includes
various sales promotions to win customers, including free installation and
risk-free trials, especially in the first few years as we establish a market
presence.
OPERATING EXPENSES
Our primary operating expenses during 1999 will consist of network
costs, selling, general and administrative expenses, and depreciation and
amortization expenses.
NETWORK COSTS
Our network costs include costs such as:
- the cost of leasing high capacity digital lines that interconnect our
network with the networks of other providers;
- the cost of leasing local loop lines that connect our customers to our
network;
- switch site rent, operating and maintenance costs; and
- network operations center rent, operating and maintenance costs.
Network costs totaled $430,000 for the second quarter of 1999, compared to
$134,000 for the first quarter. We expect these costs will increase as we
expand our networks and initiate services.
We are deploying digital switching platforms with hybrid local and long
distance capability and constructing fiber and wireless local loops in our
selected markets in France and Germany. This
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requires us to invest a significant amount of funds to develop the central
office switch sites, deploy the transmission and distribution electronics,
and invest in quality information technology software (for example, billing
and traffic management).
In January 1999, our French operating subsidiary entered into an
equipment supply agreement with Matra Nortel Communications to provide
switches and related equipment and services in our markets in France. At the
same time, we entered into an agreement with Nortel plc establishing certain
guidelines for any future agreements we may make with Nortel affiliates to
purchase equipment and services in other countries within the European Union
where we may establish a network.
We expect switch-site and operation service center lease costs to be a
large fixed component of our ongoing cost of services. We will also lease
dark fiber and conduit to establish and augment our networks in certain
markets. We expect these additional lease costs to increase as we increase
the size of our networks and to be a significant component of our cost of
services in some markets.
We expect interconnection costs to be a major portion of our cost of
services. To enter a market and make ubiquitous calling available to
customers, we must enter into interconnection agreements with incumbent
providers. Typically, interconnection agreements set the fixed and variable
costs to be charged by each party for calls that are exchanged between the
two carriers' networks. Generally, a carrier must compensate another carrier
when a call by the first carrier's customer terminates on the second
carrier's network. These costs will grow as our customers' outbound call
volume grows. We expect, however, to generate revenue from other carriers
for inbound calls to our customers. These inbound revenues will offset our
outbound interconnection costs to some extent. In December 1998, our French
subsidiary entered into an interconnection agreement with France Telecom. In
June 1999, our German subsidiary entered into an interconnection agreement
with Deutsche Telekom.
We plan to enter into resale agreements with long distance carriers to
provide us with transmission services. Typically, long distance carriers
resell their services on a per-minute basis and may require us to make a
minimum volume commitment and to pay underutilization charges if we don't
meet the minimum commitment. If we underestimate our need for transmission
capacity, we may be required to obtain capacity through more expensive means.
We expect these costs will be a significant portion of our cost to deliver
long distance services. These costs will increase as our customers' long
distance calling volume increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $5.5 million to
$6.7 million for the quarter ended June 30, 1999, compared to $1.2 million
for the same quarter in 1998. Our selling, general and administrative
expenses include infrastructure costs, such as selling and marketing costs,
customer care, billing, corporate administration, salaries and other
personnel costs, network maintenance, and legal fees. For the six-month
period ended June 30, 1999, selling, general and administrative expenses
totaled $10.6 million compared to $735,000 for the same period in 1998. This
increase was primarily due to the rapid growth of salaries and other
personnel costs in our startup.
We are assembling a large, locally based, direct sales force in our
local and regional markets and a national account team to service multiple
location customers and key account executives. To attract and retain a
highly qualified sales force, we plan to offer our sales and customer-care
personnel a highly competitive compensation package. The number of employees
increased from 3 as of June 30, 1998 to 206 as of June 30, 1999. On June
30, 1999 we had a sales force of 59 (including managers and administrators),
compared to none on June 30, 1998. We expect the number of sales and
marketing personnel to grow significantly as we prepare to introduce our
services in the initial markets and as we expand into new markets. We
expect our selling and marketing costs will increase as we develop and expand
our operations.
We have incurred and will continue to incur significant costs as we
continue to develop and implement our customer support and network support
systems. We also will incur ongoing expenses for customer care and billing.
Since our strategy stresses the importance of personalized customer care, we
expect the expense of running our customer-care department to be a large part
of our
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ongoing administrative expenses. Billing will also be a significant part of
our ongoing administrative expenses.
We incur other costs and expenses associated with the maintenance of our
networks, administrative overhead, office leases and bad debt. We expect
that administrative overhead will be a large portion of these expenses during
the start-up phase of our business. We also expect that these costs will
grow as we expand our operations but that they will become smaller as a
percentage of revenue as we build our customer base.
MANAGEMENT FEES TO AFFILIATED PARTY
Our ultimate parent, our European holding company, and each of the
entities between our ultimate parent and the operating subsidiaries, incur
overhead costs and expenses associated with their holding company operations.
Our operating subsidiaries bear these costs and expenses. During 1998, our
ultimate parent, CompleTel LLC, and its wholly owned subsidiary, CableTel
Management, Inc., a Colorado corporation, entered into an agreement for
CableTel Management to provide management services for CompleTel LLC and all
the other companies in the group. The companies pay CableTel Management a
management fee of 105% (103% for periods prior to the end of January 1999) of
all allocated costs, expenses, charges and disbursements that CableTel
Management incurs in rendering services to each of the companies. For the
three and six months ended June 30, 1999, we recorded $1.1 million and $2.0
million, respectively, of related-party management fees. For the period from
inception to June 30, 1999, we have recorded $5.0 million of such fees.
DEPRECIATION AND AMORTIZATION
We have recorded depreciation and amortization expense of $285,000 for
the three months ended June 30, 1999, compared to $3,000 for the three months
ended March 31, 1998. For the six months ended June 30, 1999, we have
recorded depreciation and amortization expense of $423,000, compared to
$4,000 for the similar period in 1998. This increase is due to increases in
non-network related property and equipment. We started recording network
depreciation during the quarter ended June 30, 1999, when we initiated
network services.
OTHER INCOME AND EXPENSE
We have incurred interest expense of $2.9 million and $4.2 million
during the second quarter and the six months ended June 30, 1999,
respectively. The interest expense recorded reflects the accretion of the
notes and the amortization of deferred financing costs. Interest income for
the same periods was $1.0 million and $1.6 million, respectively, which
represents the investment of the proceeds from the high-yield notes and the
investment of the available cash from the equity contributions.
In addition to the above expenses, some of our employees have purchased
common units of CompleTel LLC for which CompleTel LLC incurs non-cash
compensation charges. For accounting purposes, we will record such non-cash
compensation charges as a deemed capital contribution.
FOREIGN EXCHANGE AND INTEREST RATES
We are exposed to changes in currency exchange rates because our
revenues, costs, assets and liabilities are, for the most part, denominated
in local currencies. As a result, our financial condition and results of
operations, as reported in U.S. dollars, may be affected by changes in the
value of the local currencies in which we transact business. The notes also
expose us to exchange rate fluctuations as the payment of principal and
interest on the notes will be made in U.S. dollars, and a substantial portion
of our future cash flow used to service these payments will be denominated in
local currencies, including the euro. We expect that under the senior credit
facility we will be required to maintain financial hedging instruments to
offset some of the interest rate and exchange rate risks with respect to the
notes during the term of the senior credit facility. While we intend to take
steps to minimize interest rate and exchange rate risks, we cannot assure you
that we will not be materially adversely effected by variations in interest
rates and currency exchange rates.
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LIQUIDITY AND CAPITAL RESOURCES
Due to the start-up nature of our company, we reflect operating cash
flow deficits of $13.3 million for the six months ended June 30, 1999, and
$8.3 million for the period from inception (January 8, 1998) to June 30,
1999. These operating cash flow deficits are the result of the development
and expansion of our operations. Our cash flows from investing and financing
activities are discussed below.
The telecommunications business is capital intensive. Since January
1998, and for the foreseeable future, we will need large amounts of capital
to fund capital expenditures, working capital, debt service, and operating
losses. As of June 30, 1999, we had $84.8 million of cash and short-term
investments and net working capital of $74.8 million.
Based on our current business plan and projections, we estimate that we
will need approximately $240 million to fund the deployment and operation of
networks in our initial five target markets (including requirements to
finance capital expenditures, working capital, financing costs, and debt
service in those markets) through the end of 2001. Since January 1998,
CompleTel LLC has received $65.8 million in private equity contributions, of
which $59.5 was contributed to our French operating subsidiary. Our issuance
in a February 1999 units offering consisting of high yield notes and equity
interests resulted in gross proceeds to the Company in respect of the units
of approximately $75.0 million of which $70.5 million was allocated to the
notes, which represents a substantial discount from the $147.5 million
aggregate stated principal amount at maturity of the notes. Cash interest
will not accrue on the notes prior to February 15, 2004. Commencing
February 15, 2004, interest on the notes will accrue at 14% per annum and
will be payable in cash on August 15 and February 15 of each year. For
accounting purposes, the effective interest rate on the notes is
approximately 15.1% including amortization of the discount and the deferred
financing costs. The units offering was closed in escrow. In April 1999, we
received out of the escrow $73.1 million in net proceeds and interest, a
portion of which we used to pay costs of the offering.
We also have commitments for senior financing of $90 million to fund
development and operations in France. To implement the senior credit
facilities, we must satisfy customary closing conditions. After
implementation, we will need to satisfy additional financial and other
conditions to draw on the available credit. These conditions are described
in the section entitled "Description of Certain Indebtedness."
Based on our current level of funding and commitments, we believe we
have sufficient financing to fund our planned deployment and operations
through the end of 2001 in our four initial markets in France. But, we will
need to secure approximately $15.0 million additional financing to fully fund
our planned development in our initial market in Germany. We are currently
seeking bank and vendor financing to complete our financing plan for that
market.
We have begun evaluating the deployment of networks in three additional
target markets in France (Toulouse, Nice, Grenoble) and in three additional
target markets in Germany (Munich, The Ruhr, and Nuremberg). We are
currently in discussions to increase the senior credit facility commitments
in France to $140 million. We believe that we will need approximately $150
million of additional funding to finance our development in the six
additional markets in France and Germany. We have no assurance that we will
succeed in securing sufficient funding. If we are unsuccessful, we may have
to alter our deployment plans. We will proceed with these development plans
if we can secure sufficient financing and, in the case of the German markets,
the necessary licenses and regulatory approvals.
We have had, and will continue to have, discussions concerning potential
acquisitions of Internet service providers and other providers of
telecommunication services to augment and expedite our business strategy.
Subject to the availability of funds, we intend to pursue attractive
acquisition opportunities. In March 1999, our French operating company
acquired all of the outstanding stock of Acces Internet et Solutions
S.A.R.L., an Internet service provider based in Lyon. In June 1999, our UK
operating company acquired all of the outstanding stock of Web International
Networks Limited, an Internet service provider based in London.
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The actual amount and timing of our future capital requirements may
differ materially from our estimates as a result of, among other things:
- the cost of development of the networks in each market;
- demand for our services;
- regulatory, technological, or competitive developments, including new
market developments and opportunities within or outside of the initial
markets;
- any change in development plans or projections that leads to
alterations in the roll-out plan schedule or targets;
- the decision to pursue joint ventures, strategic alliances and
acquisition opportunities;
- the decision to deploy networks in other markets beyond the initial
markets.
As such, our actual costs and revenues may vary from expected amounts,
possibly by a significant degree. Any variation is likely to affect our
future capital requirements.
During the quarter and the six months ended June 30, 1999, we made
capital expenditures of $15.9 million and $26.9 million, respectively, for
property and equipment necessary to deploy networks in our initial markets.
During the same periods in 1998, we expended $297,000 and $308,000,
respectively, for similar capital expenditures. We also used capital during
both of these periods to fund operations. Excess cash was invested in
short-term investments and money market investments.
IMPACT OF THE YEAR 2000
The "year 2000" generally describes 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 only the last two digits of the year to identify the year in a date
field. If a computer program or other piece of equipment fails to properly
process dates including and after the year 2000, the computer's calculations
may be inaccurate and equipment may malfunction. The failure to process
dates could result in system failures or miscalculations causing disruptions
in operations including, among other things, a temporary inability to process
transactions, send invoices or engage in other routine business activities.
STATE OF READINESS. Generally, we have identified two areas for year
2000 review: internal systems and operations, and external systems and
services. As a new enterprise, we are not burdened internally with legacy
systems that are not year 2000 ready. As we develop our network and support
systems, we intend to ensure that all systems will be year 2000 ready. We
are purchasing our customer and network support systems with express
specifications, warranties and remedies that all systems be year 2000 ready.
However, until well into the year 2000, we cannot assure you that all systems
will function adequately. Also, we intend to sell our telecommunications
services to companies that may rely upon computerized systems to make
payments for our services, and to interconnect certain portions of our
network and systems with other companies' networks and systems. These
transactions and interactions potentially expose us to year 2000 problems
arising in these other companies' systems.
We are in the process of contacting our external suppliers, vendors and
providers to obtain information about their year 2000 readiness. Based on
that information we are assessing the extent to which these external
information technology and non-information systems (including embedded
technology) could cause a material adverse effect on our operations in the
event that these systems fail to properly process date-sensitive calculations
after December 31, 1999.
Our assessment of our year 2000 readiness is ongoing as we continue to
develop our operations support systems and as we become reliant on the
systems of additional third parties as we expand our business into additional
markets. As a result, in the future we may identify a significant
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internal or external year 2000 issue which, if not remedied in a timely
manner, could have a material adverse effect on our business, financial
condition and results of operations.
COSTS TO ADDRESS YEAR 2000 ISSUES. We have used our internal
information technology and other personnel, not outside consultants, to
identify year 2000 issues. As a result, we have not incurred any significant
costs in identifying issues. We also do not anticipate any significant costs
to insure that our internal systems are year 2000 compliant because we do not
expect that any remediation will be required. Because we have not identified
any material year 2000 issues in connection with external sources, we cannot
reasonably estimate costs that may be required for remediation or for
implementation of contingency plans. As we gather information relating to
external sources of year 2000 issues, we will reevaluate our ability to
estimate costs associated with year 2000 issues. Despite our efforts, we
cannot assure you that as additional year 2000 issues are addressed, our
costs to remediate such issues will be consistent with our historical costs.
RISKS OF YEAR 2000 ISSUES. We cannot reasonably ascertain the extent of
the risks involved in the event that any one system fails to process
date-sensitive calculations accurately because we have not identified any
material year 2000 issues. Potential risks include:
- the inability to process customer billing accurately or in a timely
manner;
- the inability to provide accurate financial reporting to management,
auditors, investors and others;
- litigation costs associated with potential suits from customers and
investors;
- delays in implementing other information technology projects as a
result of work by internal personnel on year 2000 issues;
- delays in receiving payment or equipment from customers or suppliers
as a result of their systems' failure; and
- the inability to occupy and operate in a facility.
Any one of these risks, if they materialize, could individually have a
material adverse effect on our business, financial condition or results of
operations.
All of our information technology and non-information technology systems
and products are manufactured or supplied by third parties outside of our
control. As a result, we cannot assure you that the systems of any of those
companies will be year 2000 ready. In particular, we will be dependent upon
France Telecom, Deutsche Telekom, other incumbent public telecommunications
providers and other competitive providers and long-distance carriers for
interconnection and completion of off-network calls. These interconnection
arrangements are critical to our ability to conduct our business and failure
by any of these providers to be year 2000 ready may have a material adverse
effect on our business in the affected market. We have recently been
informally notified by France Telecom that they may need to redirect their
technicians' attention on year 2000 problems during the last quarter of 1999.
If year 2000 problems arise for France Telecom, the interconnections that we
need to put certain of our additional target markets in France into service
may be delayed unless we are able to purchase services from operators that
already are interconnected to France Telecom. France Telecom could not
indicate the likelihood or scope of delays they expect to occur.
Moreover, although we have taken precautions to purchase our internal
systems to be fully year 2000 ready, we cannot assure you that every vendor
will fully comply with year 2000 readiness requirements. If some or all of
our internal and external systems fail or are not year 2000 ready in a timely
manner, there could be a material adverse effect on our business, financial
condition or results of operations.
CONTINGENCY PLANS. Even though we have not identified any specific year
2000 issues, we believe that the design of our networks and support systems
could provide us with operating contingencies in the event critical external
systems fail. For example, in most of our markets we have established or
intend to establish interconnection agreements with the incumbent provider
and other regional and international carriers with points of presence in that
market to have the ability to remote traffic to another carrier should one
fail for any reason including year 2000 problems. As a result, in large
markets such as Paris or London, and even in smaller markets such as Lyon, if
we are able to interconnect with all carriers, we believe the risk of
complete loss of interconnection should be reduced. This may not be the
case, however, in other markets where the incumbent public
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telecommunications provider may be the only interconnection provider. In
that case, if the carrier fails, there may be nothing we can do to mitigate
the impact of that failure on our operations.
We have attempted to ensure that our own operations facilities and
systems are fully backed up with auxiliary power generators capable of
operating all equipment and systems for indefinite periods should power
supplies fail, subject to the availability of fuel to run these generators.
We also have the ability to relocate headquarters and administrative
personnel to one of our backed-up facilities should power and other services
at our Paris headquarters fail. Despite these contingency plans, which are
intended to avoid singular significant disruptions, we cannot assure you that
we will not experience numerous disruptions, individually insignificant, but
in the aggregate sufficient to cause a material disruption to our operations.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
(excluding Denmark, Greece, the United Kingdom and Sweden, which may convert
to the euro at later dates) established fixed conversion rates between their
then existing sovereign currencies (the legacy currencies) and the euro and
adopted the euro as their common legal currency on that date. The legacy
currencies are scheduled to remain legal tender in the participating
countries as denominations of the euro until January 1, 2002. During the
transition period, public and private parties may pay for goods and services
using either the euro or the participating countries' legacy currency.
Because our company is newly established, we are not burdened with
systems that must be redesigned to accommodate the introduction of the euro.
We have purchased and specified our business support systems, including
billing, to accommodate euro transactions and dual currency operations during
the transition period. In addition, we intend to require all vendors
supplying third party software to us to warrant compliance.
We will be dependent on banks, customers and other providers to complete
business transactions and we will be exposed to problems inherent in these
third-party systems. During the transition period, to the extent we are
supplying local and national service, we can continue billings and
collections in the legacy currency to avoid euro conversion problems.
However, to the extent we have international transactions, we will be exposed
to euro-related risks.
The establishment of the European Monetary Union may have a significant
effect on the economies of the participant countries. While we believe that
the introduction of the euro will eliminate exchange rate risks in respect of
the currencies of those member states that have adopted the euro, there can
be no assurance as to the relative strength of the euro against other
currencies. Since a substantial portion of our net sales will be denominated
in euro or legacy currencies of participant countries, we will be exposed to
that risk.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INVESTMENT PORTFOLIO AND INTEREST RATE SENSITIVITY. Our investment
policy is limited by the indenture for the notes. We are restricted to
investing in financial instruments with a maturity of one year or less (with
certain limited exceptions). The indenture requires investments that meet
high credit quality standards, such as obligations of the United States
government or any European Economic Community member government or any agency
thereof guaranteed by the country, certificates of deposits, money market
deposits, and commercial paper with a rating of A-1 or P-1.
Interest income earned on our investment portfolio is affected by
changes in short-term interest rates. We are thus exposed to market risk
related to changes in market interest rates. To date, we have managed these
risks by monitoring market rates and the duration of our investments.
We do not think we are exposed to significant changes in fair value of
our investment portfolio because of our conservative investment strategy.
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IMPACT OF FOREIGN CURRENCY RATE CHANGES. We are exposed to foreign
exchange rate changes related to our operating subsidiaries' monetary assets
and liabilities and to the financial results of those foreign subsidiaries
when their respective financial statements are translated into U.S. dollars
in consolidation.
Our operating subsidiaries' monetary assets and liabilities are subject
to foreign currency exchange risk because purchases of network equipment and
services are denominated in currencies other than the subsidiary's their own
functional currency.
The spot rates for the euro and the pound sterling are shown below per
one U.S. dollar.
<TABLE>
<CAPTION>
Euro Pound Sterling
---- --------------
<S> <C> <C>
December 31, 1998. . . . . . 0.86 0.60
March 31, 1999 . . . . . . . 0.93 0.62
June 30, 1999. . . . . . . . 0.97 0.63
</TABLE>
We intend to manage exchange rate risk by incurring financing
liabilities denominated in the currency of the county of operations. In
addition, we will continue to evaluate whether to adopt hedging strategies to
manage our exposure to foreign currency exchange rate risk.
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BUSINESS
OVERVIEW
Our strategic objective is to become a leading facilities-based operator
of a technologically advanced, high bandwidth, fiber optic communications
infrastructure and provider of telecommunications and related services to
business and government end-users, supplemented with wholesale services to
carriers and Internet service providers, in targeted metropolitan areas
across Western Europe. Through our advanced networks, we intend to offer a
broad range of fully integrated telecommunications services, which we will
combine with an emphasis on superior sales, marketing, and customer care. Our
initial services offerings consist of local access, special access and
private line services, Internet access, and long distance resale. The
state-of-the-art protocol transparent scalable technology platform we are
developing will enable us to supplement our initial service offerings over
time based on customer demand for enhanced services in each targeted market.
We were founded to capitalize on the significant opportunities created
by the size, growth potential, and increasing liberalization of
telecommunications in Western Europe. We believe that Western Europe
represents a one of the most significant telecommunications markets in the
world, but Western Europe, unlike the U.S., is just beginning to permit
competition in local exchange telecommunications markets. Our management
team has significant experience in the Western European telecommunications
industry and in developing newly-formed companies into successful going
concerns.
We expect the rate of growth in Western European telecommunications
revenues will increase as the historical dominance of the national public
telecommunications operators is challenged as a result of the opening of
telecommunications markets for competition. Considerable liberalization has
already taken place in the United Kingdom, and liberalization is rapidly
increasing in other Western European countries, driven by European Commission
directives requiring European Union member states to have liberalized the
provision of voice telephony services not later than January 1, 1998.
Initially, we will focus on network deployment in France and Germany.
Our deployment plan in France includes the deployment of networks initially
in four metropolitan markets, and our network in Germany will consist of the
deployment of a network initially in selected areas of greater Berlin. In
each of our initial target markets in France and Germany, we intend to deploy
high bandwidth fiber optic communications networks linking our
state-of-the-art switching equipment with our customers, and to interconnect
our networks with those of the incumbent public telecommunications operator
and other telecommunications providers. Additionally, we intend to develop
data and Internet opportunities in France, Germany and the United Kingdom.
Based on current plans and expectations, we believe our current level of
funding and commitments are sufficient to fund our network deployment and
operations through the end of 2001 in our initial target markets in France.
We believe we have sufficient financing to begin our planned network
deployment and operations in our initial target market in Germany, and we are
currently seeking additional bank and vendor financing necessary to fund the
deployment and operations through the end of 2001. We have no assurance that
we will succeed in securing additional funding. If we are unsuccessful, we
may have to alter our current deployment plans.
Subject to obtaining necessary additional financing, we intend to deploy
networks in additional areas within France and Germany and eventually in
markets throughout Western Europe. We are analyzing market opportunities and
beginning network and business planning for three additional markets in
France (Toulouse, Nice and Grenoble), and three additional markets in Germany
(Munich, The Ruhr and Nuremberg). We refer to these six markets as our
"additional target markets." To fully deploy networks in our additional
target markets we will, however, need additional equity, vendor and senior
financing and, in the case of the German markets, licenses and regulatory
approvals.
On December 13, 1998, the French telecommunications
regulatory authority awarded our French operating subsidiary a fixed wireline
license and a service license for network deployment
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and the provision of services in 10 regions in France that we intend to
serve. Point-to-multipoint licenses are currently available in France only on
a limited and experimental basis through December 1999. We received a
point-to-multipoint license on June 9, 1999, to cover a portion of our
planned local loop in Marseilles from the French regulatory authorities. On
December 18, 1998, we entered into an interconnection agreement with France
Telecom. We began the deployment of our networks in France in January 1999
and initiated switched services in two of our four markets in France in June
1999. We plan to initiate switched services in the remaining two markets
during 1999.
On March 8, 1999 the telecommunications regulatory authority in Germany
granted our German operating subsidiary, CompleTel GmbH, Class 3 and Class 4
licenses for 3 markets in Germany including our initial target market
subsequently amended as of July 16, 1999 to include among others, our
additional markets. We are beginning deployment of our initial network in
Germany and plan to initiate service during 1999. In June 1999, we entered
into an interconnection agreement with Deutsche Telekom.
On January 11, 1999, the telecommunications regulatory authority in the
United Kingdom granted our United Kingdom operating subsidiary, CompleTel UK
Limited, a license to operate public telecommunications systems of any kind
in the United Kingdom. At this time, we do not intend to deploy networks in
the United Kingdom. Instead, we intend to establish a presence in the United
Kingdom by providing Internet access services while we continue to evaluate
network deployment. In June 1999, we acquired Web International Networks
Limited, a London based Internet service provider.
BUSINESS STRATEGY
Our business strategy seeks to:
- FOCUS ON PROVIDING FACILITIES-BASED LOCAL EXCHANGE SERVICES. We plan
to focus primarily on providing facilities-based competitive local
exchange and related services. We believe that this differentiates us
from many of the other recent market entrants in the Western European
telecommunications market that have concentrated on offering primarily
long distance access, carrier-to-carrier networks and resold services.
Only a limited number of facilities-based carriers have addressed the
local exchange market segment in Western Europe and these have focused
primarily on major financial centers (E.G., the City of London or the
La Defense section of Paris). Moreover, we believe that the regulatory
frameworks in France and other European Union countries currently
provide competitive advantages to facilities-based providers that are
willing to make the capital investment necessary to construct, own,
and operate local exchange networks. See our discussion in the
sections entitled "Regulation--France" and "--Germany."
- SELECTIVELY TARGET MAJOR METROPOLITAN MARKETS THROUGHOUT WESTERN
EUROPE. We seek to be highly selective in identifying target markets
and deploying our networks. Some of the largest metropolitan markets
in Western Europe have witnessed local exchange telecommunications
competition concentrated in their financial centers. We plan to
exploit selected areas of those large metropolitan markets that have
attractive demographics. Other metropolitan markets throughout Western
Europe have significant concentrations of high-volume
telecommunications users but have not yet experienced meaningful
facilities-based local exchange competition. In those other markets,
we are seeking to achieve deep deployment of our networks to
capitalize on the current lack of competition. Attractive markets are
characterized by a pro-competitive regulatory environment,
capital-efficient geographic clustering of potential customers, market
size sufficient to warrant capital expenditures, and low levels of
facilities-based local exchange competitive activity.
- ACHIEVE EARLY MARKET ENTRY. We seek to secure an early market position
in our initial target markets in order to obtain competitive
advantages including:
-- establishment of a loyal customer base prior to widespread
competition;
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-- early procurement of key technical and marketing personnel and
distribution channels;
-- achievement of name recognition as one of the early competitors
of the dominant incumbent public telecommunications operator; and
-- development of fiber and wireless transmission infrastructure
before the entry of other competitive local network providers.
To enter our initial target markets as quickly as possible and reduce
entry costs, we are employing a flexible approach to deploying our
local network technology. This flexible approach includes using a
combination of constructing fiber backbone, leasing dark fiber and
conduit, and building or leasing point-to-point and, possibly
point-to-multipoint, wireless transmission systems, as available and
appropriate in each market. In addition, we are seeking to
selectively acquire Internet service providers and other carriers in
our target markets in order to achieve early market entry and
establish customer lists.
- TARGET BUSINESS AND GOVERNMENT END-USERS, SUPPLEMENTED WITH WHOLESALE
SERVICES TO CARRIERS AND INTERNET SERVICE PROVIDERS. We plan to focus
principally on business and government end-user customers. We believe
that these customers generally:
-- are geographically concentrated and therefore provide an
opportunity to leverage an efficiently deployed local exchange
network;
-- are high-volume users that have large telecommunications budgets
and require a broad range of sophisticated telecommunications
services; and
-- are interested in high-quality alternatives to the incumbent
public telecommunications operator.
We intend to supplement our core end-user-focused business strategy by
selectively supplying wholesale services, including special access,
equipment collocation, and facilities management services, to Internet
service providers and telecommunications carriers.
- EMPLOY AN APPROACH TO NETWORK DEPLOYMENT BASED ON THE DEMAND FOR
SERVICES. Prior to entering a market, we perform a detailed analysis,
reviewing the demographic, competitive, economic, and
telecommunications demand characteristics. We use the results of this
analysis, together with other information and a detailed capital cost
forecasting model, to identify clusters of business establishments and
buildings with geographically concentrated populations of target
customers, determine the optimal scope of areas to be served, and
develop our plan and schedule for network construction and expansion.
From this analysis, we direct our sales programs toward large business
and government end-users, carriers and Internet service providers
located in buildings strategically positioned within attractive
building clusters. After we acquire the "anchor tenant" customers, we
seek to add other customers within the anchor buildings and then in
other nearby buildings that are accessible directly from our fiber
networks or, where available, through point-to-point and, possibly,
point-to-multipoint wireless transmission systems.
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MARKET OPPORTUNITY AND TARGET MARKETS
MARKET OPPORTUNITY. We believe that Western Europe represents a rapidly
growing telecommunications market opportunity. Initially, we have targeted
three countries that represent greater than 50% of the Western European
telecommunications market for our operations.
The following table sets forth telecommunications market statistics as
of 1997 year end.
<TABLE>
<CAPTION>
PERCENTAGE OF ACCESS 1997 PERCENTAGE OF
TELEPHONE LINES IN TELECOMMUNICATIONS REVENUE IN
COUNTRIES ACCESS LINES WESTERN EUROPE REVENUE WESTERN EUROPE
--------- ------------ -------------------- ------------------ --------------
<S> <C> <C> <C> <C>
France 33.7 million 17.0% $26.9 billion 14.8%
Germany 45.2 million 22.8% $46.1 billion 25.3%
United Kingdom 31.9 million 16.1% $32.4 billion 17.8%
Total 110.8 million 55.9% $105.4 billion 57.8%
Western Europe 198.0 million 100% $182.1 billion 100%
</TABLE>
-----------------
Source: International Telecommunications Union
FRENCH TELECOMMUNICATIONS MARKET. According to industry data, France is
among the three largest telecommunications markets in Europe in terms of
telephone access lines and total telecommunications revenue. We believe that
the local market in France remains relatively unaffected by competition
because fiber deployment by competitive carriers other than France Telecom
has predominately been in the long haul area, and facilities-based local
exchange competitors have to date primarily focused on the major financial
centers in and around Paris. We believe that the liberalization of the French
telecommunications market represents a particularly attractive initial
opportunity because France has adopted a comprehensive regulatory scheme
providing for attractive interconnection costs and other terms for local
facilities-based providers.
France Telecom's rate rebalancing plan is expected to be completed by
the end of 1999. The rebalancing has resulted in an average price increase at
the local level of 16% compound annual growth rate per year from 1994 to
1997, which has further increased potential profit margin opportunities for
new local loop competitors such as CompleTel. We believe that our ability to
provide a broad product offering, superior local customer care and service
price discounts will give us a competitive advantage over France Telecom.
Further, we believe that our presence in France's four largest markets will
enable us to attract business and government customers with multiple
locations in one or more of our markets.
GERMAN TELECOMMUNICATIONS MARKET. According to industry data, Germany
is the largest telecommunications market in Europe, and third largest in the
world. Germany's incumbent public telecommunications operator, Deutsche
Telekom, has established a priority to upgrade the infrastructure in Eastern
Germany following reunification. The size of the German telecommunications
market is encouraging competition and the regulatory landscape has been
liberalized, minimizing entry requirements. We anticipate that our initial
target market and three additional markets in Germany will allow us to serve
a key customer base of businesses and government facilities in selected areas
in which little infrastructure-based competition exists.
UNITED KINGDOM TELECOMMUNICATIONS MARKET. According to industry data,
the United Kingdom is also one of the three largest telecommunications market
in Western Europe in terms of telecommunications revenue and telephone access
lines. The United Kingdom has been at the forefront of privatization in
Europe. Since 1992, the United Kingdom has allowed competition in its
telecommunications market. The first local exchange competitors to the United
Kingdom's incumbent public telecommunications operator, British Telecom, were
cable television companies
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and Cable & Wireless Communications. In recent years, the United Kingdom's
local exchange competitors have expanded to include competitive carriers at
all levels of service.
INITIAL MARKETS.
In identifying initial markets and deploying our networks, we seek
markets that have a pro-competitive regulatory environment and
capital-efficient geographic clustering of potential customers. We also
analyze whether the market size of a potential market would be sufficient to
warrant capital expenditures, and contains acceptable levels of
facilities-based local exchange competitive activity. We plan to exploit
selected areas of large metropolitan markets that have attractive
demographics. We have identified five markets in France and Germany as our
initial target markets for network deployment and intend to provide Internet
access services in France, Germany and the United Kingdom.
The following table identifies and sets forth population information as
of December 1997 in our initial markets:
<TABLE>
<CAPTION>
MARKET POPULATION
- ------ ----------
<S> <C>
Paris (1)(2) . . . . . . . . . . . . . . . . . . . . . . 9,469,000
Lyon . . . . . . . . . . . . . . . . . . . . . . . . . . 1,275,000
Marseilles . . . . . . . . . . . . . . . . . . . . . . . 1,225,000
Lille . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020,000
Berlin . . . . . . . . . . . . . . . . . . . . . . . . . 3,454,000
London(1) . . . . . . . . . . . . . . . . . . . . . . . 8,017,000
</TABLE>
- -----------
(1) Figures for each of Paris and London are for such metropolitan areas as a
whole.
(2) We currently plan to deploy networks only in certain areas of this market
that have experienced limited facilities-based competition.
Source: International Telecommunications Union, 1997
SERVICE OFFERINGS
We are positioning CompleTel as a provider of a broad range of high
quality telecommunications services including enhanced services available
only on a limited basis from public telecommunications operators such as
France Telecom. In addition to providing local exchange and enhanced services
through our own local access networks, we expect to provide long distance
services through strategic alliances or resale agreements. We also plan to
provide Internet access services either through our own facilities, through
resale, or through other strategic arrangements. We believe that the close
contact with customers achieved from our direct sales force and customer care
personnel will enable us to tailor our service offerings to meet customers'
needs and to creatively package our services to provide customized solutions
for those customers who desire one supplier of telecommunications services.
Our initial services offering in each market will consist of local
exchange services, dedicated access and private line services, Internet
access and long distance resale. Consistent with our revenue-led network
deployment strategy, the state-of-the-art, protocol transparent, scalable
technology platform that we are developing will enable us to augment this
offering as appropriate based on customer demand for enhanced services in
each targeted market. We expect that our available service offering will
include the following:
- LOCAL EXCHANGE SERVICES. We plan to offer "dial tone" service
providing local switched connections together with:
-- Calling features, including forwarding, speed dialing, call
waiting, automatic call distribution, call transfer, conference
calling, calling line identification presentation, calling line
identification restriction, and direct dialing inwards.
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-- Centrex services where telephone density is high and customers
desire similar services, such as in office buildings or
campus-type environments. Digital Centrex service provides
customers with an alternative to the use of a private
automated branch exchange. A private automated branch exchange
is an automated switching system within an office building
that allows calls from the outside to be routed directly to
the individual instead of being routed through a central
number. It also allows for calling within an office by way of
three or four digit extensions. Centrex can simulate this
service from an outside switching source. Centrex customers
can avoid the large investment in equipment and fixed costs
associated with maintaining a private automated branch
exchange infrastructure, while benefiting from a sophisticated
telecommunications system.
- DEDICATED ACCESS AND PRIVATE LINE SERVICES. We plan to offer several
types of dedicated access and private lines to end-user and carrier
customers. Dedicated access and private line services are established
as a permanent physical connection between locations for the exclusive
use of the customer purchasing them. Our local dedicated access and
private line services will be available over our own networks at
transmission speeds from 64 kilobits per second to 622 megabits per
second. We plan to offer the following types of dedicated access and
private line services:
-- Carrier-to-carrier dedicated access, which connects carriers
(E.G., long distance providers, Internet service providers,
wireless carriers) to other carriers.
-- End-user-to-long-distance-provider dedicated access, which
connects end users to their chosen long distance providers.
-- Private line service, which is a dedicated line connecting two
end-user locations for voice and data applications.
- INTEGRATED SERVICES DIGITAL NETWORK AND HIGH SPEED DATA SERVICES. We
will offer high speed data transmission services, including:
-- Integrated services digital network ("ISDN") services permit the
upgrade of an analog, copper twisted-pair network to an
all-digital mode of operation. This technology can provide both
traditional circuit switching and data services. ISDN can carry
voice, video and data traffic. We plan to market ISDN not only
as business lines, but also as a means to provide bandwidth on
demand for connectivity of corporate wide area networks ("WANs"),
which involve longer distances, and remote local area network
("LAN"), which involve shorter distances, Internet related access
applications, video-conferencing and as a leased line backup.
-- Frame relay services, which provide high speed transmission
capability by organizing data into units called "frames" instead
of providing fixed bandwidth as with private lines. Frame relay
is designed to operate at high speeds on modern fiber optic
networks. Frame relay services have been available for some time
in Europe, but have not been successfully marketed. In France,
France Telecom has been more successful at marketing frame relay
services largely because of the acceptance of its X.25 data
communications networks. We plan to offer frame relay services as
an alternative to dedicated data circuits.
-- Asynchronous transfer mode ("ATM") services, which are designed
to provide a cost-effective means for customers to simplify and
improve their network data communications. ATM is a switching and
transmission technology that is one of a general class of packet
technologies that relay traffic by way of an address contained
within the first five bits of a standard fifty-three bit-long
"packet" or "cell " ATM based packet transport was specifically
developed to allow the switching and transmission of mixed voice,
data and video information at varying rates. ATM services appeal
to customers with requirements to move large amounts of
information between locations quickly and reliably and can be
used by many different information systems including LANs. With
transmission speeds of up to
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155 megabits per second, ATM is one of the fastest data
transmission services available. ATM enables companies that
utilize this technology to simplify their telecommunications
network architecture and provides greater flexibility in the
event of network growth or alterations. Common applications for
customers purchasing ATM service will include interconnection
of customer LANs between two or more locations, connecting
customer locations to data service providers who offer data
back-up, disaster recovery or data archiving services and high
speed Internet access to Internet service providers connected
to our network.
- ENHANCED INTERNET SERVICES. We plan to offer dedicated and dial-up
high speed Internet access services via conventional modem
connections, ISDN, digital subscriber line ("DSL"), and E-1 and
higher speed connections.
- INTERNET PROTOCOL SERVICES. We believe that, as technology advances, a
range of Internet, intranet, and extranet protocol services designed
for business communications and information services will be provided
over networks utilizing "Internet protocol" technology. These services
will include traditional voice and fax services, as well as other
services such as virtual private networks. To address this market
sector, we are designing our networks to be "protocol transparent,"
which means that the networks can handle voice and data communications
transmitted using traditional, Internet protocol and other
technologies. We intend to develop and offer gateway-based services
for Internet access and seamless interconnection to the public
switched telephone networks or PSTNs.
- WEB SITE DESIGN AND HOSTING SERVICES. We intend to offer Web site
design services and will offer Web site hosting on our own computer
servers to provide customers with a turn-key solution that gives them
a presence on the World Wide Web.
- SWITCHED ACCESS TO LONG DISTANCE SERVICES. We intend to offer switched
access to long distance service which will allow end-user customers to
be connected to long distance providers on a "demand" or call-by-call
basis (E.G., when a customer dials a provider-specific prefix). Such
services will be provided based on the assignment of single- or
multiple-digit prefixes for all long distance providers. We are
currently negotiating resale agreements with long distance providers
to enable us to purchase long distance services at a wholesale rate
and offer these services to customers that require both local and long
distance voice services. In France, we may be required by the French
regulatory authorities to provide our end-user customers with equal
access to the long distance providers of their choice by 2000.
- FACILITIES AND SYSTEMS INTEGRATION SERVICES. We plan to assist
individual customers with the design and implementation of turn-key
solutions in order to meet their specific communication needs,
including the selection of the customer's premises equipment,
interconnection of LANs and WANs, provision of Intelligent Network
applications and implementation of virtual private networks. Our
managed LAN services are being designed to provide customers with a
seamless network by the integration of their existing LAN and
providing flexibility to accommodate network growth or alterations. We
plan to provide managed LAN connection services at speeds ranging from
128 kilobits per second to 100 megabits per second for WANs in the
same city.
- NETWORK MANAGEMENT. We plan to provide remote management of customer
networks in all of our target markets. Local access synchronous
digital hierarchy ("SDH") networks offer our customers a reliable
solution to gaining the full benefits of advanced Intranet and
international broadband networks all the way to the end user. SDH is
a set of standards for optical communications transmission systems
that define optical rates and formats, signal characteristics,
performance, management and maintenance information to be embedded
within the signals and the multiplexing techniques to be used in
optical communications transmissions systems such as ours. SDH
facilitates the interoperability of dissimilar vendors' equipment and
benefits customers by minimizing the equipment necessary for
telecommunications applications. SDH also improves the reliability of
the local loop connecting customers' premises to the local exchange
provider, historically
45
<PAGE>
one of the weakest links in the service delivery. With SDH, we
have designed our local access networks to support both current and
future services, such as metropolitan area networks, switched
multimegabit data service, broadband ISDN, and personal
communications networks. We are designing and plan to construct
local access networks that are not based on proprietary interfaces
and will achieve interconnectivity between all network suppliers.
- WHOLESALE SERVICES TO INTERNET SERVICE PROVIDERS AND OTHER CARRIERS.
We believe that with the recent growth in demand for Internet
services, numerous Internet service providers are unable to obtain
network capacity rapidly enough to meet customer demand and eliminate
network congestion problems. We plan to supplement our core end-user
product offerings by providing a full array of local services to
Internet service providers, including telephone numbers and switched
and dedicated access to the Internet.
We plan generally to price our retail services at a discount to the
public telecommunications operators' prices in our various markets. We plan
to set our wholesale rates at or slightly below the market price of the
leading facilities-based carriers, but we do not anticipate offering a
standard discount relative to any major carrier.
CUSTOMERS
We have targeted four principal customer groups, each with its own
distinct products and services needs. These targeted groups are:
- businesses end users;
- government end users;
- carriers; and
- Internet service providers.
We will focus our sales efforts for switched local services and resale
of long distance services on business and government end-users. We believe
that many potential customers in all three groups are interested in having
alternative suppliers to the incumbent public telecommunications operators.
Many business and government customers prefer a local, responsive company for
their telecommunications requirements, including customized local products,
local installation and maintenance and responsive customer service. Moreover,
we believe that many multi-line customers are interested in having more than
one source for their telecommunications traffic, thereby increasing
reliability through "vendor diversity."
We believe that carrier customers (including long distance providers)
and Internet service providers are interested in dedicated access circuits to
connect to their global accounts and that, in France and Germany, carriers
presently have only limited alternatives to the incumbent public
telecommunications operator. The dedicated access product line is relatively
new in France and we believe that provision of dedicated access is an
important potential service there and in our other initial target markets.
Participants in the Internet service provider market have indicated interest
in co-location and interconnection services, and we plan to provide these
services to large and small Internet service providers.
We expect to evolve our targeted customer strategy over time. The first
customer targets in each city will be municipalities and large businesses.
Following our "revenue-led" deployment strategy we will use the first sales
orders from these large customers to prioritize the network buildout. As
large customers are installed, we will expand our sales focus to capture
medium and small businesses located on the networks built to serve these
large customers. As we deploy networks in more geographic markets, we plan to
develop a national/pan-European sales and service function that will pursue
national and pan-European customers.
46
<PAGE>
CUSTOMER CARE
We believe that our planned customer care systems will be a critical
element in attracting and retaining, and in selling additional services to,
customers. We believe that our customer care systems, combined with
state-of-the-art information systems, will give us a competitive advantage
over the incumbent public telecommunications operators in our target markets,
which have the "legacy" of older customer care and information systems. We
plan to offer high quality and responsive personalized services in each
target market by means of local management and sales and installation teams,
which will be supported by a European operations center and a European
after-hours customer care call center employing operators fluent in the
languages spoken in our target markets. In addition, we believe that the
following planned features of our customer care systems will be attractive to
customers:
- quick response to customer needs through an integrated enterprise
information data base system that can immediately access all of a
customer's data;
- the delivery of a customizable, integrated billing statement for all
of our services;
- the ability of customers to manage certain services via on-line
service ordering, order status viewing, billing inquiries and other
services;
- the availability of on-line, live customer care personnel 24 hours a
day, 7 days a week, fluent in the customers' languages; and
- a local designated sales account executive to grow and support the
customer relationship.
SALES AND MARKETING
We believe that a direct sales and customer care program focusing on
infrastructure-based alternatives to the incumbent public telecommunications
operators, local responsive service and substantial discounts on comparable
public telecommunications operator services will provide us with a
competitive advantage. We intend to provide services to large business and
government retail end-users, as well as to Internet service providers and
carriers, and expect that a significant portion of our initial revenue will
come from these segments. Therefore, we plan to organize our sales and
customer care organizations to serve each of these market segments. For
larger businesses and government end-users, we plan to use dedicated account
teams, including sales engineering and customer care, all working together in
an effort to establish business relationships and applications sales. For the
incremental small and medium-sized businesses segment, we also plan to use a
direct sales approach, but structured around geographic areas of major
accounts. Internet service providers and carriers will be treated as major
customers, and we plan to have a carrier sales group located in each country
that will report to our European headquarters in Paris.
We plan to target customers in buildings located on our planned
networks as well as customers that are within reach of our initial fiber
optic rings using a combination of marketing information tools and marketing
promotions conducted within such buildings. We also intend to market select
services to the small business sector to maximize our penetration of on-net
buildings.
In each of our initial target markets, we intend to recruit experienced
sales, marketing, and customer care personnel with strong
business-to-business backgrounds in the local market. We believe that
experienced local personnel:
- will provide useful knowledge of local dynamics and the target
customer base;
- will often have established contacts and relationships in the local
market, enabling them to pre-sell our products and services prior to
our initiating network operation in that market; and
- will enable us to tailor our product and service offerings to specific
local customer needs.
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In addition, we believe that a strong local presence will help to demonstrate
our commitment to each market and can facilitate more rapid access to
rights-of-way for network construction. We have already retained local
executives to act as regional managers for each of our four initial target
markets in France and country managers for each of Germany and the United
Kingdom. Notwithstanding the employment of local personnel, however, we
believe that a key to effectively implementing our business plan is to create
an "umbrella" pan-European identity under the CompleTel trade name through
common branding, standards, and network architecture.
INFORMATION AND BILLING SYSTEMS
We are assembling an integrated, enterprise-wide information management
system, which we call our "enterprise business and network support system,"
that has been designed to coordinate smoothly and effectively the information
and processes necessary for
- customer acquisition and order management,
- network design and service provisioning,
- customer care, billing and collection,
- account management,
- network management and maintenance and
- business financial systems.
In addition, our information management system includes a project management
system to coordinate and monitor our network buildout and capital
expenditures. We have retained professional information technology consulting
firms experienced in the design and integration of these types of systems to
specify and manage the selection and assembly of our information management
system. Our plan relies on system vendors to supply and integrate their
products to yield an efficient enterprise-wide operational system, managed by
an external system integrator to achieve the specified results. These
products are readily available and are proven in actual use by competitive
local exchange carriers in Europe and the United States. We believe that our
selection and assembly of a market-proven, state-of-the-art, scalable
information management system will give us a competitive advantage in product
development, customer service and growth.
One of the key functions of our information management system is to
deliver an automated ordering and provisioning capability directly to the
end-user and our staff. We believe that a significant ongoing challenge will
be to continuously improve the provisioning systems to effectively facilitate
the transfer of public telecommunications operator customers to our network.
To meet this challenge, we are focusing on developing effective electronic
bonding between our information management system and the systems of the
public telecommunications operators and other carriers. When implemented,
electronic bonding will permit us to provision service requests on-line. We
believe that our information management system strategy along with the
project management capabilities of our information management system will
allow us to rapidly implement switched local services in our markets and
shorten the time between the receipt of a customer order and the generation
of revenues. We are also designing our information management system to
permit our sales force to monitor customer line usage on a daily basis and to
perform customer analyses to identify better product offerings for particular
customers and detect changes in usage.
We have designed our network management system to allow us to control
network operations and respond rapidly to network or service issues, usually
without any service degradation or customer impact. This rapid response is
crucial to achieving our goal of providing high quality customer care. As
designed, our network management system complements the advanced technology
of our switching and transmission network designs and is integrated with our
information management system.
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We are purchasing our information systems from established suppliers,
with modifications to meet our specific requirements. By having new,
integrated systems, we are not hampered by many of the problems of older,
"legacy" systems, and we believe that our integrated information systems will
provide us with sufficient flexibility to meet developments in technology,
services, and evolving customer needs.
We expect that the first phase of the installation of our network
management system, currently scheduled for the beginning of the third quarter
of 1999, will contain the functionality necessary to support the set of
services and customer care we plan to offer at that time. Subsequent
releases are scheduled to support the planned roll out of our complete set of
services.
NETWORK ARCHITECTURE
OVERVIEW
We believe that, relative to companies that primarily resell capacity
and services on facilities owned by third parties, telecommunications
companies that have networks directly connected to their customers:
- appear more credible to customers as a competitive provider of local
switched services;
- are often able to respond more quickly to customer needs for
additional capacity and services;
- develop a more knowledgeable and cooperative relationship with their
customers;
- are less subject to changes in their cost structure because resellers
are dependent on prices set by others for the services that they
resell; and
- experience higher operating margins.
To deliver the highest quality, reliable telecommunications services, we
plan to employ a state-of-the-art, uniform, high bandwidth, protocol
transparent technology platform based on digital telephone switches and the
latest European telecommunications standards--based SDH transmission
technology, with a centralized network management and monitoring center
located in France.
Our network design strategy has three key elements.
- FIRST, we have designed and are deploying our networks to provide
efficient coverage of principal local business and government
concentrations.
- SECOND, we plan to construct high bandwidth networks that utilize
large 144-fiber bundles capable of carrying large volumes of voice,
data, video and Internet traffic as well as other high bandwidth
services. We will evaluate leasing capacity on other companies' fiber
optic networks as well as leasing conduit space where appropriate to
accelerate the deployment of our services and networks. The SDH fiber
optic ring design we have selected will be scalable, and should be
flexible and reliable, allowing us to be technologically equal to the
incumbent public telecommunications operators.
- THIRD, we plan to employ a uniform technology platform based on
European telecommunication standards, incorporating as the network's
key components advanced digital telephone switches and ancillary
transmission technologies. The uniform technology platform is expected
to enable us to deploy features and services quickly, to expand
switching capacity in a cost effective manner and to lower maintenance
costs through reduced training and spare parts. We are evaluating
customers' access expectations and, in order to accommodate faster
provisioning of service, we will evaluate using wireless transmission
for the "last mile" of transport.
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In many circumstances, we intend to utilize our own network for one
portion of a call and resell the services of another carrier for the
remaining portion of a call. In other instances, we expect that both the
origination and termination of a call will take place on our networks. We are
designing our networks in an effort to maximize our ability to connect
directly with significant numbers of prospective customers and to easily
interconnect and provide a least-cost routing flow of traffic between our
network and other networks in the marketplace.
Our Senior Vice-President and Chief Technology Officer, Richard
Clevenger, who has more than 30 years' experience in the telephone and cable
television industries, is leading our network development efforts. We have
selected Nortel Networks to provide the technological core components of our
network transmission and switching equipment, and to assist us in designing
and assembling our networks, in France because of Nortel's recognized
expertise in the telecommunications industry. In other markets, we expect to
purchase equipment from Nortel or from other vendors with technologically
equivalent standards and capacity. Our core network facilities will consist
of six network layers:
LAYER 1--INTERCONNECTION WITH PUBLIC TELECOMMUNICATIONS OPERATORS AND
OTHER CARRIERS. We plan to interconnect with incumbent public
telecommunications operators at a variety of locations within each market,
both at the end office and local tandem switching levels. We also plan to
interconnect with other long distance carriers and national and international
backbone providers.
LAYER 2--FIBER OPTIC TRANSMISSION FACILITIES INTERCONNECTING
COMMUNITIES. The core network architecture within metropolitan areas will be
composed of European telecommunications standards-based SDH fiber optic
backbone rings with multiple local network nodes and fiber optic spurs
providing access for customer service loops. To add utility to the
metropolitan networks and surrounding communities, our networks are being
designed with high capacity fiber optic SDH backbones between service areas
and commune to commune. These interconnect backbone facilities will be
configured to support transport for voice and data based services and
capacity for dedicated high bandwidth services. These interconnect
transmission facilities are designed to support the natural expansion of
capacity as voice and data traffic volume demands increase.
LAYER 3--OUR VOICE SWITCHING FACILITIES. We intend to use
state-of-the-art, high-capacity digital switches from Nortel and other
vendors to form a highly reliable switching platform for the delivery of a
variety of switched access services, enhanced services and local dial tone.
By the end of 1999, we plan to have a minimum of five feature-rich digital
switches installed servicing business clusters in our initial target markets
in France and Germany. We intend to use smaller access remote subscriber
switches, having the capability to be upgraded to full standalone digital
switches, to complement the end office digital switching capacity for areas
serving smaller business communities. We plan to install up-to-date software
in our switches to ensure their compatibility with the large number of
signaling systems in use in the European markets. We have selected and have
begun to install switching facilities that can provide, within a single
switch, access to all market segments from the residential homeworker to the
corporate end-user.
LAYER 4--DATA NETWORKS AND DATA SWITCHING FACILITIES. To respond to the
growing demand for cell-based and fast-packet data services, we are designing
our networks to offer frame relay for the existing imbedded base of frame
relay users and asynchronous transfer mode services for those users requiring
higher bandwidth.
LAYER 5--FIBER OPTIC TRANSMISSION LINKS BETWEEN LOCAL NETWORK NODES AND
OUR SWITCHES. A key part of our strategy is constructing our own fiber optic
backbone rings in order to have full control of the transmission capacity
between all points in the backbone ring and the switch interconnection
transmission layers of our network. Backbone transmission networks
constructed within service areas will be composed of a series of fiber optic
cables configured in a network of rings throughout the service area. The
fiber backbone ring and the customer local access segments of our networks
will be fiber optic SDH broadband. We will construct fiber optic backbone
ring networks in the central business districts and industrial parks. These
backbone rings will be connected to our switches and to local network nodes
and will connect to our backbone fiber interconnects between communes.
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LAYER 6--LOCAL LOOP ACCESS FACILITIES. The local loop access layer of
our networks will use a mixture of local fiber rings and fiber spurs to
provide our full complement of state-of-the-art services for business and
government customers. Synchronous multiplexers will perform both multiplexing
and line terminating functions. Fiber optic rings extending to the customer
locations will typically have ten to twenty customer locations connected to
the ring. We are evaluating point-to-point SDH microwave transmission
technology for links between regions and cities and point-to-multipoint
wireless links as an alternative to wireline based local access loops.
In general, we seek to build networks that encompass the principal
downtown and suburban business parks and concentrations of businesses in each
area we plan to serve. We plan to extend the reach and efficiency of our
core network rings through alternative methods, such as leased fiber or
wireless. We believe that this type of broad coverage of our target markets
will maximize the number of buildings that can be economically connected to
our network, thereby increasing the number of potential customers for our
services.
CONSTRUCTION
The time necessary to construct a new fiber optic network will vary,
depending upon factors such as the size of the fiber ring to be installed,
whether the construction is underground or aerial, whether the conduit is in
place or requires construction and the initial number of buildings targeted
for connection to the fiber ring. Our fiber optic cables will be installed in
conduits that we own or that we lease from third parties. We may also lease
conduit or pole space from utilities, railroads, carriers, provincial highway
authorities, local governments and transit authorities. These arrangements
will generally be for multi-year terms and have renewal options.
We will connect office buildings to our network primarily by extensions
to one of a number of physical rings of fiber optic cable, which originate
and terminate at our central hub within the community served. We will perform
technical and economic analyses for each building in order to determine
whether to access the building using our own fiber, leased fiber or wireless
technology. Most buildings served will have a discrete CompleTel
point-of-presence located in the building. Within each building, internal
wiring will connect the point-of-presence to the customer premises. Customer
equipment will be connected electronic equipment we provide in the
point-of-presence where customer transmissions are digitized, combined and
converted to an optical signal. The traffic is then transmitted through the
network to our central hub where originating traffic is routed to its
ultimate destination.
COMPETITION
OVERVIEW
Competition for the provision of local services in Europe is still in
the early stages of development. Because the markets for public switched
services in France, Germany and many of the other Western European countries
in which we intend to operate were closed to competition until January 1,
1998, the legislators, regulators and courts in those countries have limited
experience in implementing a pro-competitive regulatory regime.
Historically, no entity other than the incumbent public telecommunications
operators had the right to provide public voice telephone service or public
networks in those countries. As a result, few pro-competitive regulations
and judicial decisions existed in those countries, and no impartial regulator
existed to enforce laws or regulations against the incumbent public
telecommunications operators. Those entrusted to ensure a competitive
telecommunications market in such countries had little experience, and few
detailed laws or regulations on which to base decisions, regarding
interaction between competitive public telephone or network providers.
The European Union is actively seeking to stimulate competition among
providers and to foster an environment in which competing telecommunications
networks and innovative services can flourish. Member states are required to
end restrictions and adopt standardized regulations intended to promote
competition. We believe that the ongoing liberalization of the European
telecommunications market will cause additional competitive local exchange
carriers, including pan-European carriers, to enter the market and increase
the intensity of competition. In addition, public
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telecommunications operators may themselves seek to compete in local exchange
services markets outside of their home countries, alone or in joint ventures
with other entities.
In each market we enter, we will compete with the incumbent public
telecommunications operator and, in certain markets, with other competitive
local exchange carriers in the provision of high quality, integrated
telecommunications services. Public telecommunications operators offer both
local and long distance services and benefit greatly from their position as
the sole historic provider in the markets they serve. Public
telecommunications operators generally have several competitive advantages
over new competitors, including substantially greater economic and human
resources, close ties to local and national regulatory authorities,
ubiquitous local and long distance distribution facilities, existing
rights-of-way, control of or access to telephone numbers, and control over
virtually all local telecommunications connectivity.
We believe that the principal competitive factors affecting our business
will be price, customer service, network quality, accurate billing and, to a
lesser extent, variety of services. Our ability to compete effectively will
depend upon our ability to maintain high quality, market-driven services at
prices generally equal to or below those charged by our competitors. Because
France, Germany and most of our intended Western European markets, other than
the United Kingdom, have only recently liberalized or still are in the
process of liberalizing the provision of voice telephony, customers in most
of these markets are not accustomed to obtaining services from competitors to
public telecommunications operators and may be reluctant to use emerging
telecommunications providers. In particular, our target customer base of
business and government end-users with significant calling needs may in some
instances be reluctant to entrust their telecommunications requirements to
new operators notwithstanding their desire to explore alternatives to the
public telecommunications operator.
FRANCE
We expect that our principal competitor in France will be France
Telecom. France Telecom is generally considered to be one of the most
technically competent public telecommunications operators in Western Europe.
France Telecom has invested heavily in upgrading its network and enjoys
relatively high approval ratings from its customers. We will also face
competition in France from operators of fiber networks such as WorldCom,
COLT, and Cegetel, a consortium of Compagnie Generale des Eaux and British
Telecom. We believe that we can effectively compete in France because most
current competitors seeking to gain market share from France Telecom are
focusing on long distance service instead of local exchange service and have
concentrated their efforts on the most competitive high volume areas in and
around Paris such as the business district of La Defense. We are not
initially targeting the La Defense district and we do not expect to encounter
significant local exchange competition other than from France Telecom as we
begin to deploy our networks in France.
GERMANY
The German local exchange market continues to be dominated by the
incumbent public telecommunications operator, Deutsche Telekom, with limited
competition from WorldCom, COLT, and various local city networks. We believe
that attractive opportunities exist to invest in the development of local
exchange infrastructure to provide enhanced services that have not been
aggressively pursued by Deutsche Telekom or by other new entrants. We also
believe that these factors make Germany an attractive market for local
exchange, facilities-based providers.
UNITED KINGDOM
The United Kingdom implemented liberalization of its telecommunications
market before any other country included in our initial target market
deployment plan. It already has a significant number of operators competing
with the incumbent public telecommunications operator, British Telecom. We
expect that our competition in the United Kingdom Internet service provider
market includes companies such as UUNet, the Internet services division of
MCI Worldcom and PSINet.
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REGULATION
OVERVIEW
National and local laws and regulations governing the provision of
telecommunications services differ significantly among the countries in which
we intend to operate. The interpretation and enforcement of such laws and
regulations varies and could limit our ability to provide various
telecommunications services in different markets. In addition to licenses in
France, Germany and the United Kingdom, we also have obtained a license under
Section 214 of the United States Communications Act that permits us to
terminate calls in the United States that originated on our European networks
and to transport traffic originating in the United States to our networks or
through one of our interconnections.
Deregulation of telecommunications is a relatively new phenomenon in
Europe and there is little history to guide competitive entrants.
Relationships between European Union member governments and the European
Union's central agencies are evolving. The degree to which the European Union
telecommunications market will be subject to national or European Union
control remains to be seen. There is little history to provide guidance to
competitive entrants concerning the independence of newly-created regulatory
bodies, nor how vigorously or efficiently such bodies will adopt and enforce
regulations or rules. Existing or future regulatory, judicial, legislative or
political considerations may prevent us from offering to residents of Western
European countries all or any of our services or adversely affect our
business in other ways.
EUROPEAN UNION
The European Union consists of the following member states: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom.
The European Union member states are required to implement directives issued
by the European Commission and the European Council by passing national
legislation. If a European Union member state fails to effect such directives
with national or other appropriate legislation or fails to render the
provisions of such directives effective within its territory, the European
Commission may take action against the European Union member state, including
in proceedings before the European Court of Justice, to enforce the
directives. Private parties may also bring actions against European Union
member states for failures to implement such legislation.
The European Commission and the European Council have issued a number of
key directives establishing basic principles for the liberalization of the
European Union telecommunications market. The European Union's objective is
to create a free and open market for telecommunications. Although the
European Union set January 1, 1998 as the deadline for mandatory
liberalization of the provision of voice telephony services throughout the
European Union, each European Union member state had to enact its own laws to
implement the European Union's mandate. Greece, Portugal, Ireland, Spain and
Luxembourg have been granted additional implementation periods. Each member
country is required to make the minimum changes necessary to comply with the
European Union directives, but the actual implementation of European Union
directives varies from country to country. Not every European Union member
state has enacted laws that implement the directives within the time frame
set by the European Union or in a way that complies or will comply with the
intent and spirit of the directives within such time frame or at all. There
can be no assurance that all European Union member states will enact laws
which fully comply with the intent and spirit of the Directives within any
given time frame or at all. The European Commission has initiated legal
action against Belgium, Denmark, Germany, Greece, Italy, Luxembourg and
Portugal for not implementing the directive on full voice telephony
competition adequately. If the European Commission is not satisfied with the
explanation given by these countries for their delay it may take action that
ultimately could result in a decision by the European Court of Justice
whether these countries have violated the directive. Although Switzerland is
not a member of the European Union, it has adopted legislation which complies
with the spirit and intent of the directives.
In 1990, the "Services Directive" required member states to abolish all
exclusive and special rights for the provision of all telecommunication
services other than for public switched voice
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telephone service and public telecommunications networks. Since that first
phase of activity, further legislative initiatives have been designed to
provide full liberalization of the telecommunications sector, including
notably the adoption of:
- THE REVISED OPEN NETWORK PROVISION DIRECTIVE, which member states
were required to implement by June 30, 1998, aims to ensure the
availability of quality public telephone services and to define the
services to which all users should have access in the context of
universal service at an affordable price.
- THE FULL COMPETITION DIRECTIVE, which required member states to
abolish exclusive and special rights for the provision of public
voice telephone services and to allow the provision of public
telecommunications networks by January 1, 1998. The full competition
directive also abolished special and exclusive rights regarding the
self-provision of infrastructure, the use of infrastructure operated
by third parties and the use of shared infrastructure for the
provision of services other than public voice telephony.
- THE LICENSING DIRECTIVE, which established a common framework for
general authorizations and individual licenses in the field of
telecommunication services. The licensing directive is intended to
allow telecommunications operators to benefit from an European
Union-wide market for telecommunications and establish a common
framework for national authorization regimes and seeks to
facilitate cross-border networks and services.
- THE INTERCONNECTION DIRECTIVE, which mandates that each member state
ensure that the historical public telecommunications operators and
operators with "significant market power"
-- provide interconnection to other operators under terms and
conditions that are cost-oriented, non-discriminatory, objective
and transparent;
-- publish by July 1, 1997, their "unbundled" interconnection terms
and conditions;
-- negotiate access agreements and specific terms of
interconnection, subject to the intervention of the member
state's regulatory authority in case of a breakdown in the
negotiations; and
-- adopt transparent accounting methods for each cost component.
Members states are also required to adopt a "quick, cheap and effective"
procedure to solve interconnection disputes in order to prevent the
historical operator from maintaining its dominant position through litigation
and other delaying tactics. The interconnection directive is expected to be
amended to provide for carrier pre-selection, enabling subscribers to choose
an alternative carrier to convey their long distance calls, with the
possibility of overriding their choice on a call-by-call basis. In addition,
the interconnection directive is expected to be amended to require number
portability, enabling subscribers, while remaining at a specific location, to
retain their telephone number despite switching network operators. Number
portability must be made available to all subscribers on public fixed
networks by January 1, 2000. Carrier pre-selection must be made available by
January 1, 2000, by operators with significant market power; member states
may also decide to apply this requirement to other operators.
FRANCE
In July 1996, France enacted legislation amending the French Code de
Postes et Telecommunications, abolishing France Telecom's legal monopoly and
providing for the immediate liberalization of all telecommunications
activities in France, but maintaining a partial exception for the provision
of voice telephony. Voice telephony was subsequently fully liberalized
(including carrier pre-selection) on January 1, 1998. French law allows
market participants to build and operate public telecommunications networks
or offer services following receipt of a license. Interconnection is
available as a matter of right to all licensed operators.
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Licenses are granted by the Secretaire d'Etat a l'Industrie (the
"Telecommunications Ministry") in charge of telecommunications upon
recommendation of France's new independent regulatory authority, the Autorite
de Regulation des Telecommunications (the "ART"). The ART has broad
rule-making and adjudicatory powers and is administratively independent from
the Telecommunications Ministry. Among other things, the ART has the power to
approve interconnection rates, arbitrate interconnection disputes and to
exercise oversight powers and punish regulatory infractions (through
suspensions or revocations of licenses or through fines based on a percentage
of the violator's revenues).
In May 1998, we filed a joint application for a license as a public
telecommunications network operator and provider of voice telephony services
to the public in the 10 regions in France that we intend to target, including
our four initial French target markets. On November 17, 1998, the
Telecommunications Ministry, based on the recommendation of the ART, issued
these licenses subject to a publication and objection period. The licenses
were effective on December 13, 1998, with a 15-year term from that date. The
authorization entitles our French subsidiary to, among other things, obtain
rights-of-way for the establishment of network infrastructure along public
roads, certain rights on private property, numbering resources and
preferential wholesale interconnection from France Telecom. In June 1999,
the ART awarded us an experimental license through December 31, 1999 to
operate point-to-multipoint wireless links in a portion of Marseilles.
France is one of the European Union member states that differentiates
between interconnection for public telecommunications network operators and
for voice telephony service providers. The published interconnection tariffs
of France Telecom, which have been approved by the ART, provide substantially
more favorable interconnection rates for public telecommunications network
operators than for voice telephony service providers that use third-party
operators' transmission facilities. We entered into an interconnect agreement
with France Telecom in December 1998.
As a public network operator and service provider in France, we must
provide non-discriminatory treatment of customers and we must accept
reasonable requests for interconnection from other operators of networks open
to the public and from voice telephony and mobile telephony providers. In
addition, we are required to notify ART of interconnection agreements and to
make contributions to finance universal service by paying supplementary
charges for interconnection to France Telecom as well as making payments to a
universal service fund based on our volume of activity. The amounts of
universal service contributions are set annually by the French
Telecommunications Ministry as proposed by the ART. In addition, we must
spend 5% of our revenues to support research and development in France.
GERMANY
The German Telecommunications Act of July 25, 1996, ended the legal
monopoly of Deutsche Telekom AG for the provision of voice telephony and
public telecommunications networks, and immediately liberalized all
telecommunications activities in Germany, but postponed effective
liberalization of voice telephony until January 1, 1998. Since January 1,
1998 the German telecommunications market has been completely open to
competition and a new regulatory authority, the Regulierungsbehorde fur
Telekommunikation und Post ("RTP"), has been installed.
Under the German regulatory scheme, the RTP grants licenses in four
license classes. A license is required for operation of transmission lines
that extend beyond the limits of a property and that are used to provide
telecommunications services for the general public. This infrastructure
license is divided into 3 classes: mobile radio license (class 1); satellite
license (class 2); and general infrastructure license, also applicable for
mobile and satellite infrastructure (class 3). In addition to the
infrastructure licenses, a license is required for operation of voice
telephony services based on self-operated telecommunications networks (class
4). A class 4 license does not include the right to operate transmission
lines and a class 3 license does not include the right to provide voice
telephony services. Licensees under class 1, 2 and 3 have the right to
install transmission lines on, in and above public trafficways such as public
roads, squares, bridges and public waterways without payment; however, when
installing transmission lines permission must be obtained from the relevant
authorities. In general, this permission cannot be refused, however,
municipalities may issue an order that a public road can only be dug out once
every 30 years. Public operators have to coordinate and cooperate with each
other or risk losing the right to dig out the same public road for as long as
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30 years. The RTP establishes license fees, and the level of fees imposed on
licensees is the subject of several complaints to the RTP and German courts.
A company that operates a public telecommunications network has the
right to receive favorable interconnection rates from Deutsche Telekom, the
former incumbent public telecommunications operator. Deutsche Telekom filed a
request with the RTP to offer more favorable interconnection rates to
competitors that maintain a higher number of interconnection points with
Deutsche Telekom's network and less favorable interconnection rates to
competitors that maintain a smaller number of interconnection points which
would have effected the operation of smaller networks in terms of
interconnection pricing. For the time being, RTP has rejected the request.
A telecommunications provider that does not agree with the offered rates or
is refused interconnection by Deutsche Telekom can take the case to the RTP
who may order interconnection at specific rates. To date, interconnection
has been the source of major dispute between Deutsche Telekom and its
competitors. Several complaints currently pending before the RTP and German
courts concern the content of the standard interconnection offer of Deutsche
Telekom. Although RTP has established standard interconnection rates,
Deutsche Telekom and some of its major competitors have been unable to reach
agreement on other aspects of interconnection such as rates for unbundled
local loops. Rates for unbundled access to the customer line have been
considered and rates have been set by the RTP which Deutsche Telekom's
competitors generally regard as too high and anti-competitive. Other pending
disputes concern the costs of billing services provided by Deutsche Telekom
to other carriers and rates for direct access to the end-user lines of
Deutsche Telekom. We entered into an interconnect agreement with Deutsche
Telekom in June 1998.
RTP intends to review the entire interconnection regime by January 2000.
The review may result in changes to the interconnection rates and the terms
and conditions of the interconnection agreements. In particular, RTP intends
to review the requirement for providing a certain number of points of
interconnection, in particular if a certain amount of traffic is generated at
one point of interconnection. This might have a substantial impact on the
costs for interconnection with Deutsche Telekom's network and accordingly
might have a negative impact on the business development of competitors to
Deutsche Telekom.
UNITED KINGDOM
The Telecommunications Act of 1984 provides a licensing and regulatory
framework for telecommunications activities in the United Kingdom. The
Secretary of State for Trade and Industry at the Department of Trade and
Industry (the "Secretary of Trade") is responsible for granting licenses and
for overseeing telecommunications policy, while the Director General of
Telecommunications (the "Director General") is responsible for enforcing the
terms of such licenses. The Director General will recommend the grant of a
license to operate a telecommunications network or to offer publicly
available telecommunications services to any applicant that the Director
General believes has satisfied the licensing directive and United Kingdom
regulations, has a reasonable business plan, has the necessary financial
resources and where there are no other overriding considerations against the
grant of a license.
Individual licenses are granted for the construction and operation of
public networks, and class (or general) licenses are granted for systems
comprising equipment at a single site, self-provided non-public networks, or
limited public networks. To construct and provide services over its networks
in the United Kingdom, we have obtained an individual Public
Telecommunications Operator license. To provide international services in
the United Kingdom, we have also obtained an International Simple Voice
Resale license. To provide international facilities (I.E., network build as
opposed to resale), we would not need a separate license. After July 1,
1999, the Public Telecommunications Operator license also will license
operations of international facilities. We also plan to provide some
services under a Telecommunications Services License, a class license that
allows us to provide a number of services other than those requiring
individual licenses. United Kingdom licenses impose certain requirements on
us, including but not limited to the requirements that we provide end-users
and other network operators with reasonable and nondiscriminatory access to
our system and that we provide directory assistance services. Licenses may
otherwise limit the types of services that may be operated over the licensed
system.
The Director General may modify the license conditions either with
agreement of the licensee or following a statutory period of consultation or
following a report of the Monopolies and
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Mergers Commission. This procedure is intended to make it easier for the
Director General to modify licenses, subject to the usual rights of review
and appeal. Licenses are not transferable, but a change of control of a
license may be permitted subject to compliance with a notification
requirement, provided the proposed change is not, in the opinion of the
Secretary for Trade, against the interests of national security or relations
with the government of a country outside the United Kingdom.
The focus of deregulation in the United Kingdom has been to encourage
new entrants to build competitive networks. Until recently, only network
providers currently had the right to require interconnection with British
Telecommunications plc (British Telecom), the incumbent public
telecommunications operator, above the level of the network termination point
and to obtain favorable wholesale interconnection rates. A recent
interconnection regulation allows several other categories of operators and
service providers to obtain interconnection from British Telecom, and other
operators designated as having market power in a defined market, on favorable
terms. All interconnecting operators within the designated categories are
required to offer interconnection to similarly situated operators and
providers. At present, competitors to British Telecom generally cannot obtain
unbundled access to the local loops. In this way, network providers have been
favored over services providers. The regulatory authorities in the United
Kingdom are in the process of revising the regulatory framework to meet the
detailed requirements of the various European Union telecommunications
directives. Initially, we expect these changes to enhance the competitive
position of resellers and other service providers by lowering their costs of
access to the British Telecom network. As proposed, operators would receive
wholesale service from British Telecom and would be permitted to co-locate
their own equipment at British Telecom local exchanges. Number portability
must be provided by public telecommunications operators at the request of
other operators. From January 1, 2000, operators will be required to offer
number portability at the customer's request. Carrier preselection over
British Telecom's network may be required for national or international calls
by late 2000 and for all local, national and international calls during 2001.
RECENT ACQUISITIONS
On March 24, 1999, we acquired all of the outstanding stock of Acces
Internet et Solutions S.A.R.L. ("ASI"), an Internet service provider based in
Lyon, France, for $2.1 million. ASI, established in 1995, provides a broad
range of Internet services to an established base of business and government
customers located primarily in the Lyon area. Its services include dial-up
access, domain registration, Web hosting, leased lines, network and server
consulting, and network installation and maintenance services.
On June 11, 1999, we acquired all of the outstanding stock of Web
International Networks Limited (doing business as iPcenta), an Internet
service provider based in London, for an initial purchase price of L200,000
and contingent consideration of up to L137,811 to be paid in three
installments based on quarterly revenues through March 2000. We recorded the
transaction under the purchase method of accounting and intend to amortize
the goodwill, using the straight-line method, over a ten-year period.
EMPLOYEES
As of June 30, 1999, we had 206 full-time employees of whom 197 were
employed by CompleTel Europe and its subsidiaries. Of CompleTel Europe's
employees, 59 were sales and marketing employees. We believe that our future
success will depend on our continued ability to attract and retain highly
skilled and qualified employees. Our employees are not covered by any
collective bargaining agreement. We believe that we enjoy good relationships
with our employees.
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PROPERTIES
Our European operations are headquartered in Paris, France. We lease
offices and space in a number of locations. The table below lists our current
leased facilities:
<TABLE>
<CAPTION>
APPROXIMATE LEASE FIRST ANNUAL
FACILITY SQUARE METERS EXPIRATION RENTAL PAYMENT
- -------- ------------- ---------- --------------
<S> <C> <C> <C>
European headquarters in Paris, France . . . . . . . . 617 November 30, 2007 FF 1,300,000
National service center and Paris switch site in
Nanterre, France . . . . . . . . . . . . . . . . . 2,638 November 14, 2010 FF 2,200,000
Sales office in Paris, France . . . . . . . . . . . . . 594 December 31, 2007 FF 1,100,000
Switch site in Lyon, France . . . . . . . . . . . . . . 434 October 31, 2010 FF 195,000
Sales office in Lyon, France . . . . . . . . . . . . . . 421 March 31, 2008 FF 396,000
Switch site in Marseilles, France . . . . . . . . . . . 1828 February 28, 2001 FF 260,000
Sales office in Marseilles, France . . . . . . . . . . . 346 May 31, 2008 FF 308,000
Switch site in Lille, France . . . . . . . . . . . . . . 684 May 24, 2011 FF 265,000
Sales office in Lille, France . . . . . . . . . . . . . 237 March 30, 2011 FF 190,000
</TABLE>
The annual rental payments, in some instances, increase over the life of
the lease, and all leases are subject to adjustment based on a
cost-of-construction index.
We believe that our lease facilities are adequate to meet our current
needs and that additional facilities are currently available to meet our
development and expansion needs in existing and projected target markets.
LEGAL PROCEEDINGS
We are not party to any pending legal proceedings that we believe would,
individually or in the aggregate, have a material adverse effect on our
financial condition or results of operations.
GENERAL CORPORATE INFORMATION
CompleTel Europe was incorporated on December 14, 1998 as a Netherlands
public company with limited liability ("NAAMLOZE VERNOOTSCHAP") and its
registered office is located at Drentestaete, Drentestraat 24, 1083 HK,
Amsterdam, The Netherlands. CompleTel Europe is registered with the Trade
Register of the Amsterdam Chamber of Commerce under number 34108119 and with
the Ministry of Justice under number 1.055.197.
58
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth certain information concerning our
directors, executive officers, and other significant employees, including
their ages as of August 15, 1999. For purposes of this prospectus, (i)
"directors" includes members of the board of managers of CompleTel LLC, the
Company's ultimate parent entity, and (ii) "employees" includes employees of
CableTel Management, Inc. ("Management Company"), a wholly owned subsidiary
of CompleTel LLC, who are "seconded" to CompleTel LLC, CompleTel Europe and
their operating subsidiaries pursuant to certain agreements with Management
Company.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
James E. Dovey(1) . . . . . . 55 Chairman of the Board and Chief Executive Officer
William H. Pearson . . . . . 43 President of European Operations and Director
Richard N. Clevenger . . . . 42 Senior Vice President, Chief Technology
Officer and Acting Chief Operating Officer
David E. Lacey . . . . . . . 42 Senior Vice President and Chief Financial Officer
James C. Allen(3) . . . . . . 53 Director
Royce J. Holland(3) . . . . . 50 Director
Lawrence F. DeGeorge(1)(2)(3) 54 Director
Paul J. Finnegan(1) . . . . . 46 Director
James H. Kirby(2) . . . . . . 32 Director
James N. Perry, Jr. . . . . . 39 Director
</TABLE>
- ----------
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of Compensation Committee
OTHER SIGNIFICANT EMPLOYEES
<TABLE>
<CAPTION>
Name Age Position(s)
- ---- --- -----------
<S> <C> <C>
John M. Hugo . . . . . . 39 Corporate Controller and Chief Accounting Officer
John T. Puhl . . . . . . 49 Chief Information Officer
Jerome de Vitry . . . . . 38 President of CompleTel S.A.S.
Hansjorg Rieder . . . . . 57 Managing Director of CompleTel GmbH
Martin Rushe . . . . . . 30 General Manager of CompleTel UK Limited
</TABLE>
JAMES E. DOVEY, CompleTel's Chairman of the Board and Chief Executive
Officer, has over 30 years' experience in the telecommunications industry. In
1987, Mr. Dovey founded United Cable International, a joint venture between
United Cable and United Artists, where he served as CEO until 1990 when that
company (by then renamed TCI International) merged with the United Kingdom
assets of U S WEST Inc. to form TeleWest Communications, plc. Mr. Dovey
continued to serve as CEO of TeleWest until his return to the U.S. in late
1992. From 1992 to 1994, Mr. Dovey acted as a private consultant on a variety
of U.S. and international telecommunications and cable television projects
for TCI, U S WEST Inc., and other clients. From 1992 to 1995, Mr. Dovey
served as Deputy Chairman for the United Kingdom communications company, IVS
Cable International, which developed switched voice and data services in
areas such as Oxford, Salisbury, and Andover until the business was sold in
1995. In 1994, Mr. Dovey co-founded SPD CableTel Management, Inc., where he
actively explored various entrepreneurial opportunities in the U.S. for
providing converged cable and telephony services prior to co-founding
CompleTel in January 1998.
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<PAGE>
WILLIAM H. PEARSON is a co-founder of CompleTel and has served as
President of European Operations since its inception. In 1994, Mr. Pearson
co-founded SPD CableTel Management, Inc. with Mr. Dovey. Between 1980 and
1994, Mr. Pearson held a variety of senior management positions with U S WEST
Inc. From 1983 to 1989, Mr. Pearson worked in U S WEST's cellular division,
including starting up its marketing department in 1983, becoming head of
strategic planning in 1986, and managing the Rocky Mountain region from 1987
to 1988. In 1989, Mr. Pearson relocated to the United Kingdom, and he served
as Senior Vice President of Marketing and Planning for TeleWest from 1990 to
1992 (where he worked to develop U S WEST's cable telephony strategy) and as
Executive Director of Business Development for U S WEST International from
1993 to 1994 (where he evaluated numerous local loop opportunities in Western
Europe and Latin America). In 1992, Mr. Pearson was an adjunct professor of
graduate-level marketing at the University of Wisconsin--Madison School of
Business.
RICHARD N. CLEVENGER, is a co-founder of CompleTel and has served as
its Senior Vice President and Chief Technology Officer, since its inception
and as Acting Chief Operating Officer since August, 1999. Mr. Clevenger has
served in various market development and technology management positions in
domestic and international telecommunications for over 30 years. Prior to
co-founding CompleTel in 1998, Mr. Clevenger worked from 1996 to 1997 as an
independent management consultant on several business strategy, technology,
and implementation matters relating to cable television, wireless cable,
business and residential telephony, and business video, including for SPD
CableTel Management, Inc. (which he joined full time in 1997). Mr. Clevenger
served as Senior Vice President and Chief Technology Officer for KBLCOM, Inc.
from 1987 to 1995, during which time his duties included (i) serving as
President and Chief Operating Officer of KBLCOM's business services
subsidiary, Paragon Business Systems; (ii) working as Vice President of
Market Development for KBLCOM's cable television subsidiary, KBL Ventures;
and (ii) founding and serving as President and Chief Operating Officer of the
KBLCOM subsidiary, FIBRCOM, a successful competitive access provider. From
1982 to 1987, Mr. Clevenger was Vice President of Engineering and Technology
for Cox Cable Communications, Inc. From 1973 to 1982, Mr. Clevenger served as
Vice President of Engineering for United Cable Television of Colorado. From
1968 to 1973, Mr. Clevenger held a variety of positions at Cablecom General,
Inc., including Division Engineer, General Manager, and Vice President of
Engineering.
DAVID E. LACEY, CompleTel's Chief Financial Officer, joined CompleTel in
December 1998. Prior to joining CompleTel, Mr. Lacey served in a variety of
positions for Storage Technology Corp., including from June 1996 to December
1998 as Executive Vice President and Chief Financial Officer, from February
1995 to May 1996 as Interim Chief Financial Officer and Corporate Vice
President, and from October 1989 to February 1995 as Corporate Controller.
JAMES C. ALLEN was elected as a Director of CompleTel LLC in December
1998. From March 1993 to January 1998, Mr. Allen was the CEO and
Vice-Chairman of Brooks Fiber Properties, Inc. Since June 1998, Mr. Allen
has acted as investment director and member of the general partner of
Meritage Private Equity Fund, an investment group that specializes in
investing in communications companies. Mr. Allen also presently serves on the
boards of directors of MCI WorldCom Inc., a publicly traded U.S. and
international telecommunications company that may compete with CompleTel, and
Verio Inc., a publicly traded Internet and Web hosting company. Mr. Allen
also serves on the board of directors of David Lipscomb University in
Nashville, Tennessee.
ROYCE J. HOLLAND, who was elected as a Director of CompleTel LLC in
August 1998, is a co-founder and the Chairman and CEO of Allegiance Telecom,
Inc. Prior to founding Allegiance Telecom, Inc., Mr. Holland was one of
several co-founders of MFS Communications Company, Inc., where he served as
President and Chief Operating Officer from April 1990 until September 1996
and as Vice Chairman from September 1996 to February 1997. In January 1993,
Mr. Holland was appointed by President George Bush to the National Security
Telecommunications Advisory Committee. Mr. Holland also presently serves on
the boards of directors of Allegiance Telecom, Inc., CSG Systems, Open Port
Technologies, WNP Communications and Avesta Technologies.
LAWRENCE F. DEGEORGE was elected as a Director of CompleTel LLC in May
1998. Mr. DeGeorge is a private investor who has managed and participated in
a number of principal equity investments in technology and communications
companies, including, since December 1995, as President and Chief Executive
Officer of LPL Investment Group, Inc., LPL Management
60
<PAGE>
Group, Inc., and DeGeorge Holdings Ltd. From June 1987 to January 1991, Mr.
DeGeorge held various positions with Amphenol Corporation, including serving
as President from May 1989 to January 1991, as Executive Vice President and
Chief Financial Officer from June 1987 to May 1989, and as a director from
June 1987 until January 1991. Mr. DeGeorge also presently serves as a
director of United International Holdings, Inc., an international provider of
multi-channel television services and Advanced Display Technologies.
PAUL J. FINNEGAN, who was elected as a Director of CompleTel LLC in May
1998, is a Managing Director of Madison Dearborn Partners, Inc., a
Chicago-based private equity investing firm, where he specializes in
investing in companies in the communications industry. Mr. Finnegan has been
a Managing Director of Madison Dearborn since 1993. Mr. Finnegan also
presently serves on the boards of directors of Allegiance Telecom, Inc. and
Focal Communications Corporation and on the board of trustees of The Skyline
Fund.
JAMES H. KIRBY, who was elected as a Director of CompleTel LLC in May
1998, is a Director of Madison Dearborn Partners, Inc. where he has been an
investment professional since June 1996. Prior to joining Madison Dearborn
Partners, Inc., Mr. Kirby was an Associate of The Beacon Group LLC, a private
investment and investment banking firm from June 1995 until June 1996. From
June 1993 until June 1995, Mr. Kirby was an Associate of Lazard Freres & Co.
LLC, an investment banking firm. Mr. Kirby also presently serves on the
board of directors of Wireless One Network L.P., a private cellular telephone
service provider, and Reimen Publications, a publisher of consumer magazines.
JAMES N. PERRY, JR., who was elected as a Director of CompleTel LLC in
May 1998, is a Managing Director of Madison Dearborn Partners, Inc. Since
1984, Mr. Perry has been a venture capital investor and, since 1993, a
Managing Director of Madison Dearborn. Mr. Perry also presently serves on the
boards of directors of Allegiance Telecom, Inc., Focal Communications
Corporation, Omnipoint Corporation, and Clearnet Communications, a Canadian
publicly traded company.
JOHN M. HUGO, CompleTel's Corporate Controller and Chief Accounting
Officer, joined CompleTel as Corporate Controller in April 1999. Prior to
joining CompleTel, Mr. Hugo was the Assistant Corporate Controller for Jones
Intercable, Inc. from 1994 to 1999. From 1988 to 1993, Mr. Hugo was employed
with Arthur Andersen LLP's audit and business advisory services division. Mr.
Hugo is a certified public accountant in the state of Colorado.
JOHN T. PUHL has been CompleTel Europe's Chief Information Officer since
September 1998. Prior to joining CompleTel Europe, Mr. Puhl worked from
December 1996 to September 1998 as Managing Director and Vice President of
Tanning Technology Europe, a telephony consultant. From May 1995 to November
1996, Mr. Puhl was Managing Director and Vice President of SageComm
International, a telephony consultant. From February 1992 to March 1995, Mr.
Puhl was Vice President of AT&T Europe.
JEROME DEVITRY joined the company in February 1999 and has been the
President of CompleTel S.A.S. since March 1999. Prior to joining CompleTel
S.A.S., Mr. deVitry was Vice President of Radio Communications France for
Alcatel Access System Division from January 1995 until December 1999. From
January 1993 until December 1995, Mr. deVitry was Vice President Marketing
and Research and Development for Alcatel Radio Transmissions Systems.
HANSJORG RIEDER has been with the company since January 1999 and was
appointed Managing Director of CompleTel GmbH in April 1999. Prior to
joining CompleTel GmbH, Mr. Rieder was a Managing Director of COLT Telecom
GmbH from March 1997 until March 1999. Mr. Rieder was the Chief Executive
Officer and a Managing Director of GLOBEX GmbH and the Chief Executive
Officer of Jorg Rieder Consulting from January 1993 until March 1997. From
April 1972 until December 1992, Mr. Rieder was a Vice President and Managing
Director - Germany for Digital Equipment.
MARTIN RUSHE has been with the company since June 1999 and was appointed
General Manager of CompleTel UK Limited in August, 1999. Prior to joining
CompleTel UK Limited, Mr. Rushe was a Managing Director of Web International
Networks Limited
61
<PAGE>
April 1995 until its acquisition by CompleTel and is currently the President.
Prior to that Mr. Rushe was a scientist with European Space Agency.
ELECTION OF DIRECTORS; VOTING AGREEMENT; EXECUTIVE AUDIT, AND COMPENSATION
COMMITTEES
CompleTel LLC's board consists of eight members. There are currently no
vacancies on the board. CompleTel LLC's limited liability company agreement
provides that representatives serving on CompleTel LLC's board will be
appointed and removed by a majority vote of CompleTel LLC's equity holders
(without cumulative voting).
Pursuant to a voting agreement, the current equity holders of CompleTel
LLC have each agreed to vote all of their interests in CompleTel LLC in such
a manner as to elect the following persons to serve as Directors:
- four representatives designated by Madison Dearborn Partners,
- two representatives designated by LPL Investment Group, Inc.,
- one representative designated by the holders of a majority of the
common interests of CompleTel LLC held by members of our management
that continue to be employees of CompleTel LLC, to whom we refer to as
our "management investors," and
- one outside representative designated by our management investors.
The number of representatives designated by Madison Dearborn Partners will be
reduced
- to three representatives if Madison Dearborn Partners ceases to hold a
majority of CompleTel LLC's preferred equity but continues to hold at
least 70% of its original position,
- to two if it holds less than 70% but at least 55% of its original
position,
- to one if it holds less than 55% but at least 40% of its original
position, and
- to none if it ceases to hold at least 40% of its original position.
The number of representatives designated by LPL Investment Group's will be
reduced
- to one representative if LPL Investment Group holds less than 70% but
at least 40% of its original position, and
- to none if it ceases to hold at least 40% of its original position.
Upon a reduction in the number of representatives designated by Madison
Dearborn Partners from four to three as described above, the vacancy will not
be filled and the board will be reduced to seven representatives. Any other
vacancies created by reductions in the number of representatives that Madison
Dearborn Partners or LPL Investment Group are entitled to designate will be
filled by the holders of a majority of the preferred equity. Under the terms
of the voting agreement and the limited liability company agreement of
CompleTel LLC, the four representatives designated by Madison Dearborn
Partners are entitled to five votes so that such representatives possess a
majority of the voting power of all of the representatives on the board.
This additional voting power will cease when Madison Dearborn Partners no
longer has the right to designate four representatives.
COMMITTEES OF THE BOARD OF COMPLETEL LLC
CompleTel LLC's board has three committees:
- the Executive Committee;
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<PAGE>
- the Audit Committee; and
- the Compensation Committee.
THE EXECUTIVE COMMITTEE. The members of the Executive Committee are
James E. Dovey, Paul J. Finnegan and Lawrence F. DeGeorge. The Executive
Committee acts as the board of directors of CompleTel LLC's operating
subsidiaries. In addition, the Executive Committee is authorized to take
certain actions on behalf of the board, but such actions must be approved
unanimously by the members of the Executive Committee or they will be
referred to the full board.
THE AUDIT COMMITTEE. The members of the Audit Committee are James H.
Kirby and Lawrence F. DeGeorge. The Audit Committee is responsible for
making recommendations to the board regarding the selection of independent
auditors, reviewing the results and scope of the audit and other services
provided by CompleTel LLC's independent accountants and reviewing and
evaluating CompleTel LLC's audit and control functions and year 2000 issues.
THE COMPENSATION COMMITTEE. The members of the Compensation Committee
are Paul J. Finnegan, James C. Allen, Lawrence F. DeGeorge, and Royce J.
Holland. The Compensation Committee is responsible for reviewing, and as it
deems appropriate, recommending to the board, policies, practices and
procedures relating to the compensation of the officers and other managerial
employees of CompleTel and the establishment and administration of employee
benefit plans. The Compensation Committee exercises all authority under any
director or employee stock option, stock purchase or other rights plans of
CompleTel, unless the board appoints any other committee to exercise such
authority, and advises and consults with the officers of CompleTel as may be
requested regarding managerial personnel policies.
MANAGING DIRECTOR OF COMPLETEL EUROPE
We formed CompleTel Europe as a European holding company and appointed
ING Trust (Netherlands) B.V. as the sole managing director of CompleTel
Europe since its inception. CompleTel Europe and CompleTel LLC are parties to
a management agreement with ING Trust, dated as of March 24, 1998, whereby
ING Trust has agreed to act as the sole manager of CompleTel Europe and to
manage CompleTel Europe in the manner directed by CompleTel LLC's board as
described in the management agreement. Under the management agreement, ING
Trust's duties as sole Managing Director are to:
- manage and control the business of CompleTel Europe according to the
laws of the Netherlands, its articles of association and the
resolutions of its shareholders' and executive board;
- maintain the due existence and good standing of CompleTel Europe under
the laws of the Netherlands and the articles of association;
- provide facilities as deemed appropriate and useful for the principal
operating and general business of CompleTel Europe;
- take due care of the interests of CompleTel Europe; and
- remain responsible for any duties subcontracted to third parties.
The management agreement is filed as an exhibit to this registration
statement. As our European operations increase, we intend to replace ING
Trust with a board of managing directors and constitute a supervisory board.
At such time the management agreement will be terminated.
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<PAGE>
COMPENSATION OF DIRECTORS
CompleTel LLC or CompleTel Europe will reimburse CompleTel LLC's
directors for their reasonable out-of-pocket expenses incurred in connection
with attending board or committee meetings for CompleTel LLC or any of its
subsidiaries, including CompleTel Europe. Additionally, CompleTel LLC and its
subsidiaries, including CompleTel Europe, have agreed to maintain existing
levels of directors' and officers' indemnity insurance coverage. CompleTel
LLC's directors receive no other compensation for services provided as a
director of CompleTel LLC, as a member of the board of any of CompleTel LLC's
subsidiaries, or as a member of any board committee.
EXECUTIVE COMPENSATION
The following table sets forth in summary form all compensation paid
during the year ended December 31, 1998, to the Chief Executive Officer of
CompleTel LLC and each Executive Officer of CompleTel LLC whose annual salary
and bonus exceeded $100,000 during such year:
The following table sets forth the compensation for James E. Dovey,
William H. Pearson and Richard N. Clevenger. The table does not include
David E. Lacey, who joined CompleTel as its Chief Financial Officer in
December 1998 and, therefore, did not have salary and bonus in excess of
$100,000 for the fiscal year ended December 31, 1998. During CompleTel's
fiscal year ending December 31, 1999, Mr. Lacey expects to earn a salary at
an annual rate of $170,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER ANNUAL
COMPENSATION
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) ($)(1)
----------- ---------- --------- ------------
<S> <C> <C> <C> <C>
James E. Dovey . . . . . . . . . . . 1998 $175,000 $95,000 ---
Chairman of the Board and Chief
Executive Officer
William H. Pearson . . . . . . . . . 1998 $175,000 $95,000 $45,407
President of European Operations
Richard N. Clevenger . . . . . . . . 1998 $150,000 $82,500 $32,987
Senior Vice President and Chief
Technology Officer
</TABLE>
- ----------
(1) Includes perquisites and other benefits paid in excess of 10% of the total
annual salary and bonus received by such officer during the last fiscal
year. These amounts consist of housing allowances, moving expenses and
travel expenses associated with the relocation of these executives to Paris
and their ongoing foreign service.
EMPLOYMENT AGREEMENTS
In May 1998, CompleTel LLC's wholly owned subsidiary, CableTel
Management Inc., entered into employment agreements with each of James E.
Dovey, William H. Pearson, and Richard N. Clevenger, including, among others,
the following terms:
SALARY. During the course of their employment, Mr. Dovey and Mr.
Pearson are to receive an annual base salary of $175,000, and Mr. Clevenger
is to receive an annual base salary of $150,000. These salaries may be
adjusted upward by the board.
BONUS. At the end of each calendar year, each of Messrs. Dovey,
Pearson, and Clevenger will be entitled to receive an incentive bonus of up
to 55% of his annual salary if CompleTel achieves during the year certain
performance benchmarks set by the board.
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<PAGE>
TAX EQUALIZATION. As expatriates, Messrs. Pearson and Clevenger will be
subject to additional taxes and different taxes than if they lived and worked
in the United States. Consequently, their employment agreements contain tax
equalization provisions designed to ensure that they will be placed in
substantially the same economic position as if they were employed in the U.S.
SEVERANCE. Messrs. Dovey, Pearson, and Clevenger's employment
agreements provide them with severance benefits if their employment is
terminated due to death, disability, or nonperformance. In that case, he or
his estate will receive severance equal to his base salary and benefits for
six months, in Mr. Dovey's case, or nine months, in Messrs. Pearson and
Clevenger's case. The employee is entitled to receive severance equal to his
base salary and benefits for 24 months after the date of termination if he is
terminated without cause or if he is terminated or constructively terminated
within six months after a change in control. If the employee resigns or is
terminated for cause, he will not be entitled to severance benefits.
In December 1998, CableTel Management Inc. entered into an Employment
Agreement with David E. Lacey including, among others, the following terms:
SALARY. During the course of his employment, Mr. Lacey is to receive an
annual base salary of $170,000, which salary may be adjusted upward by the
board.
BONUS. At the end of each calendar year, beginning in 1999, Mr. Lacey
will be entitled to receive an incentive bonus of up to 50% of his annual
salary if he achieves during the year certain performance benchmarks set by
the board.
SEVERANCE. Mr. Lacey's employment provides for severance benefits if
his employment is
- terminated due to his death or disability
- terminated without cause, or is
- terminated or constructively terminated within six months after a
change of control.
In that case, Mr. Lacey or his estate will receive severance equal to his
base salary and benefits for three months. If his employment is terminated
for cause or he resigns, he will be entitled to no severance.
EXECUTIVE SECURITIES AGREEMENTS
GENERAL. In May 1998, CompleTel LLC entered into executive securities
agreements with Mr. Dovey, Mr. Pearson and Mr. Clevenger including, among
others, the following terms:
TIME VESTING. Each executive's common ownership interest in CompleTel
LLC vests over a four-year period. 30% vested on the date of grant and
17.5% vests on each of the first four anniversaries of the date of grant.
Time vesting would be accelerated by one year upon an initial public
offering of equity of CompleTel. In addition, 100% of each executive's
common ownership interest in CompleTel LLC will vest
- upon a sale of CompleTel where at least 50% of the consideration for
such sale consists of cash or marketable securities,
- upon any other sale of CompleTel if the executive is not afforded a
comparable time-vesting arrangement in the surviving entity, and
- if the executive is terminated by CompleTel other than for cause or
nonperformance.
PARTIAL PERFORMANCE VESTING. Pursuant to the performance vesting
agreement described below, a portion of the executive's common ownership
interest in CompleTel LLC is, in addition to time vesting, subject to
performance vesting based upon the valuation of CompleTel LLC's equity
implied by an initial public offering of equity of CompleTel or by
65
<PAGE>
actual sales of CompleTel LLC securities by Madison Dearborn Partners.
That portion of the executive's common ownership interest that is
subject to both time and performance vesting will be fully vested only
when it has both time vested and performance vested. The percentage of
that portion of the executive's common ownership interest eligible to
performance vest in any performance-vesting event is based on factors
set out in the performance vesting agreement.
REPURCHASE OF SECURITIES. If the executive's employment is terminated
for any reason, CompleTel LLC or its assignees, or, in limited
circumstances, LPL and the other founding management investors, will have
the right to repurchase all the executive's interests that have vested
based on time at fair market value, and all other interests held by the
executives at original cost.
RESTRICTIONS ON TRANSFER. The executive's common interest in
CompleTel LLC is subject to restrictions on transferability.
NONCOMPETITION AND NONSOLICITATION AGREEMENTS. During the period of
his employment and for two years thereafter, the executive has agreed:
- not to hire or in any other way interfere with the CompleTel's
employee, customer and other business relations; and
- not to participate in any business or enterprise that competes with
CompleTel Europe in any geographical area in which CompleTel Europe
then operates or in good faith proposes to operate.
DAVID E. LACEY EXECUTIVE SECURITIES AGREEMENT. In December 1998,
CompleTel LLC and Mr. Lacey entered into an executive securities agreement,
containing substantially the same terms as the executive securities
agreements described above, except that Mr. Lacey's agreement includes a
modified time vesting schedule:
- at the end of the year in which he was hired, a portion vested in an
amount equal to 25% divided by the number of months from the month of
hire until the end of the year of hire;
- additional 25% will vest on the last day of each of the next three
calendar years; and
- the remainder will vest on the fourth anniversary of the date of hire.
EXECUTIVE SECURITIES AGREEMENTS ENTERED INTO BY OTHER MANAGEMENT
INVESTORS. Each other member of CompleTel's senior management who purchases
or has purchased common ownership interests in CompleTel LLC must enter into
an executive securities agreement. These executive securities agreements
have substantially the same terms as Mr. Lacey's executive securities
agreement described above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to 1999, CompleTel did not have a Compensation Committee and the
compensation of executive officers and other significant employees was
determined by CompleTel LLC's board. James E. Dovey, our Chairman and Chief
Executive Officer, and William H. Pearson, our President of European
Operations, are both currently members of CompleTel LLC's board. In 1999, the
board established a Compensation Committee consisting of four of the
non-employee members, which is responsible for decisions regarding salaries,
incentive compensation, stock option grants and other matters regarding
executive officers and key employees and regarding director compensation and
stock option grants.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPLETEL LLC LIMITED LIABILITY COMPANY AGREEMENT
The limited liability company agreement, dated as of May 18, 1998 and
amended and restated as of January 28, 1999, among DeGeorge Holdings Limited
Partnership, Madison Dearborn Capital Partners II, L.P., Dovey Company LLC,
Dovey Family Partners LLLP, the named executives, executives that have signed
Executive Security Agreements, David E. Lacey, James C. Allen, Royce J.
Holland, George T. Laub and Reed E. Hundt, governs the affairs of CompleTel
LLC. The limited liability company agreement includes, among others, the
following terms:
CAPITAL STRUCTURE. The limited liability company agreement authorized
the issuance of (i) 65,750 convertible preferred ownership interests, (ii)
107,500 common ownership interests, and (iii) certain other interests
issuable only in limited circumstances. The 65,750 preferred interests have
been issued to the management investors under the executive securities
agreements. Of the 107,500 common interests, 82,500 are reserved for issuance
upon conversion of the preferred interests, and 25,000 have been issued, or
are reserved for issuance, to the management investors and key employees
under the executive securities agreements. Of the 25,000 common ownership
interests issued or issuable to the management investors, 7,500 are subject
to performance vesting under the performance vesting agreement. Up to 7,500
of the common ownership interests issuable upon conversion of the preferred
interests are subject to forfeiture in a one-for-one ratio with the
performance vesting of common ownership interests issued to management.
TERMS OF THE PREFERRED INTERESTS. The preferred interests accrue a
preferred yield at the rate of 8% per year of the sum of the liquidation
value thereof and all accumulated and unpaid preferred yield thereon.
"Liquidation value" for any preferred interest is equal to
(1) the initial price paid to CompleTel LLC for such preferred interest on
its date of issuance, PLUS
(2) the aggregate contributions to the capital of CompleTel LLC made
pursuant to the equity purchase agreement with respect to such
preferred interest after its date of issuance, MINUS
(3) all distributions constituting a return of capital with respect to
such preferred interest after its date of issuance.
The indenture restricts the ability of CompleTel Europe to make dividends to
CompleTel LLC in order to pay the preferred yield on the preferred interests.
No distributions out of earnings and profits may be made to the common
interests unless CompleTel LLC has first made distributions to the holders of
preferred interests to pay the full amount of accrued preferred yield on the
preferred interests. Upon any liquidation, dissolution, or winding up of
CompleTel LLC (whether voluntary or involuntary), each holder of preferred
interests will be entitled to receive, before any distribution is made with
respect to any other class of CompleTel LLC's equity, distributions in cash
equal to the aggregate liquidation value of all preferred interests held by
such holder plus all accrued and unpaid preferred yield thereon.
The preferred interests are convertible at any time and from time to
time into common interests at the election of the holder thereof. In
addition, all holders of preferred interests will be required to convert
their preferred interests into common interests upon (i) a significant
initial public offering of CompleTel LLC's common equity or (ii) the
affirmative vote of the holders of a majority of the outstanding preferred
interests. Upon any conversion of preferred interests, the holder thereof has
the right to receive a distribution in cash equal to the amount of accrued
but unpaid preferred yield on the preferred interests being converted, except
that, if the conversion occurs in connection with an initial public offering
of CompleTel LLC's common equity, the converting holder may elect to receive
such payment in the form of CompleTel LLC securities at the public offering
price. The 65,750 outstanding preferred interests are currently convertible
into 82,500 common interests. The conversion ratio is subject to adjustment
on a weighted-average basis upon any issuance or deemed issuance of common
interests, or securities convertible into or exercisable for common
interests, that
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otherwise would dilute the economic interests of the holders of preferred
interests. The holders of preferred interests are entitled to vote their
preferred interests with the holders of common interests on an
as-if-converted basis on all matters submitted to a vote of the members.
TERMS OF THE COMMON INTERESTS. The holders of common interests are
entitled to one vote for each common interest held on all matters submitted
to a vote of the members. Holders of common interests are entitled, subject
to the preferences of the preferred interests, to receive such distributions,
if any, as may be declared by CompleTel LLC's board out of profits allocated
to the members. In the event of a liquidation, dissolution, or winding up of
CompleTel LLC, the holders of common interests are entitled to share ratably
in the assets of CompleTel LLC which are available for distribution, if any,
remaining after the payment of all debts and liabilities of CompleTel LLC and
the liquidation preference of any outstanding preferred interests.
CONVERSION OF COMPLETEL LLC INTO A SUBCHAPTER C CORPORATION. Upon the
affirmative vote of CompleTel LLC's board and the holders of a majority of
the common and preferred interests, CompleTel LLC will be converted into a
corporation, as that term is used in Subchapter C of the Internal Revenue
Code. In connection with such conversion, each holder of preferred interests
or common interests of CompleTel LLC will receive comparable equity
securities of such corporation on the terms set forth in the LLC Agreement.
EQUITY PURCHASE AGREEMENT
In May 1998, an equity purchase agreement, as amended and restated in
January 1999, was entered into among CompleTel LLC, DeGeorge Holdings Limited
Partnership, Madison Dearborn Capital Partners II, L.P., Dovey Family
Partners LLLP, Dovey Company LLC, the named executives, David E. Lacey, James
C. Allen, Royce J. Holland and George T. Laub.
RESTRICTIVE COVENANTS. The private equity investors have the right to
approve or disapprove CompleTel LLC's or CompleTel Europe's taking or
agreeing to take certain actions, including, among other things,
(1) making distributions with respect to, redeeming, or issuing any equity
securities, any securities convertible into or exercisable for equity
securities, or any debt with equity features,
(2) loaning monies,
(3) disposing of significant assets,
(4) making acquisitions or entering into joint ventures,
(5) entering into any merger, consolidation, liquidation,
recapitalization, or reorganization,
(6) entering into transactions with related persons,
(7) incurring significant indebtedness, and
(8) entering into or modifying any employment arrangement with CompleTel's
Chief Executive Officer.
The private equity investors have approved CompleTel's consummation of the
exchange offer.
CONTRACTUAL PREEMPTIVE RIGHTS. Prior to an initial public offering or a
sale of CompleTel LLC or CompleTel Europe, the private equity investors and
the management investors have the right to participate pro rata in any
issuance of common interests, or any securities convertible into or
exercisable for common interests, other than issuances as part of a pro rata
stock split or stock dividend, upon the conversion or exercise of other
CompleTel LLC securities, of securities reserved
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for issuance to management investors, as part of the financing for an
acquisition, to a lender in connection with its loan to CompleTel LLC or
CompleTel Europe, or in an initial public offering.
PUT RIGHTS. If a significant initial public offering or a sale of
CompleTel LLC or CompleTel Europe has not occurred by May 18, 2005, each
holder of preferred interests, or securities issued upon exercise thereof or
otherwise in connection therewith, will have the right to require CompleTel
LLC to take all actions necessary to purchase such interests or other
securities held by such holder for fair market value (or, in the case of
preferred interests to be repurchased, the greater of fair market value and
the liquidation value, together with all accrued but unpaid preferred yield
thereon). The indenture limits CompleTel Europe's ability to pay dividends
and take other action that may be required to effect the repurchase.
PERFORMANCE VESTING AGREEMENT
In May 1998, a performance vesting agreement, as amended in January
1999, was entered into among CompleTel LLC, DeGeorge Holdings Limited
Partnership, Madison Dearborn Capital Partners II, L.P., Dovey Family
Partners LLLP, Dovey Company LLC, the named executives, David E. Lacey, James
C. Allen, Royce J. Holland, George T. Laub, Reed E. Hundt and executives that
have executed Executive Securities Agreements. Under the performance vesting
agreement, 7,500 of the 25,000 common interests issued or reserved for
issuance to the management investors are subject to performance vesting based
upon the valuation of CompleTel LLC's equity implied by an initial public
offering of equity or by actual sales of CompleTel LLC securities by Madison
Dearborn Partners. In addition, up to 7,500 of the common interests issuable
to the management investors upon conversion of the preferred interests are
subject to forfeiture if and when common interests subject to performance
vesting vest. As a result, depending upon the percentage of the common
interests subject to performance vesting that ultimately vest, and the
corresponding percentage of common interests issuable upon conversion of the
preferred interests that are ultimately forfeited, the allocation of total
equity ownership of CompleTel LLC between the holders of preferred interests
on an as-if-converted basis and the holders of common interests will range
between 82.5%/17.5% and 75.0%/25.0%, assuming no other issuances of CompleTel
LLC securities.
SECURITYHOLDERS AGREEMENT
In May 1998, a securityholders agreement, as amended in January 1999,
was entered into by the signatories to the limited liability company
agreement that prohibits the management investors from transferring any
preferred interests, or securities convertible into or exercisable for
preferred interests, as opposed to their common interests, prior to May 18,
2000, other than to related parties, family members, or estate planning
entities, or as part of a sale of CompleTel LLC. Transfers of any such
preferred securities by private equity investors and by management investors
after May 18, 2000, other than transfers to related parties, family members,
or estate planning entities, to the public, or as part of a sale of CompleTel
LLC, are subject to first refusal rights in favor of the other holders of
preferred securities, and to "tag-along" rights of the holders of preferred
securities and of the management investors with respect to their common
interests that have both time vested and, if applicable, performance vested,
to participate pro rata in such transfer. In the event a sale of CompleTel
LLC or CompleTel Europe is approved by the holders of a majority of the
preferred securities, each of the private equity investors and management
investors has agreed to approve such sale and, if requested, to sell its
CompleTel LLC securities in such sale.
REGISTRATION AGREEMENT
In May 1988, a registration agreement, as amended and restated in
January 1999, was entered into by the signatories to the limited liability
company agreement that provides the holders of a majority of the preferred
securities to require CompleTel LLC to consummate an initial public offering.
After CompleTel LLC's initial public equity offering, the private equity
investors are entitled to demand up to three additional registrations on Form
S-1, or its successor, under the Securities Act, and the holders of at least
10% of the outstanding preferred securities may request unlimited short-form
registrations. In addition, the private equity investors and the management
investors are entitled to "piggyback" on primary or secondary registered
public offerings of
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CompleTel LLC's securities. Each private equity investor and management
investor is subject to holdback restrictions in the event of an initial
public offering or other public offering of CompleTel LLC securities.
RESTRUCTURING TRANSACTIONS
In February 1999, CompleTel Europe, CompleTel Holdings and CompleTel
(N.A.) N.V. entered into a subscription agreement pursuant to which CompleTel
(N.A.) N.V. purchased 7.0% of the common interests of CompleTel Europe on a
fully diluted basis and issued a corresponding percentage of its equity
interests to CompleTel Holdings for the capital accounts of the holders of
Class B interests of CompleTel Holdings.
The subscription agreement imposes a number of covenants on CompleTel
Europe and CompleTel (N.A.) N.V. for the benefit of CompleTel Holdings,
including:
(1) providing certain financial information concerning CompleTel Europe
and its subsidiaries that CompleTel Holdings is required to provide to
its members;
(2) subject to debt instruments to which CompleTel Europe is a party,
distributing cash to CompleTel Holdings in an amount that is intended
to approximate its members' U.S. federal, state and local income tax
liability on the net income allocated to its members for U.S. income
tax purposes by CompleTel Holdings;
(3) creating a sponsored American Depositary Receipt program for the
Common Shares that will be in effect on or prior to the occurrence of
a liquidation event; and
(4) notifying CompleTel Holdings at the appropriate time that there is no
material likelihood that CompleTel Europe should be considered a
"passive foreign investment company" for U.S. federal income tax
purposes for its current or any future taxable year.
Pursuant to the subscription agreement, CompleTel Europe has agreed that
all future transactions between CompleTel Europe and its officers, directors,
principal shareholders or their respective affiliates, will be on terms no
less favorable to CompleTel Europe than can be obtained from unrelated third
parties.
UNITS OFFERING
In February 1999, CompleTel Europe and CompleTel Holdings issued 147,000
units, each unit consisting of $1,000 principal amount at maturity of 14%
senior discount notes of CompleTel Europe due 2009 and 10 non-voting class B
membership interests of CompleTel Holdings, in an offering under Rule 144A of
the Securities Act. Mr. DeGeorge, one of CompleTel LLC's directors,
purchased 4,000 units in the offering on the same terms as the other
purchasers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of CompleTel Europe's issued and paid-up shares of capital are owned
by CompleTel Holdings (indirectly through its wholly owned subsidiary,
CompleTel (N.A.) N.V.). CompleTel LLC owns all of the Class A equity
interests of CompleTel Holdings which represent 93% of CompleTel Holdings'
total equity. The remaining 7% is represented by the non-voting Class B
Interests included in the units purchased by the holders of the old notes.
The power of CompleTel LLC to vote and dispose of its equity interests in
CompleTel Holdings is exercised by CompleTel LLC's board, which is elected by
the holders of CompleTel LLC's preferred interests and common interests, and
the power of CompleTel Holdings to vote and dispose of the outstanding
capital stock of CompleTel Europe is exercised by CompleTel Holdings' board
of managers, which is elected by CompleTel LLC as the sole owner of the
voting interests in CompleTel Holdings. CompleTel LLC's board and CompleTel
Holdings' board of managers have the same composition. Thus, the holders of
preferred and common interests in CompleTel LLC could be deemed to be
beneficial owners of the equity
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interests of CompleTel Holdings owned by CompleTel LLC and the capital stock
of CompleTel Europe indirectly owned by CompleTel Holdings. None of the
holders of the Class B interests of CompleTel Holdings hold interests
representing more than 5% of the outstanding common equity interests of
CompleTel Holdings.
The following table sets forth certain information regarding the
beneficial ownership of the equity securities of CompleTel LLC by:
(1) each of the directors and the named executive officers;
(2) all directors and executive officers as a group;
(3) each owner of more than 5% of the equity securities of CompleTel LLC
("5% Owners").
All information with respect to ownership of common interests is presented on
a fully diluted basis assuming the conversion of all outstanding preferred
interests and including all common interests subject to performance vesting,
but does not give effect to any forfeiture of preferred interests upon
performance vesting of such performance vesting interests under the
performance vesting agreement. The preferred interests of CompleTel LLC are
currently convertible into common interests of CompleTel LLC at a rate of
approximately 1.25475 common interests for each preferred interest converted.
The percentage of Common Units has been calculated on a fully diluted basis
assuming the conversion of all outstanding preferred interests and including
all common interests subject to performance vesting, but not giving effect to
any forfeiture of preferred interests upon performance vesting of such
performance vesting interests under the performance vesting agreement.
<TABLE>
<CAPTION>
COMPLETEL LLC
-------------
PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON UNITS COMMON UNITS
- ------------------------------------ ------------ -------------
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE
OFFICERS:
James E. Dovey(1) . . . . . . . . . . 6,564 6.1%
William H. Pearson(2)(3) . . . . . . 6,731 6.3%
Richard N. Clevenger(3)(4) . . . . . 5,760 5.4%
James C. Allen(5) . . . . . . . . . . 627 *
Royce J. Holland(6) . . . . . . . . . 627 *
Lawrence F. DeGeorge(7)(9) . . . . . 23,292 21.7%
Paul J. Finnegan . . . . . . . . . . -- --
James H. Kirby . . . . . . . . . . . -- --
James N. Perry, Jr. . . . . . . . . . -- --
All Directors and executive
officers as a group
(11 persons) . . . . . . . . . . . . 44,748 41.6%
5% OWNERS:
Madison Dearborn Partners(8) . . . . 56,470 52.5%
DeGeorge Holdings(9) . . . . . . . . 23,292 21.7%
</TABLE>
- ----------
* Less than 1%
(1) These common interests are held by Mr. Dovey, Dovey Company LLC and Dovey
Family Partners LLP. 2,025 of such common interests are subject to
performance vesting under the performance vesting agreement. Approximately
60.46 of such common interests issuable upon conversion of preferred
interests are subject to forfeiture in the event of performance vesting of
management common interests under the performance vesting agreement. All of
such common interests, other than those issuable upon conversion of
preferred interests, held directly and indirectly by Mr. Dovey are subject
to time vesting, with 30% vested on May 18, 1998, and 17.5% vesting on each
of the first four anniversaries thereof. Mr. Dovey's address is c/o
CompleTel LLC, 6750 South Syracuse Way, Suite 355, Englewood, Colorado
80111.
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(2) 2,287 of the common interests held by Mr. Pearson are subject to
performance vesting under the performance vesting agreement. Approximately
6.05 of the common interests issuable upon conversion of the preferred
interests held by Mr. Pearson are subject to forfeiture in the event of
performance vesting of management common interests under the performance
vesting agreement. All of the common interests, other than those issuable
upon conversion of preferred interests, held by Mr. Pearson are subject to
time vesting, with 30% vested on May 18, 1998, and 17.5% vesting on each of
the first four anniversaries thereof.
(3) The address for Mr. Pearson and Mr. Clevenger is c/o CompleTel Europe,
Washington Plaza--Immeuble Artois, 44 rue Washington, 75408 Paris CEDEX 08,
France.
(4) 1,045 of the common interests held by Mr. Clevenger are subject to
performance vesting under the performance vesting agreement. Approximately
42.32 of the common interests issuable upon conversion of the preferred
interests held by Mr. Clevenger are subject to forfeiture in the event of
performance vesting of management common interests under the performance
vesting agreement. All of the common interests, other than those issuable
upon conversion of preferred interests, held by Mr. Clevenger are subject
to time vesting, with 30% vested on May 18, 1998, and 17.5% vesting on each
of the first four anniversaries thereof.
(5) Approximately 57.03 of these common interests are subject to forfeiture in
the event of performance vesting of management common interests under the
performance vesting agreement.
(6) Approximately 57.03 of these common interests are subject to forfeiture in
the event of performance vesting of management common interests under the
performance vesting agreement.
(7) Mr. DeGeorge is the Chairman and Chief Executive Officer of LPL Investment
Group, Inc., the general partner of DeGeorge Holdings Limited Partnership,
and his address is c/o LPL Investment Group, Inc., 140 Intracoastal Pointe,
Suite 410, Jupiter, Florida 33477.
(8) These common interests are held by Madison Dearborn Capital Partners II,
L.P. Approximately 5,133.65 of these common interests are subject to
forfeiture in the event of performance vesting of management common
interests under the performance vesting agreement. The address of Madison
Dearborn Partners, Inc. is Three First National Plaza, Suite 3800, Chicago,
Illinois 60602.
(9) These common interests are held by DeGeorge Holdings Limited Partnership.
Approximately 2,117.45 of these common interests are subject to forfeiture
in the event of performance vesting of management common interests under
the performance vesting agreement. DeGeorge Holdings Limited Partnership
also holds 40,000 Class B interests of CompleTel Holdings, representing
approximately 2.7% of the outstanding Class B interests. The address of
DeGeorge Holdings Limited Partnership is Investment Group, Inc., 140
Intracostal Pointe, Suite 410, Jupiter, Florida 33477. Mr. DeGeorge has
sole voting and investment power over the units owned by DeGeorge Holdings
Limited Partnership.
DESCRIPTION OF CERTAIN INDEBTEDNESS
We have received a commitment from Nortel and Paribas to provide vendor
and bank financing in an aggregate amount of approximately $90 million to
finance the deployment of our networks in France. The senior credit
facilities, when implemented, would consist of an initial $20 million vendor
facility to be repaid and replaced by a $90 million fully secured revolving
credit and term loan bank facility, bearing interest at a variable rate
commencing at LIBOR plus a margin, with a final maturity date of December 31,
2006. The final implementation of the commitments remains subject to the
satisfaction of customary conditions including preparation of definitive
documentation and completion of due diligence. Based on the terms of the
commitments, we expect the availability of credit under the bank facility
will be contingent on a number of conditions precedent, including:
- satisfaction of capitalization requirements, including receipt of
$50 million of proceeds from the notes;
- satisfaction of currency and interest rate hedging requirements;
- satisfaction of requirements for number of business access lines in
service;
- acceptable ratios of senior debt to number of access lines in
service; and
- satisfaction of financial ratios.
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DESCRIPTION OF THE NOTES
The new notes, like the old notes will be issued under the indenture,
dated as of February 16, 1999, between CompleTel Europe, as issuer, CompleTel
ECC B.V., as former escrow guarantor, and U.S. Bank Trust National
Association, as trustee (the "Trustee"). On April 25, 1999, CompleTel ECC
B.V. was released from its obligations under the Indenture. References in
this "Description of the Notes" to the "Company" refer to CompleTel Europe
alone and not to its subsidiaries. References in this "Description of the
Notes" to "CompleTel LLC" refer to CompleTel LLC alone and not to its
subsidiaries.
The following description of the terms of the indenture is a summary.
It does not restate the indenture and excludes certain of the definitions and
complex legal terminology contained in the indenture. While we believe this
summary contains the information about the indenture which is important to
your decision to exchange old notes for new notes, it does not include all of
the provisions of the indenture that you may feel are important. The
indenture, and not this summary, defines your rights as a note holder. The
indenture and its associated documents contain the full legal text of the
matters described in this section. A copy of the indenture has been filed
with the SEC as part of our registration statement of which this prospectus
forms a part. See "Available Information" on the inside front cover of the
prospectus for information on how to obtain a copy.
GENERAL
The notes:
- will be unsecured unsubordinated obligations of CompleTel Europe;
- will be limited to $147,500,000 aggregate principal amount at
maturity; and
- will mature on February 15, 2009.
Cash interest will not be payable on the notes prior to February 15, 2004.
Until, February 15, 2004, a significant amount of original issue discount
will be recognized by each owner of notes as such discount accrues from the
date of issuance of the old notes. From and after February 15, 2004, cash
interest on the notes will accrue at a rate of 14% per annum from February
15, 2004 or from the most recent interest payment date to which interest has
been paid or provided for. Cash interest will be payable semi-annually on
February 15 and August 15 of each year, commencing August 15, 2004. Interest
payments will be made to the registered owner of each note at the close of
business on the February 1 or August 1 immediately preceding the interest
payment date. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. If any additional interest (in addition to the stated
interest on the notes) becomes payable on the notes, it will be payable in
cash semi-annually on February 15 and August 15 of each year.
The notes will be issued only in fully registered form, without coupons,
in minimum denominations of $100,000 principal amount at maturity. Any notes
issued in denominations in excess of $100,000 will be issued in increments of
$1,000 principal amount at maturity. No service charge will be made for any
registration of transfer or exchange of notes, but CompleTel Europe may
require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith.
METHOD OF RECEIVING PAYMENT
Principal of, premium, if any, and interest on the notes will be
payable, and the notes may be exchanged or transferred, at the office or
agency of CompleTel Europe in the Borough of Manhattan, the City of New York
(which initially will be in each case the corporate trust office of the
Trustee (the "Paying Agent") at 100 Wall Street, 20th Floor, New York, New
York 10005); PROVIDED that, at the option of CompleTel Europe, payment of
interest may be made by check mailed to the registered owners of the notes at
their registered addresses.
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ADDITIONAL AMOUNTS
All payments made by CompleTel Europe or CompleTel LLC under the notes
will be made free and clear of, and without withholding or deduction for any
present or future tax or other government charge (including penalties and
interest) imposed by or on behalf of the government of the Netherlands or any
political subdivision or taxing authority or agency thereof or therein or any
other jurisdiction in which CompleTel Europe is organized or engaged in
business for tax purposes ("Taxes"), unless CompleTel Europe or CompleTel LLC
is required to withhold or deduct Taxes by law or by the interpretation or
administration thereof. If CompleTel Europe or CompleTel LLC is required to
withhold or deduct any amount for or on account of Taxes, from any payment
made under the notes, CompleTel Europe or CompleTel LLC will pay such
additional amounts ("Additional Amounts") as may be necessary so that the net
amount received by each owner of notes after such withholding or deduction
will equal or exceed the amount the owner would have received if such Taxes
had not been withheld or deducted. CompleTel Europe's obligation to pay
Additional Amounts does not apply to
- any Taxes that would not have been imposed but for the existence of
any present or former connection between the relevant holder and the
Netherlands or any political subdivision or taxing authority or agency
thereof or therein or any other jurisdiction in which CompleTel Europe
is organized or engaged in business for tax purposes (other than the
mere receipt of such payment or the ownership or holding outside of
the Netherlands or such other jurisdiction of such Note);
- any estate, inheritance, gift, sales, transfer, personal property tax
or similar tax, assessment or governmental charge; or
- any Taxes payable otherwise than by deduction or withholding from
payments of principal of (or premium, if any, on) or interest on such
Note.
CompleTel Europe also will not be required to pay Additional Amounts if the
payment could have been made without such deduction or withholding if the
beneficiary of the payment had presented the note for payment within 30 days
after the date on which such payment or such note became due and payable or
the date on which payment thereof is duly provided for. In addition,
CompleTel Europe is not required to pay Additional Amounts with respect to
any payment of principal of (or premium, if any, on) or interest on such note
to any Holder who is a fiduciary or partnership or any person other than the
sole beneficial owner of such payment, to the extent that a beneficiary or
settlor with respect to such fiduciary, a member of such a partnership or the
beneficial owner of such payment would not have been entitled to the
Additional Amounts had such beneficiary, settlor, member or beneficial owner
been the actual Holder of such Note.
If CompleTel Europe conducts business in any jurisdiction (the "Taxing
Jurisdiction") other than the Netherlands in a manner which causes Holders to
be liable for taxes on payments under the notes for which they would not have
been so liable but for such conduct of business in the Taxing Jurisdiction,
"Taxes" shall include taxes imposed by way of deduction or withholding by
such Taxing Jurisdiction and CompleTel Europe's and CompleTel LLC's
obligations to pay Additional Amounts shall apply without regard to whether
Holders or beneficial owners have a present or former connection with such
Taxing Jurisdiction or any prefecture or territory thereof. CompleTel Europe
or CompleTel LLC will furnish to the Holders of the notes, within 30 days
after the date the payment of any Taxes so deducted or withheld is due
pursuant to applicable law, certified copies of tax receipts evidencing such
payment by CompleTel Europe or CompleTel LLC.
Whenever in the indenture or in this "Description of the Notes" there is
mentioned, in any context, the payment of principal, premium, if any,
interest or of any other amount payable under or with respect to any Note,
such mention shall be deemed to include mention of the payment of Additional
Amounts to the extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof. The foregoing obligations relating to
Additional Amounts shall survive any termination, defeasance or discharge of
the indenture.
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COMPLETEL LLC GUARANTEE
CompleTel LLC has unconditionally guaranteed, on a senior unsecured
basis, the full and prompt performance of CompleTel Europe's obligations
under the indenture and the notes, including the payment of principal,
premium, if any, interest, and Additional Amounts, if any, on the notes.
The indenture does not restrict any activities of CompleTel LLC,
including the ability of CompleTel LLC to incur indebtedness, and all future
debt and other liabilities of CompleTel LLC's subsidiaries, if any, other
than CompleTel Europe or its subsidiaries, will be effectively senior to the
obligations of CompleTel LLC under the guarantee.
CompleTel LLC is a holding company with no material business operations,
sources of income, or other assets other than its interests in CompleTel
Europe and CompleTel Europe's subsidiaries. Accordingly, if CompleTel Europe
is unable to satisfy its obligations under the indenture and the notes, it is
unlikely that CompleTel LLC will have sufficient funds available to satisfy
its obligations under the Guarantee.
OPTIONAL REDEMPTION
CompleTel Europe may redeem the notes at its option, in whole or in
part, at any time or from time to time, on or after February 15, 2004. The
notes may be redeemed at the redemption prices, expressed in percentages of
principal amount at maturity, set forth below, plus accrued and unpaid
interest, if any, to the redemption date, subject to the right of Holders on
the relevant Regular Record Date that is on or prior to the Redemption Date
to receive interest due on an Interest Payment Date, if redeemed during the
12-month period commencing February 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PRICE
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107.000
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.667
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.333
2007 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.000%
</TABLE>
In addition, at any time prior to February 15, 2002, CompleTel Europe
may, at its election and on one or more occasions, redeem up to (i) 33 1/3%
of the principal amount at maturity of the notes originally issued with the
proceeds of one or more public equity offerings, at CompleTel Europe's
option, at a redemption price of 114% of the accreted value on the redemption
date plus accrued and unpaid interest, if any, to the redemption date;
PROVIDED that (i) at least $98,334,000 aggregate principal amount at maturity
of the notes remains outstanding after each such redemption.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
If as a result of any change in or amendment to any laws or regulations
CompleTel Europe becomes required to pay any Additional Amounts and the
payment of such Additional Amounts cannot reasonably be avoided by CompleTel
Europe, the notes may be redeemed at the option of CompleTel Europe, in whole
but not in part, at any time prior to the second interest payment date after
such change or amendment at a redemption price equal to 100% of the accreted
value of the notes to the redemption date, plus any accrued and unpaid
interest and any Additional Amounts then due.
SELECTION AND NOTICE OF REDEMPTION
To redeem the notes, we must give you not less than 30 nor more than 60
days' prior notice which we must mail to you by first class mail to your last
address as it appears in the security register. Notice of any redemption
relating to a public equity offering must be mailed within 60 days after such
public equity offering.
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In the case of any partial redemption, the trustee will select the notes
for redemption:
- in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed, or
- if the notes are not listed on a national securities exchange, PRO
RATA, by lot or by such other method as the trustee in its sole
discretion will deem to be fair and appropriate; or
- in the case of a partial redemption following a public equity
offering, PRO RATA.
No note of $1,000 in principal amount or less will be redeemed in part.
If any note is to be redeemed in part only, the notice of redemption relating
to such note will state the portion of the principal amount of such note to
be redeemed. A new note in principal amount equal to the unredeemed portion
of a note will be issued in the name of the holder of the note upon
cancellation of the original note.
SINKING FUND
There will be no sinking fund payments for the notes.
RANKING
The notes are unsubordinated obligations of CompleTel Europe and will
have the same right of payment as all other existing and future unsecured
unsubordinated indebtedness of CompleTel Europe. The notes are senior in
right of payment to all subordinated indebtedness of CompleTel Europe.
CompleTel Europe is a holding company with limited assets and no business
operations of its own. CompleTel Europe operates its business through its
subsidiaries. Any right of CompleTel Europe and its creditors, including
owners of the notes, to participate in the assets of any of CompleTel
Europe's subsidiaries upon any liquidation or administration of any such
subsidiary will be subject to the prior claims of the subsidiary's creditors,
including trade creditors.
CERTAIN DEFINITIONS
The following are significant terms defined in the indenture. You
should review the indenture to see full disclosure of all terms that are
defined in the indenture.
"Accreted Value" means, for any Specified Date, the amount provided
below for each $1,000 principal amount at maturity of notes:
(1) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date") the Accreted Value will equal the amount
set forth below for such Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
ACCRETED
SEMI-ANNUAL ACCRUAL DATE VALUE
- ------------------------ --------
<S> <C>
August 15, 1999 . . . . . . . . . . . . . . . . . . . . . . . $543.93
February 15, 2000 . . . . . . . . . . . . . . . . . . . . . . 582.01
August 15, 2000 . . . . . . . . . . . . . . . . . . . . . . . 622.75
February 15, 2001 . . . . . . . . . . . . . . . . . . . . . . 666.34
August 15, 2001 . . . . . . . . . . . . . . . . . . . . . . . 712.99
February 15, 2002 . . . . . . . . . . . . . . . . . . . . . . 762.90
August 15, 2002 . . . . . . . . . . . . . . . . . . . . . . . 816.30
February 15, 2003 . . . . . . . . . . . . . . . . . . . . . . 873.44
August 15, 2003 . . . . . . . . . . . . . . . . . . . . . . . 934.58
February 15, 2004 . . . . . . . . . . . . . . . . . . . . . . $1,000.00
</TABLE>
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(2) if the Specified Date occurs before the first Semi-Annual Accrual
Date, the Accreted Value of the notes, will equal the sum of
(a) $508.54; and (b) an amount equal to the product of
(x) the applicable Accreted Value for the first Semi-Annual Accrual
Date less $508.54, MULTIPLIED by
(y) a fraction, the numerator of which is the number of days from
February 16, 1999 to the Specified Date, using a 360-day year of
twelve 30-day months, and the denominator of which is the number
of days from February 16, 1999 to the first Semi-Annual Accrual
Date, using a 360-day year of twelve 30-day months;
(3) if the Specified Date occurs between two Semi-Annual Accrual Dates,
the Accreted Value will equal the sum of
(a) the applicable Accreted Value for the Semi-Annual Accrual Date
immediately preceding such Specified Date and
(b) an amount equal to the product of
(x) the applicable Accreted Value for the immediately following
Semiannual Accrual Date less the Accreted Value for the
immediately preceding Semi-Annual Accrual Date MULTIPLIED by
(y) a fraction, the numerator of which is the number of days from the
immediately preceding Semi-Annual Accrual Date to the Specified
Date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180; or
(4) if the Specified Date occurs after February 15, 2004, the Accreted
Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a person existing at the
time it becomes 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 CompleTel Europe and its Restricted Subsidiaries for
such period determined in conformity with GAAP. The following items,
however, are excluded in computing Adjusted Consolidated Net Income:
(1) the net income or loss of any person that is not a Restricted
Subsidiary, except
(a) with respect to net income, to the extent of the amount of
dividends or other distributions actually paid to CompleTel
Europe or any of the Restricted Subsidiaries by such person and
(b) with respect to net losses, to the extent of the amount of
Investments made by CompleTel Europe or any Restricted Subsidiary
in such person;
(2) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary out of such net income is not at the time
permitted 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;
PROVIDED that solely for the purposes of calculating the Consolidated
Leverage Ratio, the exclusion of net income of a Restricted Subsidiary
pursuant to this clause (F) will not give rise to any restrictions on
the declaration or payment of dividends or other distributions which
are permitted pursuant to clause (6) of the second paragraph under of
the "Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries"covenant described below;
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(3) any gains or losses, on an after-tax basis, attributable to Asset
Sales;
(4) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any
amount paid or accrued as dividends on preferred stock of CompleTel
Europe or any Restricted Subsidiary owned by persons other than
CompleTel Europe and any of the Restricted Subsidiaries;
(5) all extraordinary gains and extraordinary losses;
(6) any compensation expense paid or payable solely with Capital Stock
(other than Disqualified Stock) of CompleTel Europe; and
(7) net income or loss of any person combined with CompleTel Europe or any
Restricted Subsidiary on a "pooling of interests" basis attributable
to any period commencing prior to the date of combination.
"Affiliate" means, as applied to any person, any other person directly
or indirectly controlling, controlled by, or under direct or indirect common
control with, such person. For purposes of this definition, "control" and the
correlative meanings of the terms "controlling," "controlled by" and "under
common control with" 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.
"Approved Jurisdiction" means any state of the United States or the
District of Columbia, The Netherlands or any other member state of the
European Community in respect of which CompleTel Europe delivers an Opinion
of Counsel to the effect that the laws of such jurisdiction will not
adversely affect the registered owners of the notes.
"Asset Acquisition" means:
(1) an investment by CompleTel Europe or any of the Restricted
Subsidiaries in any other person pursuant to which such person becomes
a Restricted Subsidiary or is merged into or consolidated with
CompleTel Europe or any of the Restricted Subsidiaries; or
(2) an acquisition by CompleTel Europe or any of the Restricted
Subsidiaries of the property and assets of any person other than
CompleTel Europe or any of the Restricted Subsidiaries that constitute
substantially all of a division or line of business of such person or
which is otherwise outside of the ordinary course of business.
"Asset Disposition" means the sale or other disposition by CompleTel
Europe or any of the Restricted Subsidiaries to a person other than CompleTel
Europe or another Restricted Subsidiary of
(1) Capital Stock of any Restricted Subsidiary,
(2) all or substantially all of the assets that constitute a division or
line of business of CompleTel Europe or any of the Restricted
Subsidiaries or
(3) its assets outside of the ordinary course of business.
"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 CompleTel Europe or any of
the Restricted Subsidiaries to any person other than CompleTel Europe or any
of the Restricted Subsidiaries of :
(1) all or any of the Capital Stock of any Restricted Subsidiary;
(2) all or substantially all of the property and assets of an operating
unit or business of CompleTel Europe or any of the Restricted
Subsidiaries; or
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(3) any other property and assets, other than the Capital Stock or other
Investment in an Unrestricted Subsidiary, of CompleTel Europe or any
of the Restricted Subsidiaries that is outside the ordinary course of
business and that is not governed by the provisions of the indenture
applicable to mergers, consolidations and sales of all or
substantially all of the assets of CompleTel Europe.
The term "Asset Sale," however, does not include:
(1) sales or other dispositions of inventory, receivables and other
current assets;
(2) sales, transfers or other dispositions of assets constituting a
Restricted Payment permitted to be made under the "Limitation on
Restricted Payments" covenant described below; or
(3) sales, transfers or other dispositions of assets with a fair market
value not in excess of $2 million (or the U.S. dollar equivalent) in
any transaction or series of related transactions.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing
(1) the sum of the products of (x) the number of years from such date of
determination to the dates of each successive scheduled principal
payment of such debt security and (y) the amount of such principal
payment by
(2) the sum of all such principal payments.
"Board of Directors" means, prior to the occurrence of a Public Market,
the board of directors of CompleTel LLC or any committee of such board of
directors duly authorized to act under the indenture, and following the
occurrence of a Public Market, the board of managing directors of CompleTel
Europe or any committee of such board of directors duly authorized to act
under the indenture.
"Capital Stock" means, with respect to any person, any and all voting or
non-voting shares, interests, participations, rights in or other equivalents,
however designated, of such person's capital stock, whether outstanding on
the date the notes were originally issued or issued thereafter, and any and
all rights other than any evidence of indebtedness, warrants or options
exchangeable for or convertible into such capital 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 such person's balance sheet.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease.
"Change of Control" means such time as:
(1) (a) prior to the occurrence of a Public Market, a person or group,
other than a person or group controlled exclusively by the Equity
Investors, becomes the ultimate beneficial owner, of Voting Stock
representing a greater percentage of the total voting power of
the Voting Stock of (x) CompleTel LLC, on a fully diluted basis,
than is beneficially owned by the Equity Investors on such date
or (y) CompleTel Europe, on a fully diluted basis, than is
beneficially owned by the Existing Stockholders on such date;
and
(b) after the occurrence of a Public Market, a person or group, other
than a person or group controlled exclusively by the Equity
Investors, becomes the ultimate beneficial owner of more than 35%
of the total voting power of the Voting Stock of CompleTel Europe
on a fully diluted basis and such ownership represents a greater
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percentage of the total voting power of the Voting Stock of
CompleTel Europe, on a fully diluted basis, than is held by the
Existing Stockholders on such date; or
(2) CompleTel Europe consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, CompleTel
Europe, in any such event pursuant to a transaction in which the
outstanding Voting Stock of CompleTel Europe is converted into or
exchanged for cash, securities or other property, other than any such
transaction where
(a) the outstanding Voting Stock of CompleTel Europe is converted
into or exchanged for
(I) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent
corporation and/or
(ii) cash, securities and other property in an amount which could
be paid by CompleTel Europe as a Restricted Payment under
the indenture, and
(b) immediately after such transaction no person or group, other than
a person or group controlled exclusively by the Equity Investors,
is the beneficial owner, directly or indirectly, of more than 35%
of the total Voting Stock of the surviving or transferee
corporation or its parent corporation, as applicable and is the
beneficial owner of a greater percentage of such Voting Stock
than the Equity Investors; or
(3) following the occurrence of a Public Market, individuals who on the
date of occurrence of a Public Market constitute the Board of
Directors cease for any reason to constitute a majority of the members
of the Board of Directors then in office. For this purpose, a director
is treated as being on the Board of Directors on the date of
occurrence of the Public Market if such director's election by the
Board of Directors or whose nomination by the Board of Directors for
election by CompleTel Europe's stockholders was approved by a vote of
at least two-thirds of the members of the Board of Directors then in
office who themselves were members of the Board of Directors on
February 16, 1999, or whose election or nomination for election was
previously so approved.
For the purposes of the definition of "Change of Control" the terms "person"
and "group" are used with the same meaning as those terms are used in
Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934. In
addition, the term "beneficial owner" is used as defined in Rules 13d-3 and
13d-5 under the Securities and Exchange Act of 1934, except that a person is
considered to have "beneficial ownership" of all securities that such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time.
"Common Stock" means, with respect to any person, any and all voting or
nonvoting shares, interests or other participations in, and other
equivalents, however designated, of such person's common equity whether or
not outstanding on the date the notes were originally issued or issued
thereafter, and includes, without limitation, all series and classes of such
common equity.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income:
(1) Consolidated Interest Expense;
(2) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and nonrecurring gains or losses or
sales of assets);
(3) depreciation expense;
(4) amortization expense; and
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(5) all other non-cash items reducing Adjusted Consolidated Net Income,
other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made, less all
non-cash items increasing Adjusted Consolidated Net Income.
Consolidated EBITDA is determined on a consolidated basis for CompleTel
Europe and the Restricted Subsidiaries in conformity with GAAP. However, if
any Restricted Subsidiary is not a wholly owned Restricted Subsidiary,
Consolidated EBITDA will be reduced, to the extent not otherwise reduced in
accordance with GAAP, by an amount equal to:
(1) the amount of the Adjusted Consolidated Net Income attributable to
such Restricted Subsidiary MULTIPLIED by
(2) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by CompleTel
Europe or any of the Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness and all but the principal
component of rentals in respect of Capitalized Lease Obligations paid,
accrued or scheduled to be paid or to be accrued by CompleTel Europe and the
Restricted Subsidiaries during such period, all as determined on a
consolidated basis in conformity with GAAP, but without taking into account
Unrestricted Subsidiaries. Consolidated Interest Expense is defined to
include:
(1) 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;
(2) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(3) the net costs associated with Interest Rate Agreements; and
(4) interest in respect of Indebtedness that is Guaranteed or secured by
CompleTel Europe or any of the Restricted Subsidiaries.
Consolidated Interest Expense is defined to exclude:
(A) any amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the calculation of
Adjusted Consolidated Net Income pursuant to clause (2) of the
definition thereof, but only in the same proportion as the net income
of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (3) of the
definition thereof; and
(B) any premiums, fees and expenses, and any amortization thereof, payable
in connection with the offering of the notes.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of
(1) the aggregate amount of Indebtedness of CompleTel Europe and the
Restricted Subsidiaries on a consolidated basis outstanding on such
Transaction Date to
(2) the aggregate amount of Consolidated EBITDA for the then most recent
four fiscal quarters, or since inception of CompleTel Europe, if less
than four fiscal quarters (the "Four Quarter Period"), for which
financial statements of CompleTel Europe have been filed with the
Securities and Exchange Commission or provided to the Trustee pursuant
to the "Commission Reports and Reports to Holders" covenant described
below.
The calculation of the Consolidated Leverage Ratio,
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(A) gives pro forma effect to any Indebtedness to be incurred or repaid on
the Transaction Date;
(B) gives pro forma effect 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 Four
Quarter Period 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;
(C) gives pro forma effect 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
CompleTel Europe 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;
(D) includes in the aggregate amount of Indebtedness outstanding as of the
end of the Reference Period, the total amount of funds outstanding
and/or available on the Transaction Date under any revolving credit or
similar facilities of CompleTel Europe or the Restricted Subsidiaries;
and
(5) (a) treats any Subsidiary of CompleTel Europe that is a Restricted
Subsidiary on the Transaction Date as having been a Restricted
Subsidiary at all times during the Reference Period and
(b) treats any Subsidiary of CompleTel Europe that is not a
Restricted Subsidiary on the Transaction Date as not having been
a Restricted Subsidiary at any time during the Reference Period.
If clause (B) or (C) of the definition of "Consolidated Leverage Ratio"
requires that pro forma effect be given to an Asset Acquisition or Asset
Disposition, such pro forma calculation will be based upon the four full
fiscal quarters 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,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of CompleTel Europe and its Restricted
Subsidiaries. Such balance sheet must be as of a date not more than 90 days
prior to the date of such computation and it cannot take into account
Unrestricted Subsidiaries. For this purpose, stockholders' equity as shown on
such balance sheet is reduced by:
(1) any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness;
(2) the cost of treasury stock; and
(3) the principal amount of any promissory notes receivable from the sale
of the Capital Stock of CompleTel Europe of any of its Restricted
Subsidiaries.
Each item is determined in conformity with GAAP, excluding the effects of
foreign currency exchange adjustments under Financial Accounting Standards
Board Statement of Financial Accounting Standards No.52.
"Cumulative Available Cash Flow" means, as of any date of determination,
the positive cumulative Consolidated EBITDA realized during the period
commencing on the first day of the fiscal quarter which includes the date on
which the notes were originally issued 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 Trustee pursuant to the
"Commission Reports and Reports to
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Holders" covenant or, if such cumulative Consolidated EBITDA for such period
is negative, the amount by which cumulative Consolidated EBITDA is less than
zero.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Debt Securities" means any bonds, notes, debentures or other similar
instruments issued by CompleTel Europe or by any Restricted Subsidiary,
including by means of any Guaranty of CompleTel Europe or of any Restricted
Subsidiary of securities of another person, whether in a public offering or
private placement. The term "Debt Securities" excludes, however:
(1) any Capitalized Lease Obligations; and
(2) any notes, bankers' acceptances or other instruments evidencing
commercial loans or equipment financing made by, and bills of exchange
drawn on, banks, other financial lending institutions or equipment
vendors.
"Deeply Subordinated Shareholder Indebtedness" means indebtedness of
CompleTel Europe, not to exceed $100 million in aggregate principal amount at
maturity outstanding at any time, borrowed from and held by an Existing
Stockholder, which indebtedness by its terms, or by the terms of any
agreement or instrument pursuant to which such indebtedness is incurred,
(1) is expressly made subordinate in right of payment and postponed as to
all payments of principal, interest and Additional Amounts in respect
of the notes and
(2) provides that no payment of principal, premium or interest on, or any
other payment with respect to, such indebtedness may be made prior to
the earlier of
(x) the indefeasible payment in full in cash of all of CompleTel
Europe's obligations under the notes and
(y) the 92nd day after the final maturity of the notes.
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 CompleTel Europe after the incurrence of such
indebtedness. In addition, the subordination terms of such indebtedness must
be substantially in the form provided for in the indenture and CompleTel
Europe receives an Opinion of Counsel as to the validity and enforceability
of such subordination terms. Any event resulting in an Existing Stockholder
ceasing to hold such indebtedness is treated as an incurrence of Indebtedness
and such Indebtedness will cease to be Deeply Subordinated Shareholder
Indebtedness.
"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:
(1) required to be redeemed prior to the Stated Maturity of the notes;
(2) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the notes;
or
(3) convertible into or exchangeable for Capital Stock referred to in
clause (I) or (ii) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the notes.
Any Capital Stock that constitutes Disqualified Stock only because the
holders thereof have the right to require such person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the notes does not
constitute Disqualified Stock if:
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(A) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital
Stock than the provisions contained in the "Limitation on Asset Sales"
and "Repurchase of notes upon a Change of Control" covenants described
below; and
(B) such Capital Stock, or the agreements or instruments governing the
redemption rights thereof, specifically provides that such person will
not repurchase or redeem any such stock under such provision prior to
CompleTel Europe's repurchase of such notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described
below.
"Equity Investors" means Madison Dearborn Partners, Inc. and LPL
Investment Group, Inc., and their respective Affiliates.
"Existing Stockholders" means (I) the Equity Investors and (ii)
CompleTel LLC and its successors, so long as the Equity Investors, in the
aggregate, beneficially own a majority of the Voting Stock of any such
person.
"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. For purposes of the
definition of "Total Incremental Equity," however,
(1) 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
(2) in the event the aggregate fair market value of any other property
(other than cash or cash equivalents) received by CompleTel Europe
exceeds $10 million (or the U.S. dollar equivalent), the fair market
value of such property shall be determined by an internationally
recognized investment banking firm and set forth in their written
opinion delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date on which the notes were
originally issued, including, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting
profession. All ratios and computations contained or referred to in the
indenture shall be computed in conformity with GAAP applied on a consistent
basis.
"Guaranty" means any obligation, contingent or otherwise, of any person
directly or indirectly guaranteeing any Indebtedness of any other person.
This term includes, for example, any obligation, direct or indirect,
contingent or otherwise, of such person:
(1) to purchase or pay, or advance or supply funds for the purchase or
payment of, 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
(2) entered into for purposes of assuring in any other manner the obligee
of such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part).
The term "Guaranty" , however, does not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
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"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" of Acquired Indebtedness. Neither the
accrual of interest nor the accretion of original issue discount, however, is
considered an incurrence of Indebtedness.
"Indebtedness" means, with respect to any person at any date of
determination:
(1) all indebtedness of such person for borrowed money;
(2) all obligations of such person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all obligations, including reimbursement obligations, of such person
in respect of letters of credit or other similar instruments;
(4) all obligations of such person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than
six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services,
except trade payables;
(5) all Capitalized Lease Obligations of such person;
(6) all Indebtedness of other persons secured by a Lien on any asset of
such person, whether or not such Indebtedness is assumed by such
person;
(7) all Indebtedness of other persons Guaranteed by such person to the
extent such Indebtedness is Guaranteed by such person;
(8) all Disqualified Stock valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends; and
(9) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any person at any date shall be the outstanding
balance at such date (or, in the case of a revolving credit or other similar
facility, the total amount of funds outstanding and/or available on the date
of determination) of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation. For the
purposes of this definition, the amount of any Indebtedness under clause (6)
is the lesser of (x) the fair market value of such asset at such date of
determination and (y) the amount of such Indebtedness. In addition,
(A) 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) 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 is not "Indebtedness" so long as such money is held to
secure the payment of such interest.
(C) "Indebtedness" excludes any liability for federal, state, local or any
other applicable taxes.
(D) "Indebtedness" also excludes obligations with respect to letters of
credit, including trade letters of credit, securing obligations (other
than obligations described in clauses (1), (2), (5), (6), (7) or (8)
above) entered into in the ordinary course of business to the extent
such letters of credit are not drawn upon or, if drawn upon, to
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the extent such drawing is reimbursed no later than the third
business day following receipt of a demand for reimbursement.
(E) Deeply Subordinated Shareholder Indebtedness does not constitute
"Indebtedness" unless the holder thereof or another party commences
proceedings or otherwise seeks to invalidate the subordination terms
of the Deeply Subordinated Shareholder Indebtedness.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any person means:
(1) any direct or indirect advance, loan or other extension of credit,
including by way of Guaranty or similar arrangement, but excluding
advances to customers in the ordinary course of business that are, in
conformity with GAAP, recorded as accounts receivable on the balance
sheet of CompleTel Europe or the Restricted Subsidiaries; or
(2) capital contribution to such person, by means of any transfer of cash
or other property, other than Capital Stock that is not Disqualified
Stock 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.
The term "Investment" includes:
(A) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary; and
(B) the fair market value of the Capital Stock or any other Investment
held by CompleTel Europe or any of the Restricted Subsidiaries of or
in any person that has ceased to be a Restricted Subsidiary,
including, without limitation, by reason of any transaction permitted
by clause (3) of the "Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries" covenant.
For purposes of the definition of "Unrestricted Subsidiary" and the
"Limitation on Restricted Payments" covenant:
(1) "Investment" includes the fair market value of the assets, net of
liabilities other than liabilities to CompleTel Europe or any of the
Restricted Subsidiaries, of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary;
(2) the fair market value of the assets, net of liabilities other than
liabilities to CompleTel Europe or any of the Restricted Subsidiaries,
of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary is considered a
reduction in outstanding Investments; and
(3) any property transferred to or from an Unrestricted Subsidiary is
valued at its fair market value at the time of such transfer.
In no event shall any issuance of Capital Stock (other than Disqualified
Stock) of CompleTel Europe in exchange for Capital Stock, property or assets
of another person constitute an Investment by CompleTel Europe in such other
person.
"Issue Date" means February 16, 1999, the date on which the notes were
originally issued under the indenture.
"Leveraged Subsidiary" means any Subsidiary Guarantor that has incurred
Indebtedness (other than Acquired Indebtedness) pursuant to the first
paragraph of the "Limitation on
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Indebtedness" covenant or any Refinancings thereof incurred under clause (2)
of the second paragraph of the "Limitation on Indebtedness" covenant for so
long as any such Indebtedness, or any Refinancing thereof, is outstanding.
"License" means authorization or renewal authorization from the
applicable federal or national level governmental agency or authority to
construct and operate a local switched network providing wireline
telecommunications services.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind, including any conditional sale or other title
retention agreement or lease in the nature of a security interest or any
agreement to give any security interest.
"Management Services Agreements" means agreements pursuant to which
CableTel Management Inc. provides management services to CompleTel Europe or
a Restricted Subsidiary. The maximum fee payable by any person pursuant to
any such agreement may not exceed 105% of the costs, expenses, charges and
disbursements allocated to such person and incurred by CableTel Management
Inc. in connection with its performance of such agreement.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
(1) with respect to any Asset Sale, the proceeds of such Asset Sale in the
form of cash or cash equivalents, including payments in respect of
deferred payment obligations, to the extent corresponding to the
principal, but not interest, component of such obligations, when
received in the form of cash or cash equivalents, except to the extent
such obligations are financed or sold with recourse to CompleTel
Europe or any Restricted Subsidiary, and proceeds from the conversion
of other property received when converted to cash or cash equivalents,
net of:
(a) brokerage commissions and other fees and expenses, including fees
and expenses of counsel and investment bankers;
(b) 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 CompleTel
Europe and the Restricted Subsidiaries, taken as a whole;
(c) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that is either secured
by a Lien on the property or assets sold or required to be paid
as a result of such sale; and
(d) appropriate amounts to be provided by CompleTel Europe or any
Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including pension and other
postemployment 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
(2) 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 of
such obligations, when received in the form of cash or cash
equivalents, except to the extent such obligations are financed or
sold with recourse to CompleTel Europe or any Restricted Subsidiary,
and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts
or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable
as a result of such conversion.
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"Offer to Purchase" means an offer to purchase notes by CompleTel
Europe, or, in the event of a Change of Control, by a third party, from the
holders of the notes commenced by mailing a notice to the Trustee and each
holder stating:
(1) the covenant pursuant to which the offer is being made and that all
notes validly tendered will be accepted for payment on a pro rata
basis;
(2) the purchase price and the date of purchase (the "payment date"),
which shall be a business day no earlier than 30 days nor later than
60 days from the date such notice is mailed;
(3) that any note not tendered will continue to accrue interest or
original issue discount pursuant to its terms;
(4) that, unless there is a default in the payment of the purchase price,
any note accepted for payment pursuant to the Offer to Purchase shall
cease to accrue interest or original issue discount on and after the
payment date;
(5) that holders electing to have a note purchased pursuant to the Offer
to Purchase will be required to surrender the note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the note completed, to the paying agent at the address
specified in the notice prior to the close of business on the business
day immediately preceding the payment date;
(6) that holders will be entitled to withdraw their election if the paying
agent receives, not later than the close of business on the third
business day immediately preceding the payment date, a telegram,
facsimile transmission or letter setting forth the name of the
withdrawing holder, the principal amount at maturity of notes
delivered for purchase and a statement that such holder is withdrawing
his election to have such notes purchased; and
(7) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion
of the notes surrendered.
"Pari Passu Debt" means Pari Passu Debt Securities of CompleTel Europe
or of any Subsidiary Guarantor the terms of which require that Net Cash
Proceeds be used to permanently reduce, and thereby also reduce commitments
relating to, such Indebtedness.
"Pari Passu Debt Securities" means any Debt Securities of CompleTel
Europe or any Subsidiary Guarantor that ranks pari passu in right of payment
with the notes and any Subsidiary Guaranties, as applicable.
"Pari Passu Pro Rata Share" means a fraction
(1) the numerator of which is the aggregate principal amount of Pari Passu
Debt outstanding on the date Net Cash Proceeds are received and
(2) the denominator of which is the sum of (x) the aggregate principal
amount of notes outstanding on such date and (y) the aggregate
principal amount of any Pari Passu Debt on such date.
"Permitted Investment" means:
(1) an Investment in CompleTel Europe or a Restricted Subsidiary or a
person that is primarily engaged in a Telecommunications Business and
that 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, CompleTel Europe or a
Restricted Subsidiary;
(2) Temporary Cash Investments;
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(3) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as
expenses in accordance with GAAP;
(4) stock, obligations or securities received in satisfaction of
judgments;
(5) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance
and other similar deposits;
(6) Interest Rate Agreements and Currency Agreements designed solely to
protect CompleTel Europe or any Restricted Subsidiary, as the case may
be, against fluctuations in interest rates or foreign currency
exchange rates; and
(7) loans or advances to officers or employees of CompleTel Europe or any
Restricted Subsidiary that do not in the aggregate exceed $5 million
(or the U.S. dollar equivalent) at any time outstanding.
"Public Equity Offering" means an underwritten primary public offering
of Common Stock of CompleTel Europe pursuant to
(1) an effective registration statement under the Securities Act or
(2) a prospectus prepared in connection with the listing of shares of
Common Stock covered thereby on the London Stock Exchange.
A "Public Market" will exist if:
(1) a Public Equity Offering has been consummated and
(2) at least 15% of the total issued and outstanding Common Stock of
CompleTel Europe has been distributed pursuant to
(a) an effective registration statement under the Securities Act or
sales pursuant to Rule 144 under the Securities Act or
(b) a prospectus prepared in connection with the listing of shares of
Common Stock covered thereby on the London Stock Exchange.
"Refinancing" means any refinancing, whether by amendment, renewal,
extension, refunding or defeasance, of outstanding Indebtedness of CompleTel
Europe and/or of any Restricted Subsidiary.
"Refinancing Indebtedness" means
(1) Indebtedness of CompleTel Europe to the extent the proceeds thereof
are used to refinance, whether by amendment, renewal, extension,
refunding or defeasance, Indebtedness of CompleTel Europe or any of
the Restricted Subsidiaries, in each such event, incurred under the
first paragraph of the "Limitation on Indebtedness"covenant described
below or clause (4)(a) or (6) of the second paragraph of such covenant
or otherwise outstanding on the date the notes were originally issued,
and
(2) Indebtedness of any Restricted Subsidiary to the extent the proceeds
thereof are used to refinance, whether by amendment, renewal,
extension, refunding or defeasance, Indebtedness of a Restricted
Subsidiary, in each such event, incurred under the first paragraph of
the "Limitation on Indebtedness"covenant described below or clause
(4)(b) of the second paragraph of such covenant or otherwise
outstanding on the date the notes were originally issued;
The principal amount of Refinancing Indebtedness incurred or, if such
Refinancing Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration of
the maturity thereof, the accreted value of such Refinancing
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Indebtedness, may not exceed the principal amount or accreted value, as the
case may be, of the Indebtedness refinanced, plus the amount of any premium
required to be paid in connection with such refinancing or the amount of any
premium reasonably determined by the Board of Directors as necessary to
accomplish such refinancing by means of a tender offer or privately
negotiated purchase, plus the amount of reasonable expenses in connection
therewith. In addition, Refinancing Indebtedness
(A) may not have a scheduled principal payment prior to the final maturity
of the Indebtedness being refinanced and
(B) shall have an Average Life equal to or greater than the shorter of
(i) the Average Life of the Indebtedness refinanced or
(ii) the remaining Average Life of the notes.
If the Indebtedness to be refinanced is Subordinated Indebtedness, the
Refinancing Indebtedness to be incurred must also be Subordinated
Indebtedness of the person whose Indebtedness is to be refinanced on terms no
less favorable in any material respect to the holders of the notes than the
Indebtedness being refinanced.
"Replacement Assets" means property or assets, other than current
assets, of a nature or type or that are used or useful in a business, or in a
company having property and assets of a nature or type, or engaged in a
business, similar or related to the nature or type of the property and assets
of, or the business of, CompleTel Europe and the Restricted Subsidiaries
existing on the date such Replacement Assets are acquired, as determined in
good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution.
"Restricted Subsidiary" means any Subsidiary of CompleTel Europe other
than an Unrestricted Subsidiary.
"Restricted Payment" has the meaning set forth in the first paragraph of
the section entitled "Description of Notes--Covenants--Limitation on
Restricted Payments."
"Senior Credit Facility" means any senior commercial term loan and/or
revolving credit facility, including any letter of credit subfacility, or
vendor financing facility entered into principally with commercial banks or
other financial institutions typically party to commercial loan or vendor
financing agreements.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of CompleTel Europe, accounted for more than 10% of the
consolidated revenues of CompleTel Europe and the Restricted Subsidiaries or
(ii) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of CompleTel Europe and the Restricted Subsidiaries, all
as set forth on the most recently available consolidated financial statements
of CompleTel Europe for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Specified Date" means any Redemption Date, any Payment Date for an
Offer to Purchase or any date on which the notes first become due and payable
after an Event of Default.
"Stated Maturity" means,
(1) with respect to any debt security, the date specified in such debt
security as the fixed date on which the final installment of principal
of such debt security is due and payable, and
(2) with respect to any scheduled installment of principal of or interest
on any debt security, the date specified in such debt security as the
fixed date on which such installment is due and payable.
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"Subordinated Indebtedness" means any Indebtedness of CompleTel Europe
or any Restricted Subsidiary which is expressly subordinated in right of
payment in any manner to any other Indebtedness of CompleTel Europe or such
Restricted Subsidiary, as the case may be.
"Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the voting
power of the outstanding Voting Stock is owned, directly or indirectly, by
such person and one or more other Subsidiaries of such person.
"Subsidiary Guarantor" means any issuer of a Subsidiary Guaranty for so
long as such Subsidiary Guaranty remains outstanding.
"Subsidiary Guaranty" means a guaranty of the notes issued pursuant to
the terms of the indenture.
"Target Market" means any of the Paris, Lyon, Marseilles, Lille, London
or Berlin metropolitan markets.
"Telecommunications Business" means the development, ownership or
operation of one or more telephone, telecommunications or information systems
or the provision of telephony, telecommunication or information services and
any related, ancillary or complementary business.
"Temporary Cash Investment" means any of the following:
(1) direct obligations of the United States of America or any agency
thereof or the Netherlands, the United Kingdom, France, Germany or any
other member of the European Economic Community rated at least "A" by
S&P or "A" by Moody's ("Government Securities") or obligations
guaranteed by the United States of America or any agency thereof or
the Netherlands, the United Kingdom, France, Germany or any other
member of the European Economic Community rated at least "A" by S&P or
"A" by Moody's with a term of not more than one year; PROVIDED that
money borrowed and set aside at the time of incurrence of Indebtedness
in order to prefund the payment of interest on such Indebtedness may
be invested in Government Securities with a term in excess of one year
but in no event with a term in excess of the period for which interest
has been prefunded with respect to such Indebtedness;
(2) 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 or any state thereof, the Netherlands,
the United Kingdom, France, Germany or any other member of the
European Economic Community and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of
$250 million, or the foreign currency equivalent of $250 million, and
has outstanding debt which is rated "A" by S&P or "A" by Moody's;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above
entered into with a bank meeting the qualifications described in
clause (2) above;
(4) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation, other than an Affiliate of
CompleTel Europe, organized and in existence under the laws of the
United States of America or any state thereof, the Netherlands, the
United Kingdom, France, Germany or any other member of the European
Economic Community, 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-l" (or higher) according to S&P; and
(5) securities with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, the
Netherlands, the United Kingdom, France, Germany or any other member
of the European Economic Community, or by any political
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subdivision or taxing authority thereof, and rated at least "A" by
S&P or "A" by Moody's.
"Total Incremental Equity" means, at any time of determination, the sum
of, without duplication,
(1) the aggregate Net Cash Proceeds and fair market value of property
determined as of the date of receipt of such property received by
CompleTel Europe from capital contributions in respect of existing
Capital Stock, other than Disqualified Stock, or the issuance or sale
of Capital Stock, other than Disqualified Stock but including Capital
Stock issued upon the conversion of convertible Indebtedness or from
the exercise of options, warrants or rights to purchase Capital Stock,
other than Disqualified Stock, subsequent to the Issue Date, other
than to a Subsidiary of CompleTel Europe, PLUS
(2) the aggregate cash proceeds received by CompleTel Europe or any
Restricted Subsidiary from the sale, disposition or repayment, in
whole or in part, of any Investment that is or was made after the
original date of issuance of the notes and that constitutes a
Restricted Payment that has been deducted from Total Incremental
Equity pursuant to clause (3) below in an amount equal to the lesser
of
(a) the return of capital with respect to the applicable portion of
such Investment and
(b) the cost of the applicable portion of such Investment, in either
case, less the cost of the disposition of such Investment, MINUS
(3) the aggregate amount of all Restricted Payments declared or made on
and after the Issue Date (other than a Restricted Payment made
pursuant to clause (II) of the second paragraph of the "Limitation on
Restricted Payments" covenant described below.
"Transaction Date" means, with respect to the incurrence of any
Indebtedness by CompleTel Europe or any of the Restricted Subsidiaries, the
date such Indebtedness is to be incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of CompleTel Europe that at the time of determination
has been designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary, including any
newly acquired or newly formed Subsidiary of CompleTel Europe, to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, CompleTel Europe or any Restricted
Subsidiary. In addition,
(A) any Guaranty by CompleTel Europe 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 CompleTel
Europe or such Restricted Subsidiary, or both, at the time of such
designation;
(B) either (i) the Subsidiary to be so designated has total assets of
$1,000 (or the U.S. dollar equivalent) or less or (ii) if such
Subsidiary has assets greater than $1,000 (or the U.S. dollar
equivalent), such designation would be permitted under the "Limitation
on Restricted Payments"covenant described below;
(C) if applicable, the incurrence of Indebtedness and the Investment
referred to in clause (A) above would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants described below; and
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(D) except in the case of an Investment made pursuant to clause (IV) of
the second paragraph of the "Limitation on Restricted Payments"
covenant described below, immediately after giving effect to such
designation, CompleTel Europe would be able to incur $1.00 of
Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary if:
(1) no Default has occurred and is continuing at the time of or after
giving effect to such designation; and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if incurred at such time,
have been permitted to be incurred, and shall be deemed to have been
incurred, for all purposes of the indenture.
CompleTel Europe must file with the Trustee a copy of the Board Resolution
giving effect to such designation and an officers' certificate certifying
that such designation complied with the foregoing provisions.
"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.
SUMMARY OF OPERATING COVENANTS
In the indenture, CompleTel Europe agreed to certain restrictions that
limit its and its Restricted Subsidiaries' ability, among other things, to:
- incur indebtedness
- pay dividends
- repurchase capital stock or subordinated indebtedness
- make investments
- issue capital stock of Restricted Subsidiaries
- have Restricted Subsidiaries issue guarantees
- engage in transactions with stockholders and affiliates
- incur liens
- engage in sale-leaseback transactions
- sell assets
- effect mergers.
In addition, if a Change of Control occurs, each holder of notes will have
the right to require CompleTel Europe to repurchase all or part of such
holder's notes at a price equal to 101% of the accreted value of the notes on
the repurchase date plus accrued interest and Additional Amounts, if any, to
the date of purchase.
COVENANTS
LIMITATION ON INDEBTEDNESS
CompleTel Europe will not, and will not permit any of the Restricted
Subsidiaries to, incur any Indebtedness, other than the notes and
Indebtedness existing on the Issue Date, except that CompleTel Europe and any
Subsidiary Guarantor may incur Indebtedness, including Acquired Indebtedness,
and any Restricted Subsidiary may incur Acquired Indebtedness, if, in either
case, 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.
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This restriction does not apply to the following:
(1) Indebtedness
(a) of any Restricted Subsidiary owed to CompleTel Europe evidenced
by a promissory note or
(b) of CompleTel Europe or any Restricted Subsidiary to any
Restricted Subsidiary
except that, in the case of clause (b) above, any event which results in
any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or, in
the case of clause (a) and (b) above, any subsequent transfer of such
Indebtedness, other than to CompleTel Europe or another Restricted
Subsidiary, shall be deemed, in each case, to constitute an incurrence of
such Indebtedness not permitted by this clause (1);
(2) Refinancing Indebtedness;
(3) Indebtedness of CompleTel Europe or any Restricted Subsidiary
(a) in respect of performance, surety or appeal bonds provided in the
ordinary course of business,
(b) under Currency Agreements and Interest Rate Agreements, but only
if such agreements:
(I) are designed solely to protect CompleTel Europe or any
Restricted Subsidiary against fluctuations in foreign
currency exchange rates or interest rates;
(ii) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and
compensation payable thereunder; and
(iii) arise from agreements providing for indemnification,
adjustment of purchase price or similar obligations, or
from Guaranties or letters of credit, surety bonds or
performance bonds securing any obligations of CompleTel
Europe or any Restricted Subsidiary pursuant to such
agreements, in any case incurred in connection with the
disposition of any business, assets or Restricted
Subsidiary, other than Guaranties 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 an amount not
to exceed the gross proceeds actually received by
CompleTel Europe or any Restricted Subsidiary in
connection with such disposition;
(4) Indebtedness represented by (a) the notes, (b) Guaranties of the notes
and (c) Guaranties by any Restricted Subsidiary of Indebtedness of
CompleTel Europe that is otherwise permitted under this covenant and
by, and made in accordance with, the "Limitation on Issuance of
Guaranties by Restricted Subsidiaries" covenant described below;
(5) Indebtedness
(a) of CompleTel Europe which, if such Indebtedness constitutes Debt
Securities, does not mature as to principal or become mandatorily
redeemable prior to the Stated Maturity of the notes; or
(b) of any Restricted Subsidiary, other than Debt Securities,
incurred to finance the cost, including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration, to acquire
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equipment, inventory or network assets, including acquisitions by
way of Capitalized Leases and acquisitions of the Capital Stock of
a person that becomes a Restricted Subsidiary to the extent of the
fair market value of the equipment, inventory or network assets of
such person so acquired, by CompleTel Europe or a Restricted
Subsidiary after the date of the original issuance of the notes for
application or use in a Telecommunications Business in an aggregate
principal amount not to exceed $225 million (or the U.S. dollar
equivalent) at any one time outstanding;
(6) Indebtedness of CompleTel Europe such that, after giving effect to the
incurrence thereof, the total aggregate principal amount of
Indebtedness incurred under this clause (6) and any Refinancings
thereof otherwise incurred in compliance with the indenture would not
exceed 200% of Total Incremental Equity;
(7) Indebtedness of CompleTel Europe and its Subsidiaries incurred under
one or more Senior Credit Facilities in an aggregate principal amount
not to exceed $170 million (or the U.S. dollar equivalent) at any time
outstanding; and
(8) Indebtedness, in addition to Indebtedness permitted under clauses
(1) through (7) above, outstanding at any time in an aggregate
principal amount not to exceed $25 million (or the U.S. dollar
equivalent).
The maximum amount of Indebtedness that CompleTel Europe or a Restricted
Subsidiary may incur pursuant to this "Limitation on Indebtedness" covenant
will not be deemed to be exceeded, with respect to any outstanding
Indebtedness, solely as the result of fluctuations in the exchange rates of
currencies.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, 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, CompleTel Europe, 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.
LIMITATION ON RESTRICTED PAYMENTS
The indenture restricts the ability of CompleTel Europe and the
Restricted Subsidiaries, directly or indirectly, to:
(1) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock, other than
(a) dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and
(b) pro rata dividends or distributions on Common Stock of Restricted
Subsidiaries held by persons other than CompleTel Europe or any
of the Restricted Subsidiaries;
(2) purchase, redeem, retire or otherwise acquire for value any Capital
Stock of
(a) CompleTel Europe or an Unrestricted Subsidiary held by any person
or
(b) a Restricted Subsidiary held by any Affiliate of CompleTel
Europe, other than a Restricted Subsidiary, or any holder, or any
Affiliate of such holder, of 5% or more of any class of Capital
Stock of CompleTel Europe;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value prior to any scheduled mandatory payment date, of
Subordinated Indebtedness; or
(4) make any Investment, other than a Permitted Investment, in any person.
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Such payments or any other actions described in clauses (1) through (4) above
are collectively "Restricted Payments." CompleTel Europe will not, and will
not permit any Restricted Subsidiary to, make any Restricted Payment if, at
the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default shall have occurred and be continuing;
(B) CompleTel Europe could not incur at least $1.00 of Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant; or
(C) the aggregate amount of all Restricted Payments (the amount, if other
than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) made after the Issue Date shall exceed the sum of
(I) the amount of (x) Cumulative Available Cash Flow determined at
the time of such Restricted Payment less (y) 150% of the
cumulative Consolidated Interest Expense determined for the
period commencing on the first day of the fiscal quarter which
includes the Issue 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
applicable Trustee pursuant to the "Commission Reports and
Reports to Holders" covenant described below PLUS
(ii) the aggregate Net Cash Proceeds received by CompleTel Europe
after the date of original issuance of the notes as a capital
contribution or from the issuance and sale of its Capital
Stock, other than Disqualified Stock, to a person who is not a
Subsidiary of CompleTel Europe, including an issuance or sale
permitted by the applicable indenture of Indebtedness of
CompleTel Europe for cash subsequent to the Issue Date upon the
conversion of such Indebtedness into Capital Stock, other than
Disqualified Stock, of CompleTel Europe, PLUS
(iii) an amount equal to the net reduction in Investments
constituting Restricted Payments resulting from payments of
interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to
CompleTel Europe or any Restricted Subsidiary, or from the Net
Cash Proceeds from the sale of any such Investment less the
cost of the disposition of such Investment, except, in each
case, to the extent any such payment or proceeds are included
in the calculation of Adjusted Consolidated Net Income, 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
such Investment, MINUS
(iv) 50% of the then outstanding principal amount of any
Indebtedness incurred pursuant to clause (6) of the second
paragraph of the "Limitation on Indebtedness" covenant and any
Refinancings thereof (regardless of any subsequent
reclassification of any such Indebtedness).
The foregoing provision shall not be violated by reason of:
(I) the payment of any dividend within 60 days after the date of
declaration thereof if, at the date of declaration, such payment
would comply with the foregoing paragraph;
(II) so long as no Default shall have occurred and be continuing, the
redemption, repurchase, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness including
premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness incurred under
clause (2) of the second paragraph of the "Limitation on
Indebtedness" covenant;
(III) the repurchase, redemption or other acquisition of Capital Stock
of CompleTel Europe or a Subsidiary of CompleTel Europe in
exchange for, or out of the proceeds
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of a capital contribution or a substantially concurrent offering
of, Capital Stock, other than Disqualified Stock, of CompleTel
Europe;
(IV) so long as no Default shall have occurred and be continuing, the
making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of
Subordinated Indebtedness in exchange for, or out of the proceeds
of a capital contribution or a substantially concurrent offering
of, the Capital Stock, other than Disqualified Stock, of
CompleTel Europe;
(V) payments or distributions to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with
the provisions of the indenture applicable to mergers,
consolidations and transfers of all or substantially all of the
property and assets of CompleTel Europe;
(VI) so long as no Default shall have occurred and be continuing, any
Investment in any person primarily engaged in a
Telecommunications Business on the date of such Investment;
PROVIDED that after giving effect to the proposed Investment, the
aggregate amount of Investments made pursuant to this clause (VI)
does not then exceed the sum of (a) $25 million (or the U.S.
dollar equivalent) PLUS (b) the amount then available for the
making of Restricted Payments pursuant to clause (C) of the
preceding paragraph without giving effect to subclause (I) of
such clause (C); or
(VII) prior to the occurrence of a Public Market, dividends or
distributions to CompleTel LLC in respect of the purchase,
redemption, retirement or other acquisition for value of Capital
Stock of CompleTel LLC held by managers, directors, employees or
officers, or former managers, directors, employees or officers,
of CompleTel LLC, CableTel Management, Inc. CompleTel Europe or a
Restricted Subsidiary or their estates or beneficiaries under
their estates, upon the death, disability, retirement,
termination of employment or pursuant to the terms of any
agreement under which such Capital Stock was issued; if the
aggregate consideration paid for such purchase, redemption,
retirement or other acquisition for value of such Capital Stock
after the Issue Date does not exceed $5 million (or the U.S.
dollar equivalent) in the aggregate, unless such repurchases are
made with the proceeds of insurance policies and the Capital
Stock is purchased from the executors, administrators,
testamentary trustees, heirs, legatees or beneficiaries.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (II) thereof) and
the proceeds from any capital contribution or any issuance of Capital Stock
referred to in clauses (III) and (IV) thereof shall be included in
calculating whether the conditions of clause (C) of the first paragraph of
this "Limitation on Restricted Payments" covenant have been met with
respect to any subsequent Restricted Payments.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES
CompleTel Europe will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by
CompleTel Europe or any other Restricted Subsidiary,
(2) pay any Indebtedness owed to CompleTel Europe or any other Restricted
Subsidiary,
(3) make loans or advances to CompleTel Europe or any other Restricted
Subsidiary or
(4) transfer any of its property or assets to CompleTel Europe or any
other Restricted Subsidiary.
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The foregoing provisions shall not restrict any encumbrances or
restrictions:
(A) existing on the date of the original issuance of the notes in the
indenture or any other agreements in effect on such date, and any
extensions, refinancings, renewals or replacements of such agreements
if such encumbrances and restrictions in any such extensions,
refinancings, renewals or replacements are no less favorable in any
material respect to the holders of the notes than those encumbrances
or restrictions that are then in effect and that are being extended,
refinanced, renewed or replaced;
(B) existing under or by reason of applicable law;
(C) existing with respect to any person or the property or assets of such
person acquired by CompleTel Europe or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not
applicable to any person or the property or assets of any person other
than such person or the property or assets of such person so acquired;
(D) in the case of clause (4) of the first paragraph of this "Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant,
(I) that restrict in a customary manner the subletting, assignment
or transfer of any property or asset that is a lease, license,
conveyance or contract or similar property or asset,
(ii) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or
assets of CompleTel Europe or any Restricted Subsidiary not
otherwise prohibited by the indenture or
(iii) 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 CompleTel Europe or any Restricted Subsidiary in
any manner material to CompleTel Europe or any Restricted
Subsidiary;
(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; or
(F) contained in the terms of any Indebtedness or any agreement pursuant
to which such Indebtedness was issued if
(I) either (x) the encumbrance or restriction applies only in the
event of and during the continuance of a payment default or a
default with respect to a financial covenant contained in such
Indebtedness or agreement, or (y) CompleTel Europe determines at
the time any such Indebtedness is incurred (and at the time of
any modification of the terms of any such encumbrance or
restriction) that any such encumbrance or restriction will not
materially affect CompleTel Europe's ability to make principal or
interest payments on the notes and
(ii) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the notes than is customary in
comparable financings or agreements (as determined by CompleTel
Europe in good faith).
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant will prevent
CompleTel Europe or any Restricted Subsidiary from restricting the sale or
other disposition of property or assets of CompleTel Europe or any Restricted
Subsidiary that secure Indebtedness of CompleTel Europe or any such
Restricted Subsidiary.
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LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
CompleTel Europe will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any Capital Stock of a
Restricted Subsidiary except
(1) to CompleTel Europe or a Restricted Subsidiary;
(2) issuances of director's qualifying shares or issuances of Capital
Stock to nationals of the jurisdiction of organization of a Restricted
Subsidiary, to the extent required by applicable law;
(3) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such person remaining after giving
effect to such issuance or sale would have been permitted to be made
under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or
(4) issuances or sales of Common Stock of a Restricted Subsidiary.
In order to be entitled to the foregoing exceptions, CompleTel Europe or such
Restricted Subsidiary must apply the Net Cash Proceeds, if any, of any such
sale in accordance with clause (I), (ii) or (iii) of the "Limitation on Asset
Sales" covenant described below.
LIMITATION ON ISSUANCES OF GUARANTIES AND INCURRENCE OF CERTAIN
INDEBTEDNESS BY RESTRICTED SUBSIDIARIES
CompleTel Europe will not permit any Restricted Subsidiary, directly or
indirectly, to
(1) Guaranty any Subordinated Indebtedness or Debt Securities of CompleTel
Europe or
(2) incur any Indebtedness under or in respect of Debt Securities or
Subordinated Indebtedness under clause (2) or (5) of the second
paragraph of the "Limitation on Indebtedness" covenant ("Guaranteed
Indebtedness"), unless
(a) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the indentures providing for a Guaranty
of payment of the notes by such Restricted Subsidiary and
(b) 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 CompleTel Europe or any other Restricted Subsidiary as a
result of any payment by such Restricted Subsidiary under its
Subsidiary Guaranty.
The foregoing restrictions are not applicable to any Guaranty of any
Restricted Subsidiary that existed at the time such person became a
Restricted Subsidiary and that was not incurred in connection with, or in
contemplation of, such person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is
(1) not Subordinated Indebtedness, then the Guaranty of such Guaranteed
Indebtedness shall be PARI PASSU with, or subordinated to, the
Subsidiary Guaranty or
(2) Subordinated Indebtedness, then the Guaranty of such Guaranteed
Indebtedness shall be subordinated to the Subsidiary Guaranty at least
to the extent that the Guaranteed Indebtedness is subordinated to the
notes.
Notwithstanding the foregoing, any Subsidiary Guaranty by a Restricted
Subsidiary will provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer,
to any person not a holder of 5% or more of any class of Capital Stock of
CompleTel Europe or an Affiliate of CompleTel Europe or any Restricted
Subsidiary, of all of
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CompleTel Europe's and each Restricted Subsidiary's Capital Stock in, or all
or substantially all the assets of, such Subsidiary Guarantor, if
(1) such sale, exchange or transfer is not otherwise prohibited by the
indenture, and
(2) no Indebtedness under any Debt Securities or Subordinated Indebtedness
of such Subsidiary Guarantor is being assumed by the person to whom
such sale or disposition is made.
In addition, if no Default exists or would exist under the indenture, at the
request of CompleTel Europe, a Subsidiary Guarantor that is not a Leveraged
Subsidiary will be released from all obligations under its Subsidiary
Guaranty if the Subsidiary Guarantors have been unconditionally released from
their obligations under all Debt Securities and Subordinated Indebtedness.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
CompleTel Europe will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction,
including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service, with any holder or any
Affiliate of any holder of 5% or more of any class of Capital Stock of
CompleTel Europe or with any Affiliate of CompleTel Europe or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to
CompleTel Europe or such Restricted Subsidiary than could be obtained, at the
time of such transaction, or if such transaction is pursuant to a written
agreement, at the time of the execution of the agreement providing therefor,
in a comparable arm's-length transaction with a person that is not such a
holder or an Affiliate.
This limitation does not apply to:
(1) transactions that are either
(a) approved by a majority of the disinterested members of the Board
of Directors as being on fair and reasonable terms no less
favorable to CompleTel Europe or such Restricted Subsidiary than
could be obtained, at the time of such transaction or, if such
transaction is pursuant to a written agreement, at the time of
the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a person that is not
such a holder or an Affiliate or
(b) for which CompleTel Europe or a Restricted Subsidiary delivers to
the applicable Trustee a written opinion of an internationally
recognized investment banking firm stating that the transaction
is fair to CompleTel Europe or such Restricted Subsidiary from a
financial point of view;
(2) any transaction solely between CompleTel Europe and any of its wholly
owned Restricted Subsidiaries or solely between wholly owned
Restricted Subsidiaries;
(3) the payment of reasonable and customary regular fees to directors of
CompleTel Europe who are not employees of CompleTel Europe and the
entering into indemnification or similar arrangements with respect to
officers and directors of CompleTel Europe in their capacities as
such;
(4) any payments or other transactions pursuant to any tax-sharing
agreement between CompleTel Europe and any other person with which
CompleTel Europe files a consolidated tax return or with which
CompleTel Europe is part of a consolidated group for tax purposes;
(5) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant;
(6) issuances of Capital Stock (other than Disqualified Stock) of
CompleTel Europe; and
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(7) the payment of fees and expenses pursuant to the Management Services
Agreements.
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "Limitation on
Transactions with Shareholders and Affiliates" covenant and not exempted by
clauses (2) through (5) of this paragraph, the aggregate amount of which
exceeds $10 million (or the U.S. dollar equivalent) in value, must be
approved or determined to be fair in the manner provided for in clause (1)(a)
or (b) above.
LIMITATION ON LIENS SECURING CERTAIN INDEBTEDNESS
CompleTel Europe will not, and will not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Liens of any kind against or
upon any of its property or assets, or any proceeds therefrom, that secure
either
(1) Subordinated Indebtedness of CompleTel Europe or any Restricted
Subsidiary, unless the notes are secured by Liens on such property,
assets or proceeds that is senior in priority to the Liens securing
such Subordinated Indebtedness, or
(2) Pari Passu Debt Securities, unless the notes are equally and ratably
secured with the Liens securing such Pari Passu Debt Securities.
Any Lien granted to secure the notes under this covenant must be discharged
at the same time as the discharge of the Lien that gave rise to the
obligation to so secure the notes. Notwithstanding the foregoing, CompleTel
Europe may incur and allow to exist Liens securing Debt Securities that
exclusively consist of Liens on (x) Government Securities purchased at the
time such Debt Securities are sold with the proceeds therefrom or (y) cash
provided by the sale of such Debt Securities, in either case to the extent
that the proceeds used to purchase any such Government Securities or
providing any such cash constitute a prefunding of the payment of interest on
the Debt Securities Secured thereby and are set aside in an escrow account or
similar arrangement to be applied for such purpose.
LIMITATION ON ASSET SALES
CompleTel Europe will not, and will not permit any Restricted Subsidiary
to, consummate any Asset Sale, unless
(1) the consideration received by CompleTel Europe or such Restricted
Subsidiary is at least equal to the fair market value of the assets
sold or disposed of and
(2) at least 75% of the consideration received consists of cash, Temporary
Cash Investments or Replacement Assets.
In the event and to the extent that CompleTel Europe and/or the Restricted
Subsidiaries receive Net Cash Proceeds from one or more Asset Sales occurring
on or after the Issue Date, then CompleTel Europe shall or shall cause the
relevant Restricted Subsidiary to:
(A) within 12 months after the date Net Cash Proceeds are so received
(I) apply such excess Net Cash Proceeds to repay Indebtedness (other
than Pari Passu Debt and Subordinated Indebtedness of CompleTel Europe
or Subordinated Indebtedness of any Subsidiary Guarantor which is
subordinated in right of payment to a Subsidiary Guaranty of such
Subsidiary Guarantor) of CompleTel Europe or a Restricted Subsidiary
and elect to permanently reduce the commitments thereunder by the
amount of such Indebtedness so repaid and/or (ii) apply no more than
the Pari Passu Pro Rata Share of such Net Cash Proceeds to repay, and
permanently reduce any commitments relating to, Pari Passu Debt and/or
(iii) invest the amount not so applied pursuant to clauses (I) or
(ii) (or enter into a definitive agreement committing to so invest
within 12 months after the date of such agreement), in Replacement
Assets and
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(B) apply, within 12 months after the date such Net Cash Proceeds are
received, such Net Cash Proceeds, to the extent not applied pursuant
to clause (A), as provided in the following paragraph of this
"Limitation on Asset Sales" covenant.
The amount of such Net Cash Proceeds required to be applied, or to be
committed to be applied, during the 12-month period after the date such Net
Cash Proceeds are received of the preceding sentence and not applied as so
required by the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $15 million (or the
U.S. dollar equivalent), CompleTel Europe must commence, not later than the
fifteenth Business Day of such month, and consummate an Offer to Purchase
from the holders on a pro rata basis an aggregate Accreted Value of notes
equal to the Excess Proceeds on such date, at a purchase price equal to 100%
of the Accreted Value of the notes on the relevant Payment Date, plus, in
each case, accrued interest (if any) to the payment date.
LIMITATION ON STATUS AS INVESTMENT COMPANY.
CompleTel Europe will not, and will not permit any of its Subsidiaries
or controlled Affiliates to, conduct its business in a fashion that would
cause CompleTel Europe to be required to register as an "investment company"
under the Investment Company Act of 1940, as amended, or otherwise to become
subject to regulation under the Investment Company Act. For purposes of
establishing CompleTel Europe's compliance with this provision, any exemption
that is or would become available under Section 3(c)(1) or Section 3(c)(7) of
the Investment Company Act will be disregarded.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
CompleTel Europe or a third party must commence, within 30 days of the
occurrence of a Change of Control, and consummate an Offer to Purchase for
all notes then outstanding, at a purchase price equal to 101% of the Accreted
Value thereof on the relevant payment date, PLUS accrued interest (if any) to
the payment date. On the payment date, CompleTel Europe must:
(1) accept for payment on a pro rata basis as among holders notes or
portions thereof tendered pursuant to an Offer to Purchase;
(2) deposit with the paying agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
(3) deliver, or cause to be delivered, to the Trustee all notes or
portions thereof so accepted together with an officers' certificate
specifying the notes or portions thereof accepted for payment.
The Trustee will act as the paying agent for an Offer to Purchase. The
paying agent will mail to the holders of notes so accepted payment in an
amount equal to the purchase price, and the Trustee will authenticate and, if
necessary, mail to each holder a replacement note equal in principal amount
at maturity to any unpurchased portion of the note surrendered. Each note
purchased and each replacement note issued must be in a principal amount at
maturity of $1,000, or integral multiples thereof and the principal amount at
maturity of any notes left outstanding will not be less than $100,000.
CompleTel Europe will publicly announce the results of an Offer to
Purchase as soon as practicable after the payment date. CompleTel Europe will
comply with Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable, in the event that CompleTel Europe is required to repurchase
notes pursuant to an Offer to Purchase.
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There can be no assurance that CompleTel Europe will have sufficient
funds available at the time of any Change of Control to make payments
required to repurchase the notes. If CompleTel Europe is required to
repurchase the notes upon a Change of Control,
(A) the indenture requires CompleTel Europe to repay all indebtedness then
outstanding which by its terms would prohibit such note repurchase,
either prior to or concurrently with such note repurchase, unless
consents from the lenders of such indebtedness are obtained, and
(B) the requirement to repurchase the notes will likely result in an event
of default under CompleTel Europe's senior financing facilities.
COMMISSION REPORTS AND REPORTS TO HOLDERS
At all times from and after the date of the commencement of an exchange
offer or the effectiveness of a shelf registration statement relating to the
notes, whether or not CompleTel Europe is then required to file reports with
the Commission, CompleTel Europe will file with the Commission all such
reports and other information as it would be required to file with the
Commission by Sections 13(a) or 15(d) under the Securities Exchange Act of
1934 if it were subject thereto. CompleTel Europe will, at its cost, supply
the Trustee and each holder of notes or shall supply to the Trustee for
forwarding to each such holder, copies of such reports and other information.
In addition, at all times prior to the date of any such registration,
CompleTel Europe will, at its cost, deliver to each holder of notes quarterly
and annual reports substantially equivalent to those which would be required
by the Exchange Act. In addition, at all times prior to such registration,
upon the request of any holder of notes or any prospective purchaser of notes
designated by a holder of notes, CompleTel Europe will supply to such holder
or prospective purchaser the information required under Rule 144A under the
Securities Act.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" with respect to
the notes under the indenture:
(1) defaults in the payment of principal of (or premium, if any, on) any
note when the same becomes due and payable at maturity, upon
acceleration, upon mandatory redemption, upon an optional redemption
or otherwise;
(2) defaults in the payment of interest on any note when the same becomes
due and payable, and such default continues for a period of 30 days;
(3) defaults in the performance or breach of the provisions of the
indenture applicable to mergers, consolidations and transfers of all
or substantially all of the assets of CompleTel Europe or the failure
to make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" or "Repurchase of Notes upon a Change of
Control" covenant;
(4) CompleTel Europe defaults in the performance of or breaches any other
covenant or agreement of CompleTel Europe in the indenture, under the
notes or in the escrow agreement (other than a default specified in
clause (1), (2) or (3) above) and such default or breach continues for
a period of 30 consecutive days after written notice by the Trustee or
the holders of 25% or more in aggregate principal amount at maturity
of the notes;
(5) there occurs with respect to any issue or issues of Indebtedness of
CompleTel Europe or any Restricted Subsidiary having an outstanding
principal amount of $10 million (or the U.S. dollar equivalent) or
more in the aggregate for all such issues of all such persons, whether
such Indebtedness now exists or shall hereafter be created,
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(a) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30
days of such acceleration and/or
(b) the failure to make a principal payment at the Stated Maturity
and such defaulted payment shall not have been made, waived or
extended within 30 days of such payment default;
(6) any final judgment or order, that is not covered by insurance, for the
payment of money in excess of $10 million (or the U.S. dollar
equivalent) 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 CompleTel
Europe or any Restricted Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders outstanding
and not paid or discharged against all such persons to exceed
$10 million (or the U.S. dollar equivalent) 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;
(7) certain events of bankruptcy, insolvency or reorganization affecting
CompleTel Europe or any Significant Subsidiary shall occur;
(8) any License permitting CompleTel Europe and/or any Significant
Subsidiary to operate in a Target Market shall be revoked, after all
due process expressly provided under applicable law with respect to
the revocation of any such License, or shall no longer be in effect or
shall not be renewed.
If an Event of Default, other than an Event of Default specified in
clause (7) above that occurs with respect to CompleTel Europe, occurs and is
continuing under the indenture, the Trustee may, or the holders of at least
25% in aggregate principal amount at maturity of the notes, then outstanding,
by written notice to CompleTel Europe (and to the Trustee if such notice is
given by the holders) may, and the Trustee at the request of such holders
shall, declare the Accreted Value of, premium, if any, and accrued interest
on the notes to be immediately due and payable. Upon a declaration of
acceleration, such Accreted Value of, premium, if any, and accrued interest
shall be immediately due and payable. In the event of a declaration of
acceleration because an Event of Default set forth in clause (5) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (5) is remedied or cured by CompleTel
Europe or the relevant Restricted Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause (7) above
occurs with respect to CompleTel Europe, the Accreted Value of, premium, if
any, and accrued interest on the notes then outstanding shall IPSO FACTO
become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any holder. The holders of at least a
majority in principal amount at maturity of the outstanding notes by written
notice to CompleTel Europe and the Trustee, may waive all past defaults and
rescind and annul a declaration of acceleration and its consequences if
(A) all existing Events of Default, other than the nonpayment of the
Accreted Value of, premium, if any, and interest on the notes that
have become due solely by such declaration of acceleration, have been
cured or waived and
(B) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction.
The holders of at least a majority in aggregate principal amount at
maturity of the outstanding notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or the indenture,
that may involve the Trustee in personal liability, or that the Trustee
determines in good faith may be unduly
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prejudicial to the rights of holders not joining in the giving of such
direction and may take any other action it deems proper that is not
inconsistent with any such direction received from holders described above. A
holder may not pursue any remedy with respect to the indenture or the notes
unless:
(I) the holder gives the Trustee written notice of a continuing
Event of Default;
(ii) the holders of at least 25% in aggregate principal amount at
maturity of outstanding notes make a written request to the
Trustee to pursue the remedy;
(iii) such holder or holders offer the Trustee indemnity
satisfactory to the Trustee against any costs, liability or
expense;
(iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the holders of a majority in
aggregate principal amount at maturity of the outstanding
notes do not give the Trustee a direction that is
inconsistent with the request.
However, such limitations do not apply to the right of any holder of a note
to receive payment of the Accreted Value of, premium, if any, or interest on,
such note or to bring suit for the enforcement of any such payment, on or
after the due date expressed in the notes, which right shall not be impaired
or affected without the consent of the holder.
CompleTel Europe must provide an officer's certificate, within 90 days
after the end of each fiscal year, certifying that a review has been
conducted of the activities of CompleTel Europe and the Restricted
Subsidiaries and CompleTel Europe's and the Restricted Subsidiaries'
performance under the indenture and that CompleTel Europe has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. CompleTel Europe will also be obligated to notify the Trustee of any
default or defaults in the performance of any covenants or agreements under
the indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
CompleTel Europe will not
(1) consolidate or combine 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) or
(2) permit any of the Restricted Subsidiaries to enter into any such
transaction or series of transactions if it would result in the
disposition of all or substantially all of the properties or assets of
CompleTel Europe and the Restricted Subsidiaries on a consolidated
basis,
unless the following conditions are met:
(a) CompleTel Europe shall be the continuing person, or the person,
if other than CompleTel Europe, formed by such consolidation or
into which CompleTel Europe is merged or that acquired or leased
such property and assets of CompleTel Europe shall be a
corporation organized and validly existing under the laws of an
Approved Jurisdiction and shall expressly assume, by supplemental
indenture, executed and delivered to the Trustee, all of the
obligations of CompleTel Europe on all of the notes and under the
indenture;
(b) immediately after giving effect to such transaction, no Default
shall have occurred and be continuing;
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(c) CompleTel Europe delivers to the Trustee an opinion of counsel to
the effect that the transaction will not result in the surviving
entity being required to make any deduction or withholding in
amounts greater than CompleTel Europe would otherwise be required
to make on account of Netherlands taxes, from any payments in
respect of the notes or otherwise which would adversely affect
holders of the notes from the standpoint of the enforceability of
the notes or the indenture or service of process against
CompleTel Europe;
(d) immediately after giving effect to such transaction on a pro
forma basis, CompleTel Europe or any person becoming the
successor obligor of the notes shall have a Consolidated Net
Worth equal to or greater than Consolidated Net Worth of
CompleTel Europe immediately prior to such transaction;
(e) immediately after giving effect to such transaction on a pro
forma basis CompleTel Europe, or any person becoming the
successor obligor of the notes, as the case may be, could incur
at least $1.00 of Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant; except that this clause
(e) shall not apply to a consolidation, combination, merger or
sale of all or substantially all of the assets of CompleTel
Europe if immediately after giving effect to such transaction on
a pro forma basis, CompleTel Europe or any person becoming the
successor obligor of the notes shall have a Consolidated Leverage
Ratio equal to or less than the Consolidated Leverage Ratio of
CompleTel Europe immediately prior to such transaction; and
(f) CompleTel Europe delivers to the Trustee an officers'
certificate, attaching the arithmetic computations to demonstrate
compliance with clauses (d) and (e) above, and opinion of
counsel, in each case stating that such consolidation,
combination, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent
provided for herein relating to such transaction have been
complied with.
Clauses (c), (d) and (e) above do not apply if, in the good faith
determination of the Board of Directors, whose determination shall be
evidenced by a Board Resolution, the principal purpose of such transaction is
to change the jurisdiction of incorporation of CompleTel Europe, and any such
transaction may not have as one of its purposes the evasion of the foregoing
limitations.
Upon any merger, consolidation, combination or any transfer of all or
substantially all of the assets of CompleTel Europe in accordance with the
foregoing, in which CompleTel Europe or the Restricted Subsidiary, as the
case may be, is not the continuing corporation, the successor corporation
formed by such a consolidation or combination, or into which CompleTel Europe
or such Restricted Subsidiary is merged, or to which such transfer is made,
shall succeed to, and be substituted for, and may exercise every right and
power of, CompleTel Europe under the indenture with the same effect as if
such successor corporation had been named as CompleTel Europe therein. Solely
for purposes of computing Cumulative Available Cash Flow and cumulative
Consolidated Interest Expense for purposes of clause (C)(I) of the first
paragraph of the "Limitation on Restricted Payments" covenant, however, the
Cumulative Available Cash Flow and cumulative Consolidated Interest Expense
of any persons other than CompleTel Europe and the Restricted Subsidiaries,
determined prior to the effective time of such consolidation, merger or
transfer of all or substantially all of the assets of CompleTel Europe, shall
only be included for periods subsequent to the effective time of such merger,
consolidation, combination or transfer of assets.
DEFEASANCE
DEFEASANCE AND DISCHARGE.
CompleTel Europe will be deemed to have paid and will be discharged from
any and all obligations in respect of the notes on the 92nd day after the
deposit referred to below, and the provisions of the indenture will no longer
be in effect with respect to the notes, except for, among other matters,
certain obligations to register the transfer or exchange of the notes to
replace stolen,
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lost or mutilated notes to maintain paying agencies and to hold monies for
payment in trust, if, among other things,
(1) CompleTel Europe has deposited with the Trustee, in trust cash in U.S.
dollars, certain U.S. government obligations or a combination thereof
that through the payment of interest and principal in respect thereof
in accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and accrued
interest on the notes on the Stated Maturity of such payments in
accordance with the terms of the indenture and the notes,
(2) CompleTel Europe has delivered to the Trustee
(a) either (x) an opinion of counsel to the effect that holders will
not recognize income, gain or loss for U.S. federal income tax
purposes as a result of CompleTel Europe's exercise of its option
under this "Defeasance" provision and will be subject to U.S.
federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which opinion of
counsel must be based upon (and accompanied by a copy of) a
ruling of the Internal Revenue Service to the same effect unless
there has been a change in applicable U.S. federal income tax law
after the date of original issuance of the notes such that a
ruling is no longer required or (y) a ruling directed to the
applicable Trustee received from the Internal Revenue Service to
the same effect as the aforementioned opinion of counsel and
(b) an opinion of counsel to the effect that (x) the creation of the
defeasance trust does not violate the Investment Company Act of
1940, (y) the deposit of the trust funds will not constitute a
fraudulent conveyance or preferential transfer under any
applicable bankruptcy, insolvency, reorganization or similar law
affecting creditors' rights generally under any Netherlands or
U.S. Federal or state law or the laws of any other applicable
jurisdiction, and that the Trustee has a perfected security
interest in such trust fund for the ratable benefit of the
holders of the notes and (z) payments from the defeasance trust
will be free and exempt from any and all withholding and other
income taxes of whatever nature imposed or levied by or on behalf
of the Netherlands or any political subdivision thereof or
therein having the power to tax;
(3) immediately after giving effect to such deposit on a pro forma basis,
no Default shall have occurred and be continuing on the date of such
deposit and such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to
which CompleTel Europe or any of its Subsidiaries is a party or by
which CompleTel Europe or any of its Subsidiaries is bound and
(4) if at such time the notes are listed on a national securities
exchange, CompleTel Europe has delivered to the Trustee an opinion of
counsel to the effect that the notes will not be delisted as a result
of such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT.
The provisions of the indenture will no longer be in effect with respect
to clauses (d) and (e) under "Consolidation, Merger and Sale of Assets" and
all the covenants described herein under "Covenants," clause (3) under
"Events of Default" with respect to such clauses (d) and (e) under
"Consolidation, Merger and Sale of Assets," clause (4) under "Events of
Default" with respect to such other covenants and clauses (5) and (6) under
"Events of Default" shall be deemed not to be Events of Default upon, among
other things, the deposit with the Trustee, in trust, of cash in U.S.
dollars, certain U.S. government obligations or a combination thereof that
through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the notes on the
Stated Maturity of such payments in accordance with the terms of the
indenture notes the satisfaction of the provisions described in clauses
(2)(b), (3) and (4) of the preceding paragraph and the delivery by CompleTel
Europe to the Trustee of an opinion of counsel to the effect that, among
other things,
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the holders will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such deposit and defeasance of certain covenants
and Events of Default and will be subject to U.S. federal income tax on the
same amount and in the same manner and at the same times as would have been
the case if such deposit and defeasance had not occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT.
In the event CompleTel Europe exercises its option to omit compliance
with certain covenants and provisions of the indenture with respect to the
notes as described in the immediately preceding paragraph and the notes are
declared due and payable because of the occurrence of an Event of Default
that remains applicable, the amount of cash in U.S. dollars and/or U.S.
government obligations on deposit with the Trustee will be sufficient to pay
amounts due on the notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the notes at the time of the acceleration
resulting from such Event of Default. CompleTel Europe will, however, remain
liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by CompleTel
Europe and the Trustee with the consent of the Holders of not less than a
majority in aggregate principal amount at maturity of the outstanding notes,
EXCEPT that no such modification or amendment may, without the consent of
each holder affected thereby
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any note,
(2) reduce the Accreted Value of, or premium, if any, or interest on, any
note,
(3) change the place or currency of payment of principal of, or premium,
if any, or interest on, any note,
(4) impair the right to institute suit for the enforcement of any payment
on or after the Stated Maturity (or, in the case of a redemption, on
or after the Redemption Date) of any note,
(5) reduce the above-stated percentage of outstanding notes the consent of
whose holders is necessary to modify or amend the applicable
indenture,
(6) waive a default in the payment of principal of, premium, if any, or
interest on the notes,
(7) reduce the percentage or aggregate principal amount at maturity of
outstanding notes which are required to consent to a waiver of
compliance with certain provisions of the indenture or for waiver of
certain defaults,
(8) make any change that would result in CompleTel Europe being required
to make any deduction or withholding from payments made in respect of
the notes
(9) release any Subsidiary Guarantor from any of its obligations under its
Subsidiary Guaranty or the indenture or release the Escrow Guaranty
from any of its obligations under the indenture, in each case other
than in accordance with the terms of the indenture,
(10) release any Lien securing the notes other than in accordance with the
terms of the indenture and the escrow agreement,
(11) affect the ranking of the notes in a manner adverse to the holders of
the notes or
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(12) make any change to the indenture or the notes that would adversely
affect the rights of holders to receive Additional Amounts.
Without the consent of any holder, CompleTel Europe and the Trustee may
amend the indenture to cure any ambiguity, omission, defect or inconsistency,
to provide for the assumption by a successor corporation of the obligations
of CompleTel Europe under the applicable indenture, to add Guaranties with
respect to the notes to secure the notes to add to the covenants of CompleTel
Europe for the benefit of the holders or to surrender any right or power
conferred upon CompleTel Europe, to comply with any requirement of the
Commission in connection with the qualification of the indenture under the
Trust Indenture Act, to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee or to make any change that does
not adversely affect the rights of any holder in any material respect.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of CompleTel Europe or CompleTel LLC in the
indenture, or in any of the notes or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer, director, manager, employee or controlling person of
either CompleTel Europe or CompleTel LLC or of any successor person thereof.
Each holder, by accepting the notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as
are specifically set forth in the indenture. If an Event of Default has
occurred and is continuing, the Trustee will use the same degree of care and
skill in its exercise of the rights and powers vested in it under the
indenture as a prudent person would exercise under the circumstances in the
conduct of such person's own affairs.
The indenture and provisions of the Trust indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights
of the Trustee, should it become a creditor of CompleTel Europe, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions. If the Trustee acquires any
conflicting interest, it must eliminate such conflict or resign.
NOTICES
Any notice or communication to holders of the notes will be in writing
and delivered in person or mailed by first class mail, postage prepaid,
addressed to the holders at their respective addresses as they appear on the
registration books of the registrar under the indenture and shall be
sufficiently given if so mailed within the time prescribed. If a notice or
communication is mailed in the manner provided above, it is duly given,
whether or not received by the addressee.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The indenture, the notes and the CompleTel LLC Guaranty will be governed
by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be
required thereby.
CompleTel Europe has submitted to the jurisdiction of the U.S. Federal
and New York State courts located in the Borough of Manhattan, City and State
of New York for purposes of all legal
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actions and proceedings instituted in connection with the notes and the
indenture. CompleTel Europe has appointed as its authorized agent upon which
process may be served in any such actions.
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DESCRIPTION OF THE SHARE CAPITAL
AND CORPORATE STRUCTURE OF COMPLETEL EUROPE
GENERAL
CompleTel Europe was incorporated under Dutch law on December 14, 1998,
as a public limited company (NAAMLOZE VENNOOTSCHAP, N.V.).
CompleTel Europe has its corporate seat and registered office in
Amsterdam, the Netherlands and is registered at the Trade Register of the
Chamber of Commerce and Industries for Amsterdam under No. 34108119 and is
known at the Dutch Ministry of Justice under number NV 1.055.197.
Set out below is a summary of the material provisions of the Articles of
Association and of certain provisions of Dutch company law. The full Dutch
text of the Articles of Association is available at the registered office of
CompleTel Europe. An English translation has been filed as an exhibit to the
registration statement of which this prospectus is part.
SHARE CAPITAL STRUCTURE
The authorized share capital of CompleTel Europe amounts to 3,159,924
Netherlands guilders with a nominal value per share of NLG.03. As of the
date of this prospectus 21,071,429 shares have been issued with a share
capital of NLG632,143.
SHARES
Once a share is issued the board of management of CompleTel Europe can,
at the request of a shareholder, change a fully paid-up registered share into
a bearer share and vice versa. Share certificates shall be issued in respect
of bearer shares in the capital of CompleTel Europe.
CompleTel Europe maintains a shareholders' register for the outstanding
registered shares, which is available for inspection by the shareholders at
the registered office of CompleTel Europe. A right of pledge or a right of
usufruct may be established on the shares. The board of management shall,
upon notification thereof, note the establishment of such restricted right to
a share in the shareholders' register.
The transfer of a registered share or the establishment of a right of
pledge or a right of usufruct with respect to a registered share shall
require a Dutch notarial deed.
Depository receipts (CERTIFICATEN VAN AANDELEN) may be issued with
respect to shares in CompleTel Europe's capital, subject to prior approval by
the general meeting of shareholders of CompleTel Europe.
VOTING RIGHTS
All shareholders and other persons entitled to vote have the right to
attend general meetings of shareholders, either in person or represented by a
person holding a written proxy, to address the meeting and to exercise voting
rights, subject to the provisions of the Articles of Association. Each
ordinary share carries the right to cast one vote. Resolutions will be passed
by a simple majority of the votes validly cast, except where Dutch law or the
Articles of Association provide otherwise.
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PRE-EMPTIVE RIGHTS
In respect of the issue of shares, each existing shareholder will have
pre-emptive rights in proportion to its existing shareholding, save in the
event that shares are issued to employees of CompleTel Europe or of an
affiliated company or to a person who exercises a previously acquired right
to subscribe for shares. This pre-emptive right also applies in respect of
shares issued in consideration for a contribution in kind. The general
meeting of shareholders or another body of CompleTel Europe, thereto
designated by the general meeting of shareholders, is authorized to restrict
or exclude there pre-emptive rights.
AMENDMENT OF THE ARTICLES OF ASSOCIATION, MERGER AND DIVISION
The general meeting of shareholders may resolve to amend the Articles of
Association or to enter into a merger or a division by means of a resolution
adopted by a two-thirds majority at a meeting where at least half of the
issued share capital is represented.
DISSOLUTION AND LIQUIDATION
The general meeting of shareholders may resolve to dissolve CompleTel
Europe by a resolution adopted by a two-thirds majority at a meeting where at
least half of the issued share capital is represented. In the event of the
dissolution and the liquidation of CompleTel Europe the assets remaining
after payment of all debts are to be distributed to the holders of CompleTel
Europe's shares in proportion to the nominal value of their shareholdings,
provided always that, to the extent that shares have not been fully paid up,
only the paid-up amount shall be taken into account. If CompleTel Europe is
dissolved pursuant to a resolution adopted by the general meeting of
shareholders, liquidation shall take place in accordance with Dutch law.
ANNUAL ACCOUNTS AND PROFITS DISTRIBUTION
The financial year of CompleTel Europe is concurrent with the calendar
year. Annually, within five months after the expiry of CompleTel Europe's
financial year, save where this period is extended by a maximum of six months
by the general meeting of shareholders on account of special circumstances,
the board of management will draw up the annual accounts and make them
available for inspection by the shareholders at CompleTel Europe's office.
The general meeting of shareholders shall determine the amounts of the
profits that CompleTel Europe shall reserve on the basis of the adopted
profit and loss account and the allocation of distributable profits.
CompleTel Europe may only make distributions to its shareholders and to
others entitled to receive part of the distributable profits if this payment
does not reduce the shareholders equity below the sum of the called and
paid-up share capital and any reserves required to be maintained by Dutch law
or the Articles of Association. Any dividends shall be made pace and/or date
as the general meeting of shareholders may decide. The board of management
may, subject to the requirements of Dutch law and the approval of the general
meeting of shareholders, make interim dividends payable.
DESCRIPTION OF EQUITY REGISTRATION AND OTHER RIGHTS
We have entered into an equity registration rights agreement, dated
February 16, 1999, which provides registration rights under the Securities
Act of 1933 to the holders of common shares of CompleTel Europe (or any
American Depositary Receipts or similar depositary receipts issued upon
deposit thereof) and the holders of Class B Interests of CompleTel Holdings
LLC, which is an intermediate holding company that indirectly owns 100% of
CompleTel Europe.
The equity registration rights agreement provides the holders of the
common shares of CompleTel Europe and the Class B interests of CompleTel
Holdings with the right to demand registration of such securities at any time
after we engage in an initial public equity offering, we are subject to a
change of control, certain liquidation events happen with respect to
CompleTel Holdings, or February 16, 2004.
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Holders of securities subject to the equity registration rights
agreement will also have the right to include such securities in registration
statements under the Securities Act covering equity securities of CompleTel
LLC or CompleTel Europe filed for either their own accounts or for the
account of any of their respective securityholders for sale on the same terms
and conditions as the securities of those companies or any other selling
securityholder included in such registration statements. Holders of
securities subject to the equity registration rights agreement will not have
such "Piggyback Registration" rights in respect of an initial public equity
offering in which no shareholder or member, as the case may be, of any of the
Issuers is a participant or in respect of registration statements relating to
employee benefit plans or business combination transactions.
CompleTel LLC and its equity investors have agreed not to allow
CompleTel Holdings or CompleTel Europe to make a public offering of any class
of capital stock or other equity interests unless, prior to commencing such
public offering, any necessary changes are made to provide that Class B
Interests in CompleTel Holdings are convertible into such class of capital
stock or other equity interests of CompleTel Holdings or CompleTel Europe, as
applicable, on a share-for-share basis and that rights, conditions and
privileges attaching to such class of capital stock or other equity interests
are not adverse to holders of the Class B Interests as compared with the
terms of Class A Interests (except with respect to voting rights). CompleTel
LLC has also agreed not to make, and not to allow any of its direct or
indirect subsidiaries other than CompleTel Holdings or CompleTel Europe to
make, a Public Offering of any class of capital stock for so long as any
securities registrable under the equity registration rights agreement are
outstanding.
REGISTRATION RIGHTS AGREEMENT
BACKGROUND
In a registration rights agreement relating to the existing notes, we
have agreed with the initial purchasers that we will, at our cost
- file an exchange offer registration statement with the SEC no
later than 150 days after February 16, 1999, the original issue
date of the existing notes to exchange the existing notes for new
notes having terms substantially identical in all material
respects to the existing notes, and
- use our best efforts to cause the exchange offer registration
statement to become effective under the Securities Act no later
than 240 days after February 16, 1999.
Upon the effectiveness of the exchange offer registration statement, we
will promptly offer the new notes in exchange for surrender of the existing
notes. We have agreed to keep the exchange offer open for at least 30 days,
or longer if required by applicable law, after the date that notice of the
exchange offer is mailed to holders of the existing notes.
The following description of the registration rights agreement is a
summary. While we believe the summary contains information about the
material terms of the registration rights agreement, it may not include all
of the provisions that you may feel are important. A copy of the
registration rights agreement has been filed as an exhibit to this
registration statement.
TERMS OF THE EXCHANGE
For each existing note surrendered to us pursuant to the exchange offer,
the holder of an existing note will receive a new note having a principal
amount equal to that of the surrendered existing note. Interest on each new
note will accrue from the last interest payment date on which interest was
paid on the existing note surrendered in exchange offer, or, if no interest
has been paid on the existing note, from February 16, 1999.
Based on interpretations by the staff of the SEC, we believe that the new
notes would be freely transferable by holders of the new notes after the
exchange offer without further registration under the Securities Act under
the conditions we describe in the section entitled "Exchange Offer--Resale of
the New Notes."
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SHELF REGISTRATION STATEMENT
If one of the following events occurs
(1) applicable law or interpretations of the staff of the SEC do not
permit us to effect a exchange offer,
(2) for any other reason the exchange offer is not consummated within
270 days after the February 16, 1999,
(3) the initial purchasers so request with respect to existing notes not
eligible to be exchanged for new notes in the exchange offer, or
(4) any holder of existing notes is not eligible to participate in the
exchange offer or participates in but does not receive freely
tradeable (except for prospectus delivery requirements) new notes in
the exchange offer,
then, we will, at our cost,
- as promptly as practicable, file a shelf registration statement
covering resales of the existing notes or the new notes, as the
case may be,
- use our best efforts to cause the shelf registration statement to
become effective under the Securities Act, and
- keep the shelf registration statement effective until two years
after its effective date (or shorter period that will terminate
when all existing notes or new notes, as the case may be, covered
by the self registration statement have been sold pursuant to the
shelf registration statement).
If a shelf registration statement is filed, we will provide to each holder
for whom the shelf registration statement was filed copies of the prospectus
which is a part of the shelf registration statement, notify each holder when
the shelf registration statement has become effective, and take certain other
actions as are required to permit unrestricted resales of the Notes or the
new notes, as the case may be.
A holder selling existing notes or new notes under the shelf registration
statement generally would be required to be named as a selling security
holder in the related prospectus and to deliver a prospectus to purchasers,
will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such
holder (including certain indemnification obligations).
LIQUIDATED DAMAGES
If we fail to comply with certain provisions of the registration rights
agreement, then, as liquidated damages, additional interest shall become
payable in respect of the existing notes as follows:
(1) If (a) neither an exchange offer registration statement nor a
shelf registration statement is filed with the SEC on or prior to the 150th
day after February 16, 1999, or (b) even though we have filed an exchange
offer registration statement, we are required to file a shelf registration
statement and the shelf registration statement is not filed on or prior to
the date required by the registration rights agreement, then beginning on
the day after either such required filing date, liquidated damages shall
accrue on the existing notes over and above the stated interest, at a rate
per annum of 0.50% of the Accreted Value of the existing notes on the
preceding Semi-Annual Accrual Date of the existing notes for the first 90
days immediately following each such required filing date, the liquidated
damages rate increasing
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by an additional 0.25% of the Accreted Value of the existing notes on
the preceding Semi-Annual Accrual Date of the existing notes at the
beginning of each subsequent 90-day period;
(2) if (A) neither an exchange offer registration statement nor a
shelf registration statement becomes effective on or prior to the 210th day
after February 16, 1999 or (B) even though we have caused an exchange offer
registration statement to become effective, we are required to file and
cause to become effective a shelf registration statement and the shelf
registration statement has not become effective on or prior to the 60th day
following the date such shelf registration statement was filed, then,
beginning on the 211th day after February 16, 1999 (in the case of (A)
above) or beginning on the 61st day after the filing date (in the case of
(B) above), liquidated damages shall accrue on the existing notes over and
above the stated interest, at a rate per annum of 0.50% of the Accreted
Value of the existing notes on the preceding Semi-Annual Accrual Date of
the existing notes for the first 90 days immediately following each such
required effective date, the liquidated damages increasing by an additional
0.25% of the Accreted Value of the existing notes on the preceding
Semi-Annual Accrual Date of the existing notes at the beginning of each
subsequent 90-day period; and
(3) if (A) we have not exchanged new notes for all existing notes
validly tendered in accordance with the terms of the exchange offer within
30 days after the effectiveness of the exchange offer registration
statement or (B) the exchange offer registration statement or the shelf
registration statement has become effective and that registration statement
ceases to be effective at any time during the periods specified in the
registration rights agreement, unless all the existing notes have
previously been sold or exchanged, as the case may be, then liquidated
damages shall accrue (over and above any interest) at a rate per annum if
0.50% of the Accreted Value on the preceding Semi-Annual Accrual Date of
such affected notes for the first 90 days commencing on (x) the 31st day
after such effective date with respect to the existing notes validly
tendered and not exchanged by us, in the case of (A) above or (y) the day
the registration statement ceases to be effective in the case of (B) above,
such liquidated damages rate increasing by an additional 0.25% of the
Accreted Value on the preceding Semi-Annual Accrual Date of such affected
notes at the beginning of each such subsequent 90-day period (it being
understood and agreed that, in the case of (B) above, so long as any
existing note is then covered by an effective shelf registration statement,
no liquidated damages shall accrue on the existing note).
The liquidated damages rate on any affected note may not exceed at any one
time in the aggregate 2.00% per annum of the Accreted Value of the affected
note. Upon curing the applicable default pursuant to paragraphs (1), (2) or
(3) which caused the liquidated damages, liquidated damages on the affected
notes as a result of such paragraph, as the case may be, shall cease to
accrue.
Any amounts of liquidated damages due pursuant to paragraphs (1), (2) or
(3) above will be payable to the holders of affected notes on each February
15 and August 15, beginning on the first such date occurring after any
liquidated damages begin to accrue.
The new notes may not be offered, transferred or sold as part of their
initial distribution or at any time thereafter, to any persons (including
legal entities) established, domiciled, settled or ordinarily resident in The
Netherlands. These restrictions shall no longer apply from the date on which
the Securities Board of The Netherlands (STICHTING TOEZICHT EFFECTENVERKEER)
has granted a dispensation on the offering of the new notes pursuant to the
exchange offer registration statement in connection with the exchange offer
to exchange the existing notes for the new notes.
BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be represented by one or more permanent
global certificates in definitive, fully registered form. The global notes
will be deposited upon issuance with Depository Trust Company and registered
in the name of a nominee of Depository Trust Company.
DEPOSITORY PROCEDURES
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We expect that pursuant to procedures established by Depository Trust
Company:
(1) upon the issuance of the global notes, Depository Trust Company or its
custodian will credit, on its internal system, the principal amount of the
individual beneficial interests represented by the global notes to the
respective accounts of persons who have accounts with the depository, and
(2) ownership of beneficial interests in the global notes will be shown
on, and the transfer of ownership will be effected only through, records
maintained by Depository Trust Company or its nominee, with respect to
interests of participants, and the records of participants, with respect to
interests of persons other than participants.
Ownership of beneficial interests in the global notes will be limited to
persons who have accounts with Depository Trust Company or persons who hold
interests through participants.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the notes represented by
the global notes to these persons may be limited. In addition, because
Depository Trust Company can act only on behalf of its participants, who in
turn act on behalf of persons who hold interests through the participants,
the ability of a person having an interest in the notes represented by the
global notes to pledge or transfer such interest to persons or entities that
do not participate in Depository Trust Company's system, or to otherwise take
actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as Depository Trust Company or its nominee is the registered
owner or holder of the new notes, Depository Trust Company (or the nominee)
will be considered the sole owner or holder of the new notes represented by
the global notes for all purposes under the indenture. No beneficial owner of
an interest in the global notes will be able to transfer that interest except
in accordance with Depository Trust Company's procedures.
PAYMENTS ON THE GLOBAL SECURITIES
Payments of interest, principal and other amounts due on the global
notes will be made to Depository Trust Company or its nominee as the
registered owner. None of CompleTel Europe, CompleTel LLC, the trustee or any
paying agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the global notes or for maintaining, supervising or reviewing
any records relating to this beneficial ownership interest.
We expect that Depository Trust Company or its nominee, upon receipt of
any payment of interest, principal or other amounts due on the global notes,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the global notes as shown on the
records of Depository Trust Company. We also expect that payments by
participants to owners of beneficial interests in the global notes held
through such participants will be governed by standing instructions and
customary practice, as is the case with securities held for the accounts of
customers registered in the names of nominees for those customers. These
payments will be the responsibility of the participants.
INFORMATION CONCERNING DEPOSITORY TRUST COMPANY
Depository Trust Company has advised us that it is:
- a limited purpose trust company organized under the laws of the
State of New York,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform
Commercial Code, and
- a "Clearing Agency" registered under the provisions of Section
17A of the Exchange Act.
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Depository Trust Company was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions
between participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to Depository Trust Company system is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
Transfers between participants in Depository Trust Company will be
effected in the ordinary way through Depository Trust Company's settlement
system in accordance with Depository Trust Company rules and will be settled
in same day funds.
We expect that Depository Trust Company will take any action permitted
to be taken by a holder of new notes, including the presentation of new notes
for exchange as described below, only at the direction of a participant to
whose account Depository Trust Company interests in the global notes are
credited. Further, Depository Trust Company will take action only as to such
portion of the notes as to which the participant has given such direction.
However, if there is an Event of Default under the indenture, Depository
Trust Company will exchange the global notes for certificated notes, which it
will distribute to its participants.
The descriptions of the operations and procedures of Depository Trust
Company described above are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the settlement
system, and are subject to change from time to time. Neither CompleTel
Europe, CompleTel LLC or the trustee takes any responsibility for these
operations or procedures, and investors are urged to contact the Depository
Trust Company or its participants directly to discuss these matters.
CERTIFICATED SECURITIES.
If Depository Trust Company is at any time unwilling or unable to
continue as a depository for the global notes and a successor depository is
not appointed by CompleTel Europe within 90 days, certificated notes will be
issued in exchange for the global notes.
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MATERIAL TAX CONSIDERATIONS
The following discussion is Holme Roberts & Owen's opinion on the
material U.S. federal income tax consequences and Arthur Andersen's opinion
on the material Dutch tax consequences, under current law, regarding the
exchange of old notes for new notes and the ownership and disposition of new
notes. This discussion does not address the income taxes imposed by any
political subdivision of the United States or The Netherlands or any tax
imposed by any other jurisdiction. This discussion does not address the tax
consequences for any person who does not hold old notes as capital assets or
who will not hold new notes as capital assets or every aspect of taxation
that may be relevant to a particular taxpayer under special circumstances or
who is subject to special treatment under applicable law and is not intended
to be applicable in all respects to all categories of investors. For
example, certain types of investors, such as:
- insurance companies,
- tax-exempt persons,
- financial institutions,
- regulated investment companies
- retirement accounts,
- dealers in securities, and
- persons who hold notes as part of a hedging, straddle, constructive
sale or conversion transaction
may be subject to different tax rules not discussed below.
The laws on which this opinion is based are subject to change, perhaps
with retroactive effect. A change to such laws may invalidate a part or all
of this opinion, which will NOT be updated to reflect changes in laws.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT THEIR TAX ADVISER REGARDING THE
PARTICULAR TAX CONSEQUENCES TO SUCH PURCHASER OF THE EXCHANGE OF OLD NOTES
FOR NEW NOTES, AND OF OWNING AND DISPOSING OF NEW NOTES, INCLUDING THE
APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS OR ANY STATE, LOCAL OR
FOREIGN TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR
PROPOSED LEGISLATION OR REGULATIONS.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
This discussion applies only to a beneficial owner of an old note who
acquired an old note at the original offering price and who is
- an individual citizen or resident of the United States,
- a corporation organized under the laws of the United States or any
state of the United States, or
- any other person whose worldwide income is subject to U.S. federal
income taxation on a net income basis, (each a "U.S. holder").
Non-U.S. holders are subject to substantially different rules, not described
below.
EXCHANGE OFFER
Although there is no direct authority addressing the U.S. federal income
tax consequences of the exchange of old notes for new notes, in the opinion
of Holme Roberts & Owen, LLP, counsel to the CompleTel Europe, the exchange
of old notes for new notes should not be treated as a taxable exchange for
U.S. federal income tax purposes because the new notes will not differ
materially from the old notes and because the exchange will occur by
operation of the original terms of the old notes. As a result, U.S. holders
who exchange their old notes for new notes should not recognize any income,
gain or loss for U.S. federal income tax purposes. A U.S. holder should have
the same adjusted tax basis and holding period in the new notes immediately
after the exchange as it had in the old notes immediately before the
exchange. However, if the Internal Revenue Service were to treat the
exchange of old notes for new notes as a taxable exchange, a U.S. holder
would recognize capital
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gain or loss on the exchange equal to the difference between the fair market
value of the new note and the U.S. holder's adjusted tax basis in the new
note.
ALLOCATION OF PURCHASE PRICE BETWEEN NOTES AND CLASS B INTERESTS
Each note was issued as part of a unit with 10 non-voting Class B
membership interests of CompleTel Holdings LLC. CompleTel Europe allocated
the total purchase price of each unit between the note and the Class B
membership interests on the basis of their relative fair market values. The
amount allocated to the note, $478.18, is both a U.S. holder's initial tax
basis in the note and the issue price of the note. This allocation is
binding on a U.S. holder unless the U.S. holder properly discloses to the IRS
that it is taking a contrary position. The IRS may dispute CompleTel
Europe's allocation, which could require a reallocation of purchase price
between the Class B interests and the note, which in turn would impact the
amount and the character of the income a U.S. holder would recognize with
respect to a note.
INTEREST AND ORIGINAL ISSUE DISCOUNT
U.S. holders generally will have to include original issue discount
("OID") in income as interest as it accrues. OID is defined as the excess of
a note's:
- stated redemption price at maturity, over
- its issue price.
A note's "stated redemption price at maturity" is the sum of all
payments to be made on such note, other than payments of qualified stated
interest. "Qualified stated interest" is interest which is unconditionally
payable at least annually at a fixed rate during the entire term of the note.
Because there will not be any payment of interest on the notes until August
15, 2005, the cash interest payments that will be made on the notes are not
qualified stated interest and are therefore included in the note's stated
redemption price at maturity. The "issue price" of a note is the first
price, or allocable share thereof, at which a substantial amount of the notes
is sold to the public for cash, excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity as underwriters,
placement agents or wholesalers.
The amount of accrued OID that a U.S. holder must include in gross
income for a taxable year equals the sum of the daily portions of OID for
each day during the taxable year on which the U.S. holder owns the note.
Calculation of the daily portions of OID requires four steps:
(1) Calculate the yield on the note to maturity by determining the
discount rate that results in a present value for all principal and
interest payments equal to the issue price.
(2) Determine the accrual period which will generally be the semi-annual
period between interest payment dates.
(3) Determine the OID allocable to each accrual period by first
multiplying the yield determined under step one by the note's adjusted
issue price at the beginning of the period, which equals the issue
price plus OID previously included in gross income less payments
previously made on the debt instrument.
(4) Determine the daily portions of OID by dividing the OID amount for the
accrual period by the number of days in the accrual period.
Because U.S. holders generally will have to include accrued OID in income
using the methodology described above, a U.S. holder will include OID in
gross income in advance of the receipt of cash attributable to such income.
However, U.S. holders will not be required to include separately in income
cash payments made on the notes, even if denominated as interest, to the
extent such payment constitute OID previously included in gross income.
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DISPOSITION OF THE NOTES
Upon the sale, exchange, retirement at maturity or other disposition of
a note (collectively, a "disposition"), a U.S. holder generally will
recognize capital gain or capital loss equal to the difference between
- the amount realized by such holder (net of accrued but unpaid stated
interest, which will be treated as ordinary interest income), and
- such holder's adjusted tax basis in the note.
A U.S. holder's adjusted tax basis in a note will be its allocable share
of the initial cost of a unit, to such holder as discussed above, increased
by any OID included in income and reduced by any cash payments made on the
note through the date of disposition. Such capital gain or capital loss will
be long-term capital gain or capital loss if the holding period for the note
exceeds one year at the time of the disposition. In general, the maximum
federal income tax rate applicable to long-term capital gains derived by
individuals is 20%. Deductions for capital losses are subject to certain
limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain non-corporate U.S. holders may be subject to backup withholding
at a rate of 31% on payments of principal, interest and OID, and to the
proceeds of certain sales of notes. In general, backup withholding will be
imposed only if the U.S. holder
- fails to furnish its taxpayer identification number ("TIN"), which,
for an individual, would be his or her Social Security number,
- furnishes an incorrect TIN,
- is notified by the IRS that it has failed to report payments of
interest or dividends or
- under certain circumstances, fails to certify, under penalty of
perjury, that it has furnished a correct TIN and has been notified by
the IRS that it is subject to backup withholding tax for failure to
report interest or dividend payments.
Any amounts withheld will be allowed as a credit against the U.S.
holder's U.S. federal income tax liability and may entitle the U.S. holder to
a refund, provided the required information is furnished to the IRS.
Payments of principal, interest and OID to U.S. holders will also be subject
to information reporting. U.S. holders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption, if applicable.
MATERIAL NETHERLANDS INCOME TAX CONSEQUENCES
This discussion applies only to a beneficial owner of an old note who is
not, or is not deemed to be, a resident of The Netherlands for the purpose of
the relevant tax laws and does not have or will not obtain a substantial
interest, as defined below, in CompleTel Europe N.V. (a "non-resident
holder").
SUBSTANTIAL INTEREST
A shareholder that owns, either via shares or options, directly or
indirectly, 5% or more of any class of shares, or 5% or more of the total
issued share capital of a company resident in The Netherlands (a "Substantial
Interest") is subject to special rules. Profit participation rights which
give the holder rights to 5% or more of the annual profit or 5% or more of
the liquidation proceeds of the company will also qualify as a substantial
interest. With respect to individuals, certain attribution rules exist in
determining the presence of a Substantial Interest.
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EXCHANGE OFFER
The conditions of the new notes will not differ materially from the old
notes, except the new notes will be registered. The amount of a new note,
its interest percentage and repayment schedule will not differ from an old
note. Therefore, the exchange of old notes for new notes will not have Dutch
fiscal consequences for the holders of the old notes.
NETHERLANDS WITHHOLDING TAX
As under the old notes, all payments under the new notes may be made
free of withholding or deduction for or on account of any taxes imposed,
levied, withheld or assessed by The Netherlands or any political subdivision
or taxing authority thereof or therein.
TAXES ON INCOME AND CAPITAL GAINS
A non-resident holder of new notes who derives income from the notes or
who realizes capital gains on the sale, exchange or redemption of the notes,
will not be subject to Netherlands Corporate Income Tax or Netherlands
Individual Income Tax, provided the non-resident holder
(1) does not have or will not obtain an enterprise or an interest in an
enterprise which, in whole or in part, is carried on through a
permanent establishment or a permanent representative in The
Netherlands and to which enterprise or part of an enterprise the notes
are attributable; and
(2) is not directly entitled (the term directly means, in this context,
not through the beneficial ownership of shares or similar securities)
to all or a share of the profits of an enterprise that is managed and
controlled in The Netherlands while the notes form part of the assets
of, or are otherwise attributable to, such enterprise; and
(3) does not carry out and has not carried out employment activities in
the territory of The Netherlands, or as director or board member of an
entity resident in The Netherlands or a civil servant of a Netherlands
public body with which the holding of the notes is connected.
A non-resident holder of notes may be eligible for an exemption from
Netherlands taxes on the abovementioned income and/or capital gain under a
treaty for the avoidance of double taxation that is in effect between the
country of residence of the holder of the notes and The Netherlands.
NET WEALTH TAX
A non-resident holder of the notes will not be subject to Netherlands
net wealth tax if the holder of the notes is not an individual. An
individual will not be subject to Netherlands net wealth tax provided that:
(1) the non-resident holder does not have an enterprise or an interest in
an enterprise that is, in whole or in part, carried on through a
permanent establishment or a permanent representative in The
Netherlands and to which enterprise or part of an enterprise the notes
are attributable; and
(2) such non-resident holder is not directly entitled (the term directly
means, in this context, not through the beneficial ownership of shares
or similar securities) to all or a share of the profits of an
enterprise that is managed and controlled in The Netherlands while the
notes from part of the assets of, or are otherwise attributable to,
such enterprise.
GIFT OR INHERITANCE TAXES
No Netherlands gift or inheritance taxes will arise in The Netherlands
in respect of the transfer of a note by way of a gift by, or on the death of
a non-resident holder, provided that:
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(1) the transfer is not construed as an inheritance or gift made by or on
behalf of a person who is a resident or a deemed resident of The
Netherlands; and
(2) the note does not form part of the assets of, and is not otherwise
attributable to, an enterprise owned by the donor or the deceased or
in which the donor or the deceased owned an interest and which in
whole or in part is carried on through a permanent establishment or a
permanent representative in The Netherlands; and
(3) the note does not form part of the assets of, and is not otherwise
attributable to an enterprise that is managed and controlled in The
Netherlands and to which all or a share of the profits thereof the
holder of a note is directly entitled (the term directly means, in
this context, not as the beneficial owner of shares or similar
securities).
For the purpose of Netherlands gift and inheritance tax, an individual
with Netherlands nationality is deemed to be a resident of The Netherlands if
he has been a resident of The Netherlands at any time during the ten years
preceding the time of gift or death. For the purpose of Netherlands gift
tax, a person is deemed to be a resident of The Netherlands if he has been a
resident of The Netherlands in the twelve months preceding the time of the
gift.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. A broker-dealer may use this
prospectus, as it may be amended or supplemented from time to time, by in
connection with resales of new notes received in exchange for old notes where
the old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of one year after
closing of the exchange offer, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
the resale.
We will not receive any proceeds from any sale of new notes by any
broker-dealer. New notes received by broker-dealers for their own account in
the exchange offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the
writing of options on the new notes or a combination of the methods of
resale, at market prices prevailing at the time of resale, at prices related
to the prevailing market prices or negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from the broker-dealer
and/or the purchasers of the new notes. Any broker-dealer that resells new
notes that were received by it for its own account in the exchange offer and
any broker or dealer that participates in a distribution of the new notes may
be deemed to be an "underwriter" within the meaning of the Securities Act and
any profit on any resale of new notes and any commissions or concessions
received by those persons may be deemed to be underwriting compensation under
the Securities Act. The letter of transmittal states that by acknowledging
that it will deliver and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of one year after closing of the exchange offer, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests the
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the performance of, our obligations under, the Registration
Agreement and all expenses incident to the exchange offer, including the
expenses of one counsel for the holders of the old notes but excluding
commissions or concessions of any brokers or dealers, and will indemnify the
holders, including any broker-dealers, and certain parties related to the
holders against certain liabilities, including liabilities under the
Securities Act.
We have not entered into any arrangements or understandings with any
person to distribute the new notes to be received in the exchange offer.
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LEGAL MATTERS
The validity of the new notes offered in the exchange offer will be
passed upon for CompleTel Europe by Nauta Dutilh Amsterdam, The Netherlands
and by Holme Roberts & Owen LLP, Denver, Colorado. Certain tax matters will
be passed upon for CompleTel Europe by Holme Roberts & Owen LLP, Denver,
Colorado and Arthur Andersen Belastingadviseurs, Amsterdam, The Netherlands.
EXPERTS
The consolidated balance sheet of CompleTel Europe N.V. and subsidiaries
as of December 31, 1998, and the related consolidated statements of
operations, shareholder's equity (deficit), and cash flows for the period
from commencement of operations (January 8, 1998) to December 31, 1998, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto appearing elsewhere in this
prospectus, and such financial statements are included herein in reliance
upon the authority of said firm as experts in giving such report.
The consolidated balance sheet of CompleTel LLC as of December 31, 1998,
and the related consolidated statements of operations, members' deficit, and
cash flows for the period from commencement of operations (January 8, 1998)
to December 31, 1998, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto
appearing elsewhere in this prospectus, and such financial statements are
included herein in reliance upon the authority of said firm as experts in
giving such report.
The balance sheet of Acces et Solutions Internet S.A.R.L. as of December
31, 1998, and the related statements of operations and cash flows for the
year then ended, have been audited by Barbier Frinault & Associes (Arthur
Andersen), independent public accountants, as indicated in their report with
respect thereto appearing elsewhere in this prospectus, and such financial
statements are included herein in reliance upon the authority of said firm as
experts in giving such report.
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APPENDIX A
GLOSSARY OF TERMS
<TABLE>
<S> <C>
ATM........................... Asynchronous transfer mode. An international
standard for high-speed broadband
packet-switched networks, operating at
digital transmission speeds above 1.544
megabits per second.
Backbone...................... An element of the network infrastructure that
provides high-speed, high capacity connections
among the network's nodes.
Bandwidth..................... The range of frequencies that can be passed
through a medium, such as glass fibers, without
distortion. The greater the bandwidth, the
greater the information-carrying capacity of
such medium. For fiber optic transmission,
electronic transmitting devices determine the
bandwidth, not the fibers themselves. Bandwidth
is measured in Hertz (analog) or bits per second
(digital).
Bits.......................... The smallest unit of digital information
utilized by electronic information processing,
storage or transmission systems.
Centrex....................... A service that is functionally similar to a
customer-premises private automated branch
exchange but is provided by means of equipment
located in a central office.
Circuit switching............. A switching technique that establishes a
dedicated transmission path between originating
and terminating points and holds that path open
for the duration of a cell.
Collocation................... A location where a competitive carrier network
interconnects with the network of public
telecommunications operator's inside a public
telecommunications operator's central office.
Competitive carrier........... Category of telephone service provider, or
carrier, that offers local exchange and other
services similar to and in competition with
those of the public telecommunication operators,
as allowed by recent changes in
telecommunications law and regulation. A
competitive carrier may also provide other types
of services such as long distance telephone,
data communications, Internet access and video.
Dark fiber.................... Any installed fiber-optic cable lacking a light
transmission or signal, as opposed to fiber that
is in service or "lit."
Dial tone..................... An auditory tone (350 to 440 Hertz) that
indicates that the telephone switching equipment
is ready to accept dial signals. The dial tone
is generated by local telephone company
equipment.
A-1
<PAGE>
Digital ...................... Describes a method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission and switching technologies employ a
sequence of these pulses to convey information,
as opposed to the continuously variable analog
signal. Digital transmission significantly
reduces most distortion inherent in an analog
signal, such a graininess or "snow", in the case
of video transmission, or static or other
background distortion in the case of audio
transmission.
DSL........................... Digital subscriber line. A transmission
technology enabling high-speed access in the
local copper loop, often referred to as the last
mile between the network service provider-i.e.,
competitive carrier or an internet service
provider- and end user.
E-1........................... An International Telecommunications Union
standard digital transmission rate for time
division multiplexing. An E-1 transmits voice,
data and signaling at a rate of 2.048 megabits
per second. The E-1 is the European counterpart
to the North American T-1.
Facilities-based operator..... A company that owns or leases its network
facilities to provide services rather than
purchasing services from other providers and
reselling the services to customers.
Fiber......................... A filament, usually of glass, through which
light beams carrying voice, data or video
transmissions are guided.
Fiber optic................... Technology based on thin filaments of glass or
other transparent materials used as the medium
for transmitting coded light pulses that
represent data, image and sound. Fiber optic
technology offers extremely high transmission
speeds and is the medium of choice for the
telecommunications industry. Fiber is immune to
electrical interferences and environmental
factors that affect copper wiring and satellite
transmission. Fiber optic technology involves
sending laser light pulses across glass strands
in order to transmit digital information. A
strand of fiber optic cable is as thick as a
human hair yet has more bandwidth capacity than
a copper wire the width of a telephone pole.
Fiber optic ring.............. Where a network is configured in a
bi-directional circular fashion. If a portion of
the ring malfunctions, the signal can be
re-routed back the way it came, around the
circle, to complete the connection.
Frame relay................... A form of packet switching with variable length
frames that may be used with a variety of
communications protocols. Frame relay is a
method of achieving high-speed, packet-switched
data transmissions within digital networks at
transmission speeds between 56 kilobits per
second and 1.544 megabits per second.
Interconnect.................. Connection of a telecommunications device or
service to the PSTN.
A-2
<PAGE>
Internet...................... An array of interconnected networks using a
common set of protocols defining the information
coding and processing requirements that can
communicate across hardware platforms and over
many links; now operated by a consortium of
telecommunications service providers and others.
Internet protocol............. The standard that defines the information unit
being passed among the host computers and
packet-switched networks that make up the
Internet. The Internet protocol provides the
basis for packet delivery on the Internet.
ISDN.......................... Integrated services digital network. A
transmission method that provides
circuit-switched access to the public network at
speeds of 64 or 128 Kilobits per second for
voice, data and video transmission.
Internet service provider..... A company that provides direct access to the
Internet.
Kilobits per second........... 1,000 bits per second.
LAN........................... A private data communications network linking a
variety of data devices, such as computer
terminals, personal computer terminals, personal
computers and microcomputer, all housed in a
defined building, plant or geographic area.
Local loop.................... That portion of the local telephone network that
connects the customer's premises to the local
exchange provider's central office or switching
center. This includes all the facilities
starting from the customer premises interface
which connects to the inside wiring and
equipment at the customer premises to a
terminating point within the switching wire
center.
Long distance carrier......... A long distance carrier providing services
between local exchanges on an intrastate or
interstate basis. A long distance carrier may
also be a long distance reseller.
Megabits per second........... Millions of bits per second.
Modem......................... An abbreviation of Modulator-demodulator. An
electronic signal-conversion device used to
convert digital signals from a computer to
analog form for transmission over the telephone
network. At the transmitting end, a modem
working as a modulator converts the computer's
digital signals into analog signals that can be
transmitted over a telephone line. At the
receiving end, another modem working as a
demodulator converts analog signals back into
digital signals and sends them to the receiving
computer.
Multiplexing.................. An electronic or optical process that combines a
large number of lower-speed transmission lines
into one high-speed line by splitting the total
available bandwidth of the high-speed line into
narrower bands, or by allotting a common channel
to several different transmitting devices.
Multiplexing devices are widely used in networks
to improve efficiency by concentrating traffic.
Multipoint.................... A circuit providing simultaneous transmission
among three or more separate points.
A-3
<PAGE>
Network....................... An integrated system composed of switching
equipment and transmission facilities designed
to provide for the direction, transport,
recording and interconnection of
telecommunications traffic.
Node.......................... An individual point of origination and
termination of two or more communications links
on a network, transported using frame relay or
similar technology.
Number portability............ The ability of end users to keep their number
when changing operators.
Packet........................ Information represented as bytes grouped
together through a communication node with a
common destination address and other attribute
information.
Point-to-point................ A circuit that connects a customer directly to a
service provider network through a dedicated
two-way link without any intervening nodes.
Point-to-multipoint........... A configuration interconnecting single
channel or circuit to multiple sites. Only
one channel may transmit at any given time,
though several channels may receive.
Private automated branch
exchange...................... A switching system within an office building
that allows calls from outside to be routed
directly to the individual instead of through
a central number. A private automated branch
exchange also allows for calling within an
office by way of four-digit extensions.
Protocol...................... A formal set of rules and conventions governing
the formatting and relative timing of message
exchange between two communicating points in a
computer system or data communications network.
Protocol transparent.......... A network that is protocol transparent is a
network that can handle voice and data
communications transmitted using traditional
Internet protocol and other technologies.
PSTN.......................... Public switched telephone network. A telephone
network which is accessible by the public
through private lines, wireless systems and pay
phones.
Resellers..................... Generally used to refer to a telecommunications
provider who does not own any switching or
transmission facilities. In reality, a large
number of providers furnish services through a
combination of owned and resold facilities.
SDH........................... Synchronous digital hierarchy. SDH is a set of
standards for optical communications
transmission systems that define optical rates
and formats, signal characteristics,
performance, management and maintenance
information to be embedded within the signals
and the multiplexing techniques to be employed
in optical communications transmission systems.
SDH facilitates the interoperability of
dissimilar vendors' equipment and benefits
customers by minimizing the equipment necessary
for telecommunications applications. SDH also
improves the reliability of the local loop
connecting customers' premises to the local
exchange provider, historically one of the
weakest links in the service delivery.
A-4
<PAGE>
Switch........................ A sophisticated computer that accepts
instructions from a caller in the form of a
telephone number. Like an address on an
envelope, the numbers tell the switch where to
route the call. The switch opens or closes
circuits or selects the paths or circuits to be
used for transmission of information. Switching
is a process of interconnecting circuits to form
a transmission path between users. Switches
allow telecommunications service providers to
connect calls directly to their destination,
while providing advanced features and recording
connection information for future billing.
Traffic....................... A generic term that includes any and all calls,
messages and data sent and received by means of
telecommunications.
WAN........................... Wide area network. A large-scale, high speed
communications network used primarily for
interconnecting local area and metro area
networks located in different cities, states or
countries.
X.25.......................... A standard protocol for transmitting data over a
packet-switched network. X.25 provides a
standard interface to packet-switched networks
and has become the most widely used interface
for WANs.
</TABLE>
A-5
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
I. COMPLETEL EUROPE N.V. (A Company in the Development Stage)
Report of Independent Public Accountants F-3
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 F-4
Consolidated Statements of Operations for the Period from Commencement of
Operations (January 8, 1998) to December 31, 1998, the Three Months
Ended June 30, 1999 (unaudited), the Three Months Ended June 30, 1998
(unaudited), the Six Months Ended June 30, 1999 (unaudited), the Period
from Commencement of Operations (January 8, 1998) to June 30, 1998
(unaudited) and for the Period from Commencement of Operations (January
8, 1998) to June 30, 1999 (unaudited) F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the Period
from Commencement of Operations (January 8, 1998) to December 31, 1998
and for the Six Months Ended June 30, 1999 (unaudited) F-6
Consolidated Statements of Cash Flows for the Period from Commencement of
Operations (January 8, 1998) to December 31, 1998, the Six Months Ended
June 30, 1999 (unaudited), the Period from Commencement of Operations
(January 8, 1998) to June 30, 1998 (unaudited) and for the Period from
Commencement of Operations (January 8, 1998) to June 30, 1999
(unaudited) F-7
Notes to Consolidated Financial Statements F-8
II. COMPLETEL LLC (A Company in the Development Stage)
Report of Independent Public Accountants F-21
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 F-22
Consolidated Statements of Operations for the Period from Commencement of
Operations (January 8, 1998) to December 31, 1998, the Three Months
Ended June 30, 1999 (unaudited), the Three Months Ended June 30, 1998
(unaudited), the Six Months Ended June 30, 1999 (unaudited), the Period
from Commencement of Operations (January 8, 1998) to June 30, 1998
and for the Period from Commencement of Operations (January 8, 1998)
to June 30, 1999 (unaudited) F-23
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
Consolidated Statements of Members' Deficit for the Period from
Commencement of Operations (January 8, 1998) to December 31, 1998 and
for the Six Months Ended June 30, 1999 (unaudited) F-24
Consolidated Statements of Cash Flows for the Period from Commencement of
Operations (January 8, 1998) to December 31, 1998, the Six Months Ended
June 30, 1999 (unaudited), the Period from Commencement of Operations
(January 8, 1998) to June 30, 1998 (unaudited) and for the Period from
Commencement of Operations (January 8, 1998) to June 30, 1999
(unaudited) F-25
Notes to Consolidated Financial Statements F-27
III. ACCES INTERNET ET SOLUTIONS S.A.R.L.
Report of Independent Public Accountants F-47
Balance Sheet as of December 31, 1998 F-48
Statement of Operations for the year ended December 31, 1998 F-49
Statement of Cash Flows for the year ended December 31, 1998 F-50
Notes to Financial Statements F-51
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CompleTel Europe N.V.:
We have audited the accompanying consolidated balance sheets of COMPLETEL
EUROPE N.V. (an N.V. registered in the Netherlands in the developmental
stage) and subsidiaries (the "Company") as of December 31, 1998 and the
related consolidated statements of operations, shareholder's equity (deficit)
and cash flows for the period from commencement of operations (January 8,
1998) to December 31, 1998 (after corporate reorganization -- see Note 1).
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CompleTel Europe N.V. and
subsidiaries as of December 31, 1998 and the results of their operations and
their cash flows for the period from the commencement of operations (January
8, 1998) to December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 20, 1999.
F-3
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of U.S. Dollars)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 84,826 $ 1,718
Receivables 5,323 527
Prepaid expenses 1,075 179
--------- ---------
Total current assets 91,224 2,424
--------- ---------
LONG-TERM ASSETS:
Property and equipment, net (Note 2) 28,261 3,371
Deferred financing costs, net 4,375 869
Licenses and other intangibles, net 3,198 950
Other assets 192 256
--------- ---------
Total long-term assets 36,026 5,446
--------- ---------
TOTAL ASSETS $ 127,250 $ 7,870
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable $ 10,752 $ 1,959
Accrued liabilities 2,350 1,453
Affiliate payables 3,315 10,470
--------- ---------
Total current liabilities 16,417 13,882
--------- ---------
LONG-TERM DEBT 74,582 --
--------- ---------
SHAREHOLDER'S EQUITY (DEFICIT):
Common shares, $.016 par value (converted from NLG .03),
105,330,800 shares authorized, 21,071,433 and 4,888,964
shares issued and outstanding 337 78
Additional paid-in capital 65,111 2,195
Deferred compensation (969) (540)
Other comprehensive loss (4,471) (160)
Deficit accumulated during the development stage (23,757) (7,585)
--------- ---------
TOTAL SHAREHOLDER'S EQUITY (DEFICIT) 36,251 (6,012)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $ 127,250 $ 7,870
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-4
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of U.S. Dollars, except share and per share amounts)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
Commencement Commencement Commencement
of of of
Operations Operations Operations
(January 8, Three Months Three Months Six Months (January 8, (January 8,
1998) to Ended Ended Ended 1998) to 1998) To
December 31, June 30, June 30, June 30, June 30, June 30,
1998 1999 1998 1999 1998 1999
------------- -------------- ------------- ----------- ------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ - $ 321 $ - $ 321 $ - $ 321
------------- -------------- ------------- ----------- ------------- --------------
OPERATING EXPENSES:
Network costs - 430 - 564 - 564
Selling, general and
administrative 4,552 6,688 601 10,599 735 15,151
Management fees to
affiliate 2,963 1,051 608 2,011 754 4,974
Depreciation and
amortization 46 285 3 423 4 469
------------- -------------- ------------- ----------- ------------- --------------
Total operating
expenses 7,561 8,454 1,212 13,597 1,493 21,158
------------- -------------- ------------- ----------- ------------- --------------
OPERATING LOSS (7,561) (8,133) (1,212) (13,276) (1,493) (20,837)
OTHER INCOME (EXPENSE)
Interest income - 1,026 - 1,587 - 1,587
Interest expense - (2,904) - (4,217) - (4,217)
Other income
(expense), net - (266) - (266) - (266)
------------- -------------- ------------- ----------- ------------- --------------
Total other income
(expense) - (2,144) - (2,896) - (2,896)
------------- -------------- ------------- ----------- ------------- --------------
NET LOSS BEFORE INCOME
TAXES (7,561) (10,277) (1,212) (16,172) (1,493) (23,733)
INCOME TAX PROVISION - - - - - -
------------- -------------- ------------- ----------- ------------- --------------
NET LOSS $ (7,561) $ (10,277) $ (1,212) $ (16,172) $ (1,493) $ (23,733)
------------- -------------- ------------- ----------- ------------- --------------
------------- -------------- ------------- ----------- ------------- --------------
BASIC AND DILUTED LOSS
PER COMMON SHARE $ (1.55) $ (0.49) $ (0.25) $ (0.89) $ (0.31) $ (2.54)
------------- -------------- ------------- ----------- ------------- --------------
------------- -------------- ------------- ----------- ------------- --------------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 4,888,964 21,071,433 4,888,964 18,174,249 4,888,964 9,350,257
------------- -------------- ------------- ----------- ------------- --------------
------------- -------------- ------------- ----------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
(A company in the Development Stage)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Stated in thousands of U.S. Dollars, except share and per share amounts)
(Information for the six months ended June 30, 1999 is unaudited)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Common Shares Additional Comprehensive During the Total
-------------------- Paid-in Deferred Income Development Comprehensive
Number Amount Capital Compensation (Loss) Stage Income (Loss) Total
---------- -------- ---------- ------------ ------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE January 8, 1998 - $ - $ - $ - $ - $ - $ - $ -
Deemed issuance of common
shares at $.016 (Converted
fromNLG .03) per share,
net of $54 subscription
receivable, January 8, 1998 4,888,964 24 - - - (24) - -
Cash contributions by Parent - - 1,464 - - - - 1,464
Payment on subscription
receivable on December 14,
1998 - 54 - - - - - 54
Deemed contributions by Parent
related to allocation of
non-cash compensation
charges - - 731 (604) - - - 127
Amortization of deferred
compensation - - - 64 - - - 64
Commutative translation
adjustment - - - - (160) - (160) (160)
Net loss - - - - - (7,561) (7,561) (7,561)
---------- -------- ---------- ------------ ------------- ----------- ------------- --------
BALANCE December 31, 1998 4,888,964 $ 78 $ 2,195 $ (540) $ (160) $ (7,585) $ (7,721) $ (6,012)
-------------
-------------
Issuance of common shares in
connection with corporate
reorganization 14,666,891 235 57,810 - - - - 58,045
Issuance of common shares in
connection with the Units
Offering 1,515,578 24 4,454 - - - - 4,478
Deemed contribution by Parent
related to allocation of
non-cash compensation
charges - - 652 (652) - - - -
Amortization of deferred
compensation - - - 223 - - - 223
Cumulative translation
adjustment - - - - (4,311) - (4,311) (4,311)
Net loss - - - - - (16,172) (16,172) (16,172)
---------- -------- ---------- ------------ ------------- ----------- ------------- --------
BALANCE, June 30, 1999 21,071,433 $ 337 $ 65,111 $ (969) $ (4,471) $ (23,757) $ (20,483) $ 36,251
(unaudited)
---------- -------- ---------- ------------ ------------- ----------- ------------- --------
---------- -------- ---------- ------------ ------------- ----------- ------------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. Dollars)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
Commencement Commencement Commencement
of Operations Six of Operations of Operations
(January 8, Months (January 8, (January 8,
1998) to Ended 1998) to 1998) to
December 31, June 30, June 30, June 30,
1998 1999 1998 1999
-------------- ------------ -------------- --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (7,561) $ (16,172) $(1,493) $ (23,733)
Adjustments to reconcile net loss to
cash used by operating activities-
Depreciation and amortization 46 423 4 469
Non-cash compensation expense 191 223 137 414
Accretion of senior notes - 4,051 - 4,051
Amortization of deferred
financing costs - 166 - 166
Changes in assets and liabilities-
Increase in receivables (527) (5,084) (63) (5,650)
Increase in prepaid expenses (179) (951) (95) (1,136)
Decrease (increase) in
other assets (256) 39 (28) (202)
Increase in trade accounts
payable 1,959 9,490 86 11,480
Increase (decrease) in
accrued liabilities 1,453 1,087 2,509 2,478
Increase (decrease) in
affiliate payables 10,470 (6,603) 65 3,372
-------------- ------------ -------------- --------------
Net cash provided by (used by)
operating activities 5,596 (13,331) 1,122 (8,291)
-------------- ------------ -------------- --------------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,418) (26,949) (308) (30,619)
Purchase of licenses and other intangibles (950) (2,543) (273) (3,481)
Offering proceeds and investment
earnings placed in escrow - (73,198) - (73,198)
Proceeds from escrowed offering and
investment earnings - 73,198 - 73,198
-------------- ------------ -------------- --------------
Net cash used by investing
activities (4,368) (29,492) (581) (34,100)
-------------- ------------ -------------- --------------
FINANCING ACTIVITIES:
Gross proceeds from senior notes - 72,572 - 72,572
Proceeds from issuance of common shares
and subsequent capital contributions 1,518 62,523 64 64,041
Deferred financing costs (869) (3,672) - (4,541)
-------------- ------------ -------------- --------------
Net cash provided by financing
activities 649 131,423 64 132,072
-------------- ------------ -------------- --------------
Effect of exchange rates on cash (159) (5,492) - (4,855)
-------------- ------------ -------------- --------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 1,718 83,108 605 84,826
CASH AND CASH EQUIVALENTS,
beginning of period - 1,718 - -
-------------- ------------ -------------- --------------
CASH AND CASH EQUIVALENTS,
end of period $ 1,718 $ 84,826 $ 605 $ 84,826
-------------- ------------ -------------- --------------
-------------- ------------ -------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31,
1998 (Information as of, and for the three and six months ended
June 30, 1999 is unaudited)
(After Corporate Reorganization - See Note 1)
(1) ORGANIZATION AND NATURE OF OPERATIONS
CompleTel Europe N.V. ("CompleTel Europe") (together with its wholly-owned
subsidiaries, the "Company") is a Dutch holding company formed on December
14, 1998 for the purpose of completing a Rule 144A offering (the "Offering")
(see Note 4) to finance its planned operations.
The Company has a strategic objective of becoming a leading facilities-based
operator of a technologically advanced, high-bandwidth, fiber optic
communications infrastructure and provider of telecommunications and related
services to business and government end-users, carriers and Internet service
providers in targeted metropolitan areas across Western Europe. A
facilities-based operator uses mainly its own telecommunications facilities
to provide service, in contrast with non-facilities-based resellers who
purchase the services of other providers and then retail the services to
customers. Initially, The Company is focusing on building high bandwidth
fiber optic networks in France and Germany. Additionally the Company intends
to provide Internet access services in France, Germany and the United Kingdom
("UK"). CompleTel Europe is an indirect majority owned subsidiary of
CompleTel LLC ("Parent"), a Delaware limited liability company. An indirect
7% interest in CompleTel Europe was acquired by purchasers of units in the
Offering (see Note 4). CompleTel LLC was known as CableTel Delaware LLC
("CableTel Delaware") from its formation on January 8, 1998 through May 18,
1998, when it was reorganized and renamed as CableTel Europe LLC in
connection with the admission of a new member. Effective August 20, 1998,
CableTel Europe LLC changed its name to CompleTel LLC.
As of December 31, 1998, Parent's other direct and indirect wholly-owned
subsidiaries consisted of CableTel Management Inc. ("Management Co."),
CompleTel Holding I B.V. ("BVI"), CompleTel Holding II B.V. ("BVII"), its
French operating subsidiary, CompleTel SAS ("CompleTel France") (formerly
known as CompleTel S.A.R.L.), its UK operating subsidiary, CompleTel UK
Limited ("CompleTel UK"), and its German operating subsidiary, CompleTel GmbH
("CompleTel Germany"). As of December 31, 1998, Parent's operating companies
were held indirectly through BVI and BVII. CompleTel Europe had no material
assets or operations as of December 31, 1998.
In January 1999, Parent formed CompleTel Holdings LLC ("CompleTel Holdings"),
CompleTel ECC B.V. ("CompleTel ECC"), CompleTel N.A. (N.V.) ("NANV") and
CompleTel UK SPC ("CompleTel SPC"). CompleTel Holdings was formed to issue
the equity component of the Offering (see Note 4). CompleTel ECC was formed
to be the group's European corporate center and to hold the proceeds of the
Offering, through an escrow account, until the Company received aggregate
financing commitments of at least $90 million (see Note 4). Through a series
of transactions in the restructuring, CompleTel LLC contributed
F-8
<PAGE>
approximately $58 million of equity, consisting of cash of approximately $52
million and accounts receivable of approximately $6 million, to CompleTel
France through CompleTel SPC. Also, through a series of restructuring
transactions, CompleTel SPC became a wholly-owned subsidiary of BVI, BVI was
contributed to CompleTel Europe in exchange for the issuance of 14,666,891
additional common shares and CompleTel Europe became a wholly-owned
subsidiary of NANV. Furthermore, CompleTel LLC contributed its 100% interest
in NANV to CompleTel Holdings in exchange for all 19,596,429 Class A
Membership Interests in CompleTel Holdings. The Non-Voting Class B Membership
Interests (aggregating 1,475,000) in CompleTel Holdings were issued
substantially to unrelated parties in connection with the Offering (Note 4).
In connection with this issuance by CompleTel Holdings of its Non-Voting
Class B Membership Interests, CompleTel Europe issued 1,515,578 additional
common shares to NANV and NANV issued additional common shares to CompleTel
Holdings in consideration of a cash contribution to CompleTel Europe totaling
approximately $4.5 million. The corporate reorganization has been accounted
for as a reorganization of entities under common control, similar to a
pooling of interests. Accordingly, the accompanying financial statements
retroactively reflect the new corporate organizational structure of CompleTel
Europe as if CompleTel Europe had been formed as of January 8, 1998. The
formation is reflected through a deemed issuance, on January 8, 1998, of
4,888,964 shares of CompleTel Europe in exchange for a subscription
receivable from Parent of approximately $54,000, which was paid on December
14, 1998. Furthermore, the accompanying consolidated financial statements
have been prepared as though CompleTel Europe had performed all competitive
local exchange carrier ("CLEC") related development activities in Western
Europe since the inception of Parent. The accompanying consolidated financial
statements of CompleTel Europe include its direct and indirect wholly-owned
subsidiaries consisting of BVI, BVII, CompleTel France, CompleTel Germany,
CompleTel UK, CompleTel ECC and CompleTel SPC.
The Company is in the development stage and since commencement of operations
(January 8, 1998), the Company has incurred net losses totaling approximately
$23.7 million as of June 30, 1998. CompleTel Europe's subsidiaries have been
principally engaged in developing its business plans, applying for and
procuring regulatory and government authorizations, raising capital, hiring
management and other key personnel, working on the design and development of
the Company's fiber optic networks and operation support systems ("OSS"),
negotiating equipment and facilities agreements, and negotiating
interconnection agreements and certain right-of-way agreements. As a result
of its development stage activities, the Company has experienced significant
operating losses and negative cash flows from operations. The Company expects
to continue to generate negative cash flows from operations in each market
while it emphasizes development, construction, and expansion of its business
and until the Company establishes a sufficient revenue generating customer
base in that market. The Company also expects to experience increasing
operating losses and negative cash flows from operations as it expands its
operations and enters new markets, even if and after it achieves positive
cash flow from operations in its initial markets.
The Company's ultimate success will be affected by the problems, expenses and
delays encountered in connection with the formation of any new business and
by the competitive environment in which the Company intends to operate.
Initially, the Company plans to deploy networks in four metropolitan markets
in France (Paris, Lyon, Lille and Marseilles), and in one market in Germany.
The Company's performance will further be affected by its ability to obtain
licenses, properly assess potential markets, secure financing or raise
additional capital, design networks, acquire right-of-way and building access
rights, implement interconnection with incumbent public telecommunications
operators ("PTOs"), lease adequate trunking capacity from PTOs, purchase and
install switches in additional markets, implement efficient OSS and other
back office systems, develop a sufficient customer base, and attract, retain
and motivate qualified personnel. Delays or failure in receiving required
regulatory approvals or the enactment of new adverse regulations or
regulatory requirements may have a material adverse effect upon the Company.
Although management believes that the Company will be able to successfully
mitigate these risks, there is no assurance that the Company will be able to
do so or that the Company will ever operate profitably.
F-9
<PAGE>
The actual amount and timing of the Company's future capital requirements may
differ materially from the Company's current estimates, and additional
financing may be required in the event of departures from the Company's
business plans and projections, including those caused by unforeseen delays,
cost overruns, engineering design changes, demand for the Company's services
that varies from that expected by the Company, and adverse regulatory,
technological or competitive developments. The Company may also require
additional capital (or require financing sooner than anticipated) if it
alters the schedule or targets of its roll-out plan in response to
regulatory, technological or competitive developments (including additional
market developments and new opportunities in and outside of its target
markets). The Company intends to evaluate potential joint ventures, strategic
alliances, and acquisition opportunities on an ongoing basis as they arise,
and the Company may require additional financing if it elects to pursue any
such opportunities. The Company also will be required to seek additional
financing if it elects to deploy networks in other Western European markets
beyond its target markets. Sources of additional financing may include
commercial bank borrowings, vendor financing and/or the private or public
sale of equity or debt securities. There can be no assurance that the Company
will be able to fund its network deployment and operations in any or all of
its initial markets to the point of operating profitably with its currently
anticipated capital resources, and there can be no assurance that any
additional financing will be available on terms acceptable to the Company or
at all.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of June 30,
1999, the three months ended June 30, 1999 and 1998, the six months ended
June 30, 1999, and for the periods from commencement of operations (January
8, 1998) to June 30, 1999 and 1998, have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information and are in the form prescribed by the Securities and
Exchange Commission. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates. The Company has adopted a calendar fiscal
year.
STOCK SPLIT
In April 1999, the Company executed a stock-split through which its 431
shares then outstanding were converted into 21,071,433 shares of the
Company's common stock. Additionally, the Company increased its authorized
shares of common stock to 105,330,800. This stock-split has been
retroactively reflected in the accompanying consolidated financial statements
for all periods.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
CompleTel Europe and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
F-10
<PAGE>
For purposes of reporting cash flows, the Company considers all marketable
securities and commercial paper with maturities of ninety days or less at
acquisition as cash equivalents.
PREPAID EXPENSES
Prepaid expenses consist of prepaid rent and prepaid insurance. Prepayments
are amortized on a straight-line basis over the life of the underlying
agreements.
PROPERTY AND EQUIPMENT
Property and equipment includes network equipment, office furniture and
equipment, computer equipment and software, leasehold improvements and
construction in progress. These assets are stated at cost and are being
depreciated over the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life
--------------
<S> <C>
Network equipment 3 to 8 years
Office furniture and equipment 5 years
Computer equipment and software 3 to 5 years
Leasehold improvements 9 to 12 years
</TABLE>
Network equipment, office furniture and equipment, leasehold improvements and
computer software are depreciated using the straight-line method. Computer
equipment is depreciated using an accelerated depreciation method.
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30 December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Network equipment $17,860 $ ----
Office furniture and equipment 762 129
Computer equipment and software 1,845 608
Leasehold improvements 525 24
------------- -------------
Property and equipment, in service 20,992 761
Less: accumulated depreciation (386) (46)
------------- -------------
Property and equipment, in service, net 20,606 715
Construction in progress 7,655 2,656
------------- -------------
Property and equipment, net $28,261 $3,371
------------- -------------
------------- -------------
</TABLE>
COMPUTER SOFTWARE COSTS
F-11
<PAGE>
The American Institute of Public Accountants ("AICPA") recently issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer
software is for internal use. SOP 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998, for projects in progress
and prospectively, with earlier application encouraged. This statement was
adopted at commencement of operations.
START-UP COSTS
The Company expenses all start-up and organization costs as incurred, in
accordance with the provisions of recently issued AICPA Statement of Position
98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5").
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and will be amortized over the
life of the related debt facility using the effective interest method.
LICENSE COSTS
The Company capitalizes all third-party direct costs associated with
obtaining licenses. Capitalized license costs are amortized over the lives of
the related licenses, ranging from 15 to 25 years.
RECOVERABILITY OF LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets whenever
events or circumstances indicate the carrying value of assets may exceed
their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the
asset. If an asset which is expected to be held and used is determined to be
impaired, then the asset would be written down to its fair market value based
on the present value of the discounted cash flows related to such asset.
Measurement of an impairment loss for an asset held for sale would be based
on its fair market value less the estimated costs to sell.
STOCK-BASED COMPENSATION
The Company's Parent accounts for stock-based compensation to employees using
the intrinsic value method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Such non-cash
compensation is pushed down from Parent to the Company as a deemed capital
contribution.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial statement and income tax basis of assets, liabilities
and carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse or the carryforwards are expected to be
utilized. Net deferred tax assets are then reduced by a valuation allowance
if management believes it is more likely than not they will not be realized.
F-12
<PAGE>
COMPREHENSIVE LOSS
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130") requires that an enterprise (i) classify items of other
comprehensive income by their nature in the financial statements and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
balance sheet. The Company's other comprehensive loss, as set forth in the
accompanying consolidated statement of shareholder's deficit, includes
cumulative translation adjustments.
BASIC AND DILUTED LOSS PER SHARE
The Company computes earnings (loss) per share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
Under SFAS 128, "Basic earnings (loss) per share" is determined by dividing
net income (loss) by the weighted-average number of common shares outstanding
during each period. "Diluted earnings (loss) per share" includes the effects
of potentially issuable common shares, but only if dilutive. Because the
Company had no potentially issuable shares for the six months ended June 30,
1999, or for the year ended December 31, 1998, and because any such shares
would be antidilutive, there are no differences between basic and diluted
loss per common share for the Company. The weighted average common shares
outstanding for the period assumes the initial capitalization of the Company
(4,888,964 common shares) occurred as of January 8, 1998.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
The functional currency for the Company's international operations is the
applicable local currency for the affiliate company. Assets and liabilities
of foreign subsidiaries for which the functional currency is the local
currency are translated at exchange rates in effect at period-end, and the
statements of operations are translated at the average exchange rates during
the period. Exchange rate fluctuations on translating foreign currency
financial statements into U.S. dollars that result in unrealized gains or
losses are referred to as translation adjustments. Cumulative translation
adjustments are recorded as a separate component of shareholders' deficit.
Transactions denominated in currencies other than the local functional
currency of the Company's operating subsidiaries, including U.S. dollar
denominated intercompany accounts and notes payable to Parent and Management
Co., are recorded based on exchange rates at the time such transactions
arise. Subsequent changes in exchange rates result in transaction gains and
losses which are reflected in income as unrealized (based on period-end
translations) or realized upon settlement of the transactions.
The Company's international subsidiaries can have payables that are
denominated in a currency other than their own functional currency. The
Company has not historically hedged foreign currency denominated transactions
for receivables or payables related to current operations. The terms of the
Senior Credit Facility commitment (see Note 4) would require the Company to
enter into and maintain hedging arrangements in an attempt to reduce its
exposure to currency fluctuations with respect to the dollar denominated
Notes issued in the Offering (see Note 4); however, there can be no assurance
that any such hedging transactions would be successful and that the exchange
rate fluctuations would not have a material adverse effect on the Company.
Accordingly, the Company may experience economic loss and a negative impact
on earnings and equity with respect to its holdings solely as a result of
foreign currency exchange rate fluctuations, which include foreign currency
devaluation against the dollar.
The functional currency of the Company's subsidiaries could change in the
future, depending on the denomination of certain planned financing
transactions and the nature of subsequent investment and operating activities.
F-13
<PAGE>
NEW ACCOUNTING STANDARD
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments,
including certain instruments embedded in other contracts, and for hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. It
also specifies the accounting for changes in the fair value of a derivative
instrument depending on the intended use of the instrument and whether (and
how) it is designated as a hedge. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Subsequent to April
20, 1999 (date of Auditors' Report), the Financial Accounting Standards Board
issued SFAS 137 which delayed the effective date of SFAS No. 133 until all
fiscal quarters of fiscal years beginning after June 15, 2000. Through June
30, 1999, the Company had not entered into any transactions involving
derivative financial instruments and, therefore, cannot predict the financial
statement impact of adopting SFAS 133 with respect to transactions which have
not yet been entered into.
(3) RELATED PARTY TRANSACTIONS
RIGHTS OF PARENT'S UNITHOLDERS
If a Qualified Public Offering or Sale of Parent, as defined in the Equity
Purchase Agreement between Parent and certain of its unitholders, has not
occurred by May 18, 2005, each holder of Parent's Preferred Units or Common
Units issued or issuable upon conversion of the Preferred Units ("Purchaser
Securities") will have the right to require Parent to take all actions
necessary to purchase the Purchaser Securities held by such holder for fair
market value (or, in the case of Preferred Units to be repurchased, the
greater of fair market value and the Liquidation Value (together with all
accrued but unpaid preferred yield) of such Preferred Units). Fair market
value is defined as the amount agreed to by the holders of the Preferred
Units to be repurchased and the holders of Parent's Common Units, excluding
Unvested Performance Units. If mutual agreement can not be reached within
twenty days of the issuance of the repurchase notice, the fair market value
for (a) publicly traded securities generally means the average of the closing
prices of such securities for the 21 day period preceding the filing of the
repurchase notice and (b) non-publicly traded securities a valuation
determined by an appraisal mechanism. In the event the repurchase options are
exercised, Parent is obligated to do everything within its power to satisfy
its repurchase obligations, which may involve the sale of some or all of its
subsidiaries, or a portion or all of its assets. The Indenture related to the
Offering limits the ability of the Company to pay dividends or take certain
other actions that may be necessary to effectuate the repurchase of any such
securities.
MANAGEMENT AGREEMENT
During 1998, Parent and CableTel Management Inc. (dba CompleTel), a Colorado
corporation ("Management Co."), executed a management services agreement (as
amended, the "Management Agreement"), pursuant to which Management Co.
performs certain services for Parent and Parent's direct and indirect
subsidiaries, including CompleTel Europe. The Management Agreement provides
for reimbursement in an amount of 105% (103% prior to January 30, 1999) of
all costs, expenses, charges and disbursements incurred by Management Co. in
the performance of the Management Agreement. These items incurred by
Management Co. consist primarily of executive management salaries and
benefits, occupancy costs and professional fees and are allocated 80% to
CompleTel Europe based upon an estimate of the percentage of such items that
are attributable to the operations of CompleTel Europe. Management believes
that the allocation method is reasonable and that such costs are
representative of the costs which would have been incurred by CompleTel
Europe on a stand-alone basis without any support from Parent. Through
December 31, 1998 and June 30, 1999, the Company recorded approximately $3
million and $5 million, respectively for billings under the Management
Agreement.
F-14
<PAGE>
(4) INDEBTEDNESS
In February 1999, the Company completed an Offering of 147,500 units (the
"Units") consisting of $147.5 million aggregate principal amount of 14%
Senior Discount Notes due 2009 (the "Notes") issued by CompleTel Europe and
1,475,000 non-voting Class B Membership Interests of CompleTel Holdings.
CompleTel Europe issued the Notes at a substantial discount from their
principal amount at maturity on February 16, 2009. A principal investor in
Parent acquired 400 Units in the offering. The proceeds of the Offering, net
of offering fees and costs, were approximately $70.5 million and were held in
an escrow account until CompleTel Europe received a minimum commitment of $90
million in senior credit facilities, which was received in April 1999. To
comply with Netherlands laws, the Notes are guaranteed by Parent on a senior
unsecured basis. As Parent is a holding company with no operations other than
the operations to be conducted by CompleTel Europe and its subsidiaries, it
is unlikely that Parent would have sufficient funds to satisfy CompleTel
Europe's obligations on the Notes if CompleTel Europe is unable to satisfy
its own obligation on the Notes. Of the $75 million gross proceeds from the
Offering, approximately $70.5 million was attributed to the Notes and
approximately $4.5 million was attributed to the 1,475,000 Class B Membership
Interests of CompleTel Holdings. The $4.5 million allocated to the Class B
Membership Interests represents additional discount on the Notes.
Cash interest will not accrue on the Notes prior to February 15, 2004.
Commencing February 15, 2004, interest on the Notes will accrue at 14% per
annum and will be payable in cash on August 15 and February 15 of each year.
The effective interest rate on the Notes is approximately 15.1%, including
amortization of the discount and the deferred financing costs.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
14% Senior Discount Notes, face amount $147.5 million,
due 2009, effective interest rate of 15.1% $74,582 $ -
------------- ------------
------------- ------------
</TABLE>
BANK FINANCING COMMITMENT
The Company's French subsidiaries, CompleTel SAS and CompleTel Services SAS
(the "Borrowers"), have received commitments for senior secured credit
facilities (the "Facilities") of $90 million from Paribas and from Nortel
Networks ("Nortel") to finance the Company's deployment of its networks in
France. The terms of the Facilities provide that the borrowings of up to the
first $20 million will be provided solely by the Nortel senior secured credit
facility. Additional borrowings from Paribas under the Paribas senior credit
facility (the "Paribas Facility") and other lenders (the "Senior Lenders")
would first be used to retire indebtedness from Nortel, who would lend up to
$20 million as part of the Paribas Facility, along with the other Senior
Lenders. The Paribas Facility is comprised of two Tranches. Borrowings under
Tranche A would be available through March 31, 2002, and subject to a maximum
of $80 million. On March 31, 2002, this revolving credit facility would
convert to a term loan facility, payable quarterly, in increasing increments
commencing December 31, 2002. Borrowings under Tranche B would be subject to
an initial maximum amount of $10 million, with the available commitment
decreasing quarterly commencing with the fourth quarter of 2002. The Paribas
Facility would mature on December 31, 2006 and would bear interest at the
rate of LIBOR plus a margin ranging from 1.25% to 3.50% based upon the
Company's ratio of total debt to annualized earnings before interest, taxes,
depreciation and amortization ("EBITDA"). The company is in discussion with
Paribas and Nortel to expand this facility up to $140 million.
F-15
<PAGE>
The final implementation of the Facilities remains subject to the
satisfaction of a number of conditions, including preparation of definitive
documentation, obtaining all regulatory approvals and completion of due
diligence. In addition, the availability of credit under the Facilities would
be contingent on a number of conditions precedent, including the Borrowers
achieving a minimum number of business access lines in service and maximum
ratios of senior debt to the number of access lines in service. The Paribas
Facility would be secured by all of the Borrowers' assets as well as a pledge
of the stock of the Borrowers and assignment of inter-affiliate loans and all
licenses and material contracts.
(5) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into various operating lease agreements for office
space and employee residences. Future minimum lease obligations related to
the Company's operating leases are as follows for the 12-month periods
subsequent to June 30, 1999 and December 31, 1998, respectively (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
June 30, 2000 and December 31, 1999 $ 944 $ 855
June 30, 2001 and December 31, 2000 1,058 966
June 30, 2002 and December 31, 2001 1,058 974
June 30, 2003 and December 31, 2002 963 955
June 30, 2004 and December 31, 2003 929 948
Thereafter 4,549 4,975
------------- ------------
Total $ 9,501 $ 9,673
------------- ------------
------------- ------------
</TABLE>
Total rent expense for the period from commencement of operations (January 8,
1998) through December 31, 1998 was approximately $120,000 and for the six
months ended June 30, 1999 was approximately $574,000.
MANAGEMENT EMPLOYMENT AGREEMENTS
Certain employees of Management Co. that have been seconded to CompleTel
Europe's subsidiaries are parties to employment agreements. The agreements
generally provide for a specified base salary, as well as a bonus set as a
specified percentage of the base salary. The bonus is based on attainment of
certain identified performance measures. The employment agreements generally
provide for cost of living differentials, relocation and moving expenses,
automobile allowances and income tax equalization payments, if necessary, to
keep the employee's tax liability the same as it would be in the United
States.
FRENCH SERVICE LICENSE
On December 13, 1998 the Secretaire d'Etat a l'Industrie ("the Ministry"),
based on the recommendation of the Autorite de Regulation des
Telecommunications ("ART"), awarded the Company an L.33-1 fixed wireline
license and an L.34-1 service license for network deployment and the
provision of services in 10 regions in France that the Company intends to
target. The Company's business plan forming the basis for the issuance of the
French licenses contemplates the Company's deploying networks in 16 French
markets and raising sufficient financing to fund such deployment. The amount
of the proceeds from the Offering and the funds
F-16
<PAGE>
available under the Senior Credit Facility (see Note 4) are less than the
amount of financing required for the Company to deploy and operate networks
in all of the markets contemplated by this business plan, and the Company
intends to continue to seek additional financing in order to fund its
business plan beyond deployment of networks in its initial target markets.
The Company has been advised that this does not, by itself, constitute a
violation of CompleTel France's requirements under the French licenses.
However, the ART may take this into account, together with any other relevant
items, when assessing whether there exists a material adverse variation to
the financial and/or technical capacity of CompleTel France. If and to the
extent that the ART were to determine that the Company has materially and
adversely deviated from its business plan or that the Company lacks the
financial capacity to implement this plan, the ART could seek to modify or
revoke the licenses in whole or in part.
(6) INCOME TAXES
NETHERLANDS
In general, a Dutch holding company may benefit from the so-called
"participation exemption." The participation exemption is a facility in Dutch
corporate tax law which allows a Dutch company to exempt from Dutch income
tax any dividend income and capital gains in relation to its participation in
subsidiaries which are legal entities residing in a foreign country. Capital
losses are also exempted, apart from liquidation losses (under stringent
conditions). Any costs in relation to participations, to the extent these
participations do not realize Dutch taxable profit are not deductible. These
costs include costs to finance such participation.
For Dutch income tax purposes, net operating loss ("NOL") carryforwards may
be carried forward indefinitely.
FRANCE
The majority of the Company's approximately $3.7 million of NOL carryforwards
for income tax purposes at December 31, 1998, were generated by CompleTel
France. For French income tax purposes NOL carryforwards may generally be
carried forward for a period of up to five years. Start-up costs will be
capitalized for French tax purposes. The Company considers the majority of
these costs as eligible for the deferred depreciation regime for French tax
purposes, resulting in an indefinite carryforward life of the corresponding
amortization expense. The Company has recorded a valuation allowance equal to
the net deferred tax assets December 31, 1998, due to the uncertainty of
future operating results. The valuation allowance will be reduced at such
time as management believes it is more likely than not that the net deferred
tax assets will be realized. Any reductions in the valuation allowance will
reduce future provisions for income tax expense.
The difference between income tax expense provided in the consolidated
financial statements and the expected income tax benefit at statutory rates
related to the Company's corporate and foreign subsidiary operations for the
period from commencement of operations (January 8, 1998) to December 31,
1998, is reconciled as follows:
<TABLE>
<CAPTION>
Commencement
of Operations
(January 8, 1998)
to December 31,
1998
-----------------
<S> <C>
Expected income tax benefit at the
applicable statutory rate of 33.33% $ 2,520
Non-deductible expenses (64)
</TABLE>
F-17
<PAGE>
<TABLE>
<S> <C>
Valuation allowance (2,456)
-----------------
Total income tax benefit $ -
-----------------
-----------------
</TABLE>
Deferred tax assets at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
December 31,
1998
-----------------
<S> <C>
Deferred tax assets-
Operating loss carryforwards $ 1,205
Capitalized start-up costs 1,214
Net unrealized foreign exchange gain 20
Deferred depreciation 16
Other 1
-----------------
Total deferred tax assets 2,456
Less valuation allowance (2,456)
-----------------
Net deferred taxes $ -
-----------------
-----------------
</TABLE>
(7) SEGMENT REPORTING
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
The Company is currently in the development stage. Through June 30, 1999, the
significant portion of the Company's expenditures were associated with its
network deployment in France. The Company expects to incur significant costs
associated as it expands its network deployment efforts into Germany. The
Company is not deploying networks in the UK and, as a result, development
costs in the UK are minimal.
Management currently evaluates the Company's development efforts according to
the geographic location of its markets. Certain financial information
reflecting the Company's development efforts is presented below. Results for
Germany and the UK are included in "corporate and other" since the results of
those markets are not significant to the consolidated financial statements:
F-18
<PAGE>
As of and for the period from inception (January 8, 1998) to December 31,
1998 (In thousands):
<TABLE>
<CAPTION>
Corporate
France and Other Consolidated
--------- ------------ --------------
<S> <C> <C> <C>
Revenue $ - $ - $ -
Depreciation $ 46 $ - $ 46
Management Fee Expense $ (2,661) $ (302) $ (2,963)
Net Loss $ (5,949) $ (1,612) $ (7,561)
Total Assets $ 6,180 $ 1,690 $ 7,870
Expenditures for Long-lived Assets $ 3,647 $ 721 $ 4,368
</TABLE>
As of and for the six months ended June 30, 1999 (In thousands):
<TABLE>
<CAPTION>
Corporate
France and Other Consolidated
--------- ------------ --------------
<S> <C> <C> <C>
Revenue $ 281 $ 40 $ 321
Depreciation and Amortization $ 326 $ 97 $ 423
Management Fee Expense $ (1,609) $ (402) $ (2,011)
Net Loss $ (9,548) $ (5,934) $ (16,172)
Total Assets $ 51,752 $ 75,498 $ 127,250
Expenditures for Long-lived Assets $ 25,745 $ 3,747 $ 29,492
</TABLE>
As of and for the three months ended June 30, 1999 (In thousands):
<TABLE>
<CAPTION>
Corporate
France and Other Consolidated
--------- ------------ --------------
<S> <C> <C> <C>
Revenue $ 281 $ 40 $ 321
Depreciation and Amortization $ 184 $ 101 $ 285
Management Fee Expense $ (841) $ (210) $ (1,051)
Net Loss $ (5,418) $ (4,859) $ (10,277)
Total Assets $ 51,752 $ 75,498 $ 127,250
Expenditures for Long-lived Assets $ 15,690 $ 792 $ 16,482
</TABLE>
(8) SUBSEQUENT EVENT
ASI ACQUISITION
On March 24, 1999, CompleTel SAS acquired all of the outstanding stock of
Acces Internet et Solutions ("ASI"), an Internet service provider based in
Lyon, for approximately $2.1 million in cash. The transaction was recorded
under the purchase method of accounting as of March 31, 1999. The purchase
price was first allocated to the fair value of the net tangible assets
acquired of $73,000, which is classified as property and equipment in the
accompanying balance sheet. The resulting excess cost over the fair value of
tangible net assets acquired, or goodwill, was recorded in the amount of
approximately $2.0 million and is being amortized under the straight-line
method over a ten year period. The goodwill is classified as other
intangibles in the accompanying balance sheet.
The following unaudited pro forma condensed consolidated operating results
for the period from commencement of operations (January 8, 1998) to December
31, 1998, and for the six months ended June 30, 1999, reflect the pro forma
effects of the ASI acquisition as if the acquisition occurred on January 8,
1998. For purposes of the pro forma condensed consolidated operating results,
the acquisition is assumed to have been financed through an equity
contribution from Parent.
The unaudited pro forma condensed consolidated operating results are based on
the historical consolidated financial statements of the Company and ASI,
giving effect to certain assumptions and adjustments that
F-19
<PAGE>
management believes are reasonable based upon currently available
information. This pro forma condensed consolidated financial data is
presented for illustrative purposes and does not purport to represent what
the Company's results of operations would actually have been if the
acquisition had been consummated as of January 8, 1998.
<TABLE>
<CAPTION>
For the Period from
Commencement of Operations
(January 8, 1998) to For the Six Months Ended
December 31, 1998 June 30, 1999
Historical Pro Forma Historical Pro Forma
------------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ - 1,020 $ 321 $ 578
------------ -------------- ---------------
------------ -------------- ---------------
Net Loss $ (7,561) $ (7,699) $ (16,172) $ (16,269)
------------- ------------ -------------- ---------------
------------- ------------ -------------- ---------------
Basic and diluted loss per share $ (1.55) $ (1.57) $ (0.89) $ (0.90)
------------- ------------ -------------- ---------------
------------- ------------ -------------- ---------------
Weighted average number of
common shares outstanding 4,888,964 4,888,964 18,174,249 18,174,249
------------- ------------ -------------- ---------------
------------- ------------ -------------- ---------------
</TABLE>
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CompleTel LLC:
We have audited the accompanying consolidated balance sheets of COMPLETEL LLC
(a Delaware limited liability company in the development stage) and
subsidiaries (the "Company") as of December 31, 1998 (after corporate
reorganization -- see Note 1) and the related consolidated statements of
operations, members' deficit and cash flows for the period from commencement
of operations (January 8, 1998) to December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CompleTel LLC and
subsidiaries as of December 31, 1998 and the results of their operations and
their cash flows for the period from commencement of operations (January 8,
1998) to December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
April 20, 1999.
F-21
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of U.S. Dollars)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
--------------- --------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 87,116 $ 3,744
Receivables 5,323 537
Prepaid expenses 1,205 214
--------------- --------------
Total current assets 93,644 4,495
--------------- --------------
LONG-TERM ASSETS:
Property and equipment, net (Note 2) 28,352 3,441
Deferred financing costs 4,375 869
Licenses and other intangibles 3,198 950
Other assets 149 287
--------------- --------------
Total long-term assets 36,074 5,547
--------------- --------------
TOTAL ASSETS $ 129,718 $ 10,042
--------------- --------------
--------------- --------------
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Trade accounts payable 10,760 $ 1,964
Accrued liabilities 4,111 3,308
--------------- --------------
Total current liabilities 14,871 5,272
--------------- --------------
LONG-TERM DEBT 74,582 -
--------------- --------------
MINORITY INTEREST 3,070 -
--------------- --------------
REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED UNITS:
No par value, 65,750 and 61,950 units authorized, issued and
outstanding, respectively 68,407 13,188
--------------- --------------
MEMBERS' DEFICIT:
Common units, no par value, 107,500 units authorized, 2,087 737
17,103 and 16,385 units issued and outstanding, respectively
Deferred compensation (969) (540)
Other comprehensive loss (6,099) (160)
Deficit accumulated during the development stage (26,231) (8,455)
--------------- --------------
TOTAL MEMBERS' DEFICIT (31,212) (8,418)
--------------- --------------
TOTAL LIABILITIES AND MEMBERS' DEFICIT $ 129,718 $ 10,042
--------------- --------------
--------------- --------------
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-22
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of U.S. Dollars, except unit and per unit amounts)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
Commencement Commencement Commencement
of of of
Operations Six Operations Operations
(Jan. 8, Three Months Ended Months (Jan. 8, (Jan. 8,
1998) to Ended 1998) to 1998) to
Dec. 31, June 30, June 30, June 30, June 30, June 30,
1998 1999 1998 1999 1998 1999
------------ ---------- ----------- ----------- ------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ -- $ 321 $ -- $ 321 $ -- $ 321
------------ ---------- ----------- ----------- ------------- ------------
OPERATING EXPENSES:
Network costs -- 430 -- 564 -- 564
Selling, general and 8,044 7,783 1,492 12,618 2,059 20,662
administrative
Depreciation and amortization 59 294 7 439 8 498
------------ ---------- ----------- ----------- ------------- ------------
Total operating expenses 8,103 8,507 1,499 13,621 2,067 21,724
------------ ---------- ----------- ----------- ------------- ------------
OPERATING LOSS (8,103) (8,186) (1,499) (13,300) (2,067) (21,403)
OTHER INCOME (EXPENSE)
Interest income 11 1,030 -- 1,591 -- 1,602
Interest expense -- (2,915) -- (4,217) -- (4,217)
Other income (expense), net -- (266) -- (266) -- (266)
------------ ---------- ----------- ----------- ------------- ------------
Total other income
(expense) 11 (2,151) -- (2,892) -- (2,881)
------------ ---------- ----------- ----------- ------------- ------------
NET LOSS BEFORE MINORITY INTEREST
(8,092) (10,337) (1,499) (16,192) (2,067) (24,284)
MINORITY INTEREST IN LOSS OF
CONSOLDIATED SUBSIDIARIES -- 710 -- 710 -- 710
------------ ---------- ----------- ----------- ------------- ------------
NET LOSS BEFORE INCOME TAXES
(8,092) (9,627) (1,499) (15,482) (2,067) (23,574)
INCOME TAX PROVISION -- -- -- -- -- --
------------ ---------- ----------- ----------- ------------- ------------
NET LOSS (8,092) (9,627) (1,499) (15,482) (2,067) (23,574)
------------ ---------- ----------- ----------- ------------- ------------
ACCRETION OF REDEEMABLE CUMULATIVE
CONVERTIBLE PREFERRED UNITS
(363) (1,322) (66) (2,294) (66) (2,657)
------------ ---------- ----------- ----------- ------------- ------------
NET LOSS APPLICABLE TO COMMON UNITS
$ (8,455) $ (10,949) $ (1,565) $ (17,776) $ (2,133) $ (26,231)
------------ ---------- ----------- ----------- ------------- ------------
------------ ---------- ----------- ----------- ------------- ------------
BASIC AND DILUTED LOSS PER COMMON
UNIT $ (1,940) $ (1,723) $ (601) $ (3,309) $ (679) $ (6,680)
------------ ---------- ----------- ----------- ------------- ------------
------------ ---------- ----------- ----------- ------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON
UNITS OUTSTANDING 4,359 6,353 3,814 5,371 3,140 3,927
------------ ---------- ----------- ----------- ------------- ------------
------------ ---------- ----------- ----------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-23
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF MEMBER'S DEFICIT
(STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT UNIT AND PER UNIT AMOUNTS)
(Information for the six months ended June 30, 1999 is unaudited)
(After Corporate Reorganization -- See Note 1)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Units Other During the Total
------------------- Deferred Comprehensive Development Comprehensive
Number Amount Compensation Loss Stage Loss Total
-------- --------- ------------- ------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT COMMENCEMENT
OF OPERATIONS: - $ - $ - $ - $ - $ - $ -
Deemed issuance of Common Units
at formation (actual issuance
May 18, 1998) 2,400 - - - - - -
Issuance of common units at
May 18, 1998 for services
provided 2,925 115 - - - - 115
Issuance of fofeitable common
units May 18, 1998 7,175 267 (267) - - - -
Issuance of common units at
August 24, 1998 for
services provided 263 13 - - - - 13
Issuance of forfeitable common
units at August 24, 1998 1,556 81 (78) - - - 3
Issuance of forfeitable common
units at November 5, 1998 720 84 (83) - - - 1
Issuance of forfeitable common
units at November 12, 1998 200 23 (23) - - - -
Issuance of forfeitable common
units at December 2, 1998 700 94 (93) - - - 1
Issuance of forfeitable common
units at December 8, 1998 111 15 (15) - - - -
Issuance of forfeitable common
units at December 21, 1998 225 30 (30) - - - -
Issuance of forfeitable common
units at December 28, 1998 110 15 (15) - - - -
Amortization of deferred
compensation - - 64 - - - 64
Accretion of redeemable cumulative
convertible preferred units - - - - (363) - (363)
Cumulative translation adjustments - - - (160) - (160) (160)
Net loss - - - - (8,092) (8,092) (8,092)
-------- --------- ------------- ------------- ------------ ------------- ----------
BALANCE, December 31, 1998 16,385 $ 737 $ (540) $ (160) $ (8,455) $ (8,252) $ (8,418)
-------------
-------------
Issuance of forfeitable common
units at January 20, 1999 111 13 (13) - - - -
Cancellation of units deemed
issued at formation and units
issued for services provided (2,250) (61) 61 - - - -
Issuance of forfeitable common
units at January 22, 1999
to management investor 2,250 300 (300) - - - -
Issuance of forfeitable common
units at April 26, 1999 56 37 (37) - - - -
Issuance of forfeitable common
units at May 3, 1999 56 37 (37) - - - -
Issuance of forfeitable common
units at May 26, 1999 425 280 (280) - - - -
Issuance of forfeitable common
units at June 23, 1999 70 46 (46) - - - -
Gain on issuance of equity at
subsidiary - 698 - - - - 698
Amortization of deferred
compensation - - 223 - - - 223
Accretion of Redeemable cumulative
convertible Preferred Units - - - - (2,294) - (2,294)
Cumulative translation adjustments - - - (5,939) - (5,939) (5,939)
Net loss - - - - (15,482) (15,482) (15,482)
-------- --------- ------------- ------------- ------------ ------------- ----------
BALANCE, June 30, 1999 17,103 $ 2,087 $ (969) $ (6,099) $ (26,231) $ (21,421) $(31,212)
-------- --------- ------------- ------------- ------------ ------------- ----------
-------- --------- ------------- ------------- ------------ ------------- ----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-24
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. Dollars)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
Commencement of Commencement of Commencement of
Operations Operations Operations
(January 8, (January 8, (January 8,
1998) to Six Months 1998) to 1998) to
December 31, Ended June 30, June 30, June 30,
1998 1999 1998 1999
----------------- ---------------- --------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(8,092) $ (15,482) $(2,067) $ (23,574)
Adjustments to reconcile net loss to
Cash used by operating activities-
Depreciation and amortization 59 439 8 498
Non-cash compensation expense 192 223 185 414
Accretion of senior notes -- 4,051 -- 4,051
Minority Interest in net loss -- 710 -- 710
Changes in assets and liabilities-
Increase in receivables (537) (5,074) (63) (5,650)
Increase in other current
assets (214) (1,046) (95) (1,266)
Increase (decrease) in other
long-term assets (287) 113 (34) (159)
Increase in trade accounts
payable 1,964 9,493 90 11,488
Increase in accrued liabilities 2,971 993 870 4,240
----------------- ---------------- --------------- -----------------
Net cash used by operating activities (3,944) (5,580) (1,106) (9,248)
----------------- ---------------- --------------- -----------------
INVESTING ACTIVITIES:
Purchase of property and equipment (3,485) (26,985) (409) (30,722)
Purchase of licenses and other
Intangibles (950) (2,543) (275) (3,481)
Offering proceeds and
investment earnings placed in escrow -- (73,198) -- (73,198)
Proceeds from escrowed offering
proceeds and investment earnings -- 73,198 -- 73,198
----------------- ---------------- --------------- -----------------
Net cash used by investing
activities (4,435) (29,528) (684) (34,203)
----------------- ---------------- --------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-25
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. Dollars)
(After Corporate Reorganization - See Note 1)
<TABLE>
<CAPTION>
Commencement of Commencement of Commencement of
Operations Operations Operations
(January 8, (January 8, (January 8,
1998) to Six Months 1998) to 1998) to
December 31, Ended June 30, June 30, June 30,
1998 1999 1998 1999
----------------- ---------------- --------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Issuance of Redeemable Cumulative
Convertible Preferred Units, net $ 12,113 $ 52,580 $2,555 $ 64,693
Gross proceeds from senior notes -- 72,572 -- 72,572
Issuance of equity in subsidiary -- 4,478 -- 4,478
Loan from member 1,300 -- 1,300 1,300
Payment on loan from member (266) -- (266) (266)
Issuance of common units 5 -- -- 5
Deferred financing costs (869) (3,672) -- (4,541)
----------------- ---------------- --------------- -----------------
Net cash provided by financing
activities 12,283 125,958 3,589 138,241
----------------- ---------------- --------------- -----------------
Effect of exchange rates on cash (160) (7,478) (1) (7,674)
----------------- ---------------- --------------- -----------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,744 83,372 1,798 87,116
CASH AND CASH EQUIVALENTS,
beginning of period -- 3,744 -- --
----------------- ---------------- --------------- -----------------
CASH AND CASH EQUIVALENTS,
end of period $ 3,744 $ 87,116 $ 1,798 $ 87,116
----------------- ---------------- --------------- -----------------
----------------- ---------------- --------------- -----------------
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of member loan to
preferred units $ 1,034 $ -- $ 1,034 $ 1,034
----------------- ---------------- --------------- -----------------
----------------- ---------------- --------------- -----------------
Accretion of Redeemable
Cumulative Convertible
Preferred Units $ 363 $ 2,294 $ 66 $ 2,657
----------------- ---------------- --------------- -----------------
----------------- ---------------- --------------- -----------------
SAB No. 51 gain related to
issuance of equity in
subsidiary $ -- $ 698 $ -- $ 698
----------------- ---------------- --------------- -----------------
----------------- ---------------- --------------- -----------------
Accrued financing costs $ 322 $ -- $ 96 $ --
----------------- ---------------- --------------- -----------------
----------------- ---------------- --------------- -----------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-26
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998
(Information as of, and for the three and six months ended, June 30, 1999
is unaudited)
(1) ORGANIZATION AND NATURE OF OPERATIONS
CompleTel LLC ("Parent") (together with its majority-owned subsidiaries, the
"Company") is a Delaware limited liability company. CompleTel LLC was known
as CableTel Delaware LLC ("CableTel Delaware") from its formation on January
8, 1998 through May 18, 1998, when it was reorganized and renamed as CableTel
Europe LLC in connection with the admission of a new member. Effective August
20, 1998, CableTel Europe LLC changed its name to CompleTel LLC. The Company
has a strategic objective of becoming a leading facilities-based operator of
a technologically advanced, high-bandwidth, fiber optic communications
infrastructure and provider of telecommunications and related services to
business and government end-users, carriers and Internet service providers in
targeted metropolitan areas across Western Europe. A facilities-based
operator uses mainly its own telecommunications facilities to provide
service, in contrast with non-facilities-based resellers who purchase the
services of other providers and then retail the services to customers.
Initially, the Company is focusing on building high bandwidth fiber optic
networks in France and Germany. Additionally the Company intends to provide
Internet access services in France, Germany and the United Kingdom ("UK").
As of December 31, 1998, the accompanying consolidated financial statements
include Parent's direct and indirect wholly-owned subsidiaries consisting of
CableTel Management Inc. ("Management Co."), CompleTel Europe N.V.
("CompleTel Europe"), CompleTel Holding I B.V. ("BVI"), CompleTel Holding II
B.V. ("BVII"), its French operating subsidiary, CompleTel SAS ("CompleTel
France") (formerly known as CompleTel S.A.R.L.), its UK operating subsidiary,
CompleTel UK Limited ("CompleTel UK"), and its German operating subsidiary,
CompleTel GmbH ("CompleTel Germany"). CompleTel Europe was formed in December
1998 for the purpose of completing a Rule 144A Offering (the "Offering") (see
Note 5) to finance the development of its switched local telecommunications
network and related services throughout France and Western Europe. As of
December 31, 1998, Parent's operating companies were held indirectly through
BVI and BVII. CompleTel Europe held no material assets or operations as of
December 31, 1998.
In January 1999, Parent formed CompleTel Holdings LLC ("CompleTel Holdings"),
CompleTel ECC B.V. ("CompleTel ECC"), CompleTel N.A. (N.V.) ("NANV") and
CompleTel UK SPC ("CompleTel SPC"). CompleTel Holdings was formed to issue
the equity component of the Offering. CompleTel ECC was formed to be the
group's European corporate center and to hold the proceeds of the Offering,
through an escrow account, until CompleTel Europe received aggregate
financing commitments of at least $90 million (see Note 5). Through a series
of transactions in the restructuring, CompleTel LLC contributed approximately
$58 million of equity, consisting of cash of approximately $52 million and
accounts receivable of approximately $6 million, to CompleTel France. Also,
through a series of restructuring transactions, CompleTel SPC became a
wholly-owned subsidiary of BVI, BVI was contributed to CompleTel Europe, and
CompleTel Europe became a wholly-owned subsidiary of NANV. Furthermore,
CompleTel LLC contributed its 100% interest in NANV to CompleTel Holdings in
exchange for all 19,596,429 Class A Membership Interests in CompleTel
Holdings. The Non-Voting Class B Membership Interests (aggregating 1,475,000)
in CompleTel Holdings were issued substantially to unrelated parties in
connection with the Offering (see
F-27
<PAGE>
Note 5). The restructuring was accounted for as a reorganization of entities
under common control, similar to a pooling of interests.
The Company is in the development stage and since commencement of operations,
the Company has incurred net losses totaling approximately $23.6 million
through June 30, 1999. Parent's subsidiaries have been principally engaged in
developing its business plans, applying for and procuring regulatory and
government authorizations, raising capital, hiring management and other key
personnel, working on the design and development of the Company's fiber optic
networks and operation support systems ("OSS"), negotiating equipment and
facilities agreements, and negotiating interconnection agreements and certain
right-of-way agreements. As a result of its development-stage activities, the
Company has experienced significant operating losses and negative cash flows
from operations. The Company expects to continue to generate negative cash
flows from operations in each market while it emphasizes development,
construction and expansion of its business and until the Company establishes
a sufficient revenue generating customer base in that market. The Company
also expects to experience increasing operating losses and negative cash
flows from operations as it expands its operations and enters new markets,
even if and after it achieves positive cash flow from operations in its
initial markets.
The Company's ultimate success will be affected by the problems, expenses and
delays encountered in connection with the formation of any new business and
by the competitive environment in which the Company intends to operate.
Initially, the Company plans to deploy networks in four metropolitan markets
in France (Paris, Lyon, Lille and Marseilles), and in one market in Germany.
The Company's performance will further be affected by its ability to properly
assess potential markets, secure financing or raise additional capital,
design networks, acquire right-of-way and building access rights, implement
interconnection with incumbent public telecommunications operators ("PTO"),
lease adequate trunking capacity from PTO's, purchase and install switches in
additional markets, implement efficient OSS and other back office systems,
develop a sufficient customer base, and attract, retain and motivate
qualified personnel. Delays or failure in receiving required regulatory
approvals beyond the initial markets or the enactment of new adverse
regulations or regulatory requirements may have a material adverse effect
upon the Company. Although management believes that the Company will be able
to successfully mitigate these risks, there is no assurance that the Company
will be able to do so or that the Company will ever operate profitably.
The actual amount and timing of the Company's future capital requirements may
differ materially from the Company's current estimates, and additional
financing may be required in the event of departures from the Company's
business plans and projections, including those caused by unforeseen delays,
cost overruns, engineering design changes, demand for the Company's services
that varies from that expected by the Company, and adverse regulatory,
technological or competitive developments. The Company may also require
additional capital (or require financing sooner than anticipated) if it
alters the schedule or targets of its roll-out plan in response to
regulatory, technological or competitive developments (including additional
market developments and new opportunities in and outside of its target
markets). The Company intends to evaluate potential joint ventures, strategic
alliances and acquisition opportunities on an ongoing basis as they arise,
and the Company may require additional financing if it elects to pursue any
such opportunities. The Company also will be required to seek additional
financing if it elects to deploy networks in other Western European markets
beyond its target markets. Sources of additional financing may include
commercial bank borrowings, vendor financing and/or the private or public
sale of equity or debt securities. There can be no assurance that the Company
will be able to fund its network deployment and operations in any or all of
its initial markets to the point of operating profitably with its current and
anticipated capital resources, and there can be no assurance that any
additional financing will be available on terms acceptable to the Company or
at all.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
F-28
<PAGE>
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements as of June 30,
1999, the three months ended June 30, 1999 and 1998, the six months ended
June 30, 1999 and for the periods from commencement of operations (January 8,
1998) to June 30, 1999 and 1998 have been prepared by the Company in
accordance with generally accepted accounting principles for interim
financial information and are in the form prescribed by the Securities and
Exchange Commission. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates. The Company has adopted a calendar fiscal
year.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Parent and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all marketable
securities and commercial paper with maturities of ninety days or less at
acquisition as cash equivalents.
PREPAID EXPENSES
Prepaid expenses consist of prepaid rent and prepaid insurance. Prepayments
are amortized on a straight-line basis over the life of the underlying
agreements.
PROPERTY AND EQUIPMENT
Property and equipment includes network equipment, office furniture and
equipment, computer equipment and software, leasehold improvements and
construction in progress. These assets are stated at cost and are being
depreciated over the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life
-----------------
<S> <C>
Network equipment 3 to 8 years
Office furniture and equipment 5 years
Computer equipment and software 3 to 5 years
Leasehold improvements 9 to 12 years
</TABLE>
Network equipment, office furniture and equipment, leasehold improvements and
computer software are depreciated using the straight-line method. Computer
equipment is depreciated using an accelerated depreciation method.
F-29
<PAGE>
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
Network equipment $ 17,860 $ -
Office furniture and equipment 766 132
Computer equipment and software 1,961 688
Leasehold improvements 525 24
----------- ------------
Property and equipment, in service 24,112 844
Less: accumulated depreciation (415) (59)
----------- ------------
Property and equipment, in service, net 20,697 785
Construction in progress 7,655 2,656
----------- ------------
Property and equipment, net $ 28,352 $ 3,441
----------- ------------
----------- ------------
</TABLE>
COMPUTER SOFTWARE COSTS
The American Institute of Certified Public Accountants ("AICPA") recently
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the costs of computer software developed or
obtained for internal use. SOP 98-1 identifies the characteristics of
internal-use software and provides examples to assist in determining when
computer software is for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998, for projects
in progress and prospectively, with earlier application encouraged. This
statement was adopted at commencement of operations.
START -UP COSTS
The Company expenses all start-up and organization costs as incurred, in
accordance with the provisions of the recently issued AICPA Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5").
DEFERRED FINANCING COSTS
Costs to obtain debt financing are capitalized and amortized over the life of
the related debt facility using the effective interest method.
LICENSE
The Company capitalizes all third-party direct costs associated with
obtaining licenses. Capitalized license costs are amortized over the lives of
the related license, ranging from 15 to 25 years.
RECOVERABILITY OF LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets whenever
events or circumstances indicate the carrying value of assets may exceed
their recoverable amounts. An impairment loss is recognized when
F-30
<PAGE>
the estimated future cash flows (undiscounted and without interest) expected
to result from the use of an asset are less than the carrying amount of the
asset. If an asset which is expected to be held and used is determined to be
impaired, then the asset would be written down to its fair market value based
on the present value of the discounted cash flows related to such asset.
Measurement of an impairment loss for an asset held for sale would be based
on its fair market value less the estimated costs to sell.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to employees using the
intrinsic value method prescribed in Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees."
INCOME TAXES
No provision has been made for federal, state or local income taxes related
to the Parent because they are the responsibility of the individual members.
Certain subsidiaries of the Parent are subject to corporate income tax
requirements and, accordingly, the Company accounts for income taxes under
the asset and liability method which requires recognition of deferred tax
assets and liabilities for the expected future income tax consequences of
transactions which have been included in the financial statements or tax
returns. Under this method, deferred tax assets and liabilities are
determined based on the differences between the financial statement and
income tax basis of assets, liabilities and carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse
or the carryforwards are expected to be utilized. Net deferred tax assets are
then reduced by a valuation allowance if management believes it is more
likely than not they will not be realized.
BASIC AND DILUTED LOSS PER COMMON UNIT
The Company computes earnings (loss) per common unit in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). Under SFAS 128, "Basic earnings (loss) per common unit" is
determined by dividing net income (loss) available to common unitholders by
the weighted-average number of common units outstanding during each period.
"Diluted earnings (loss) per common unit" includes the effects of potentially
issuable common units, but only if dilutive. Because the Company's nonvested
common units and redeemable cumulative convertible preferred units would be
antidilutive, there are no differences between basic and diluted loss per
common unit for the Company. The weighted average common units outstanding
for the period assumes the initial capitalization of the Company (2,400
common units) occurred as of January 8, 1998.
COMPREHENSIVE LOSS
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), requires that an enterprise (i) classify items of other
comprehensive income by their nature in the financial statements and (ii)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
balance sheet. The Company's other comprehensive loss, as set forth in the
accompanying consolidated statement of members' deficit, includes cumulative
translation adjustments.
FOREIGN OPERATIONS AND FOREIGN EXCHANGE RATE RISK
The functional currency for the Company's international operations is the
applicable local currency for the affiliate company. Assets and liabilities
of foreign subsidiaries for which the functional currency is the local
F-31
<PAGE>
currency are translated at exchange rates in effect at period-end, and the
statements of operations are translated at the average exchange rates during
the period. Exchange rate fluctuations on translating foreign currency
financial statements into U.S. dollars that result in unrealized gains or
losses are referred to as translation adjustments. Cumulative translation
adjustments are recorded as a separate component of members' deficit.
Transactions denominated in currencies other than the local functional
currency of the Company's operating subsidiaries, including U.S. dollar
denominated intercompany accounts and notes payable to Parent and Management
Co., are recorded based on exchange rates at the time such transactions
arise. Subsequent changes in exchange rates result in transaction gains and
losses which are reflected in income as unrealized (based on period-end
translations) or realized upon settlement of the transactions.
The Company's international subsidiaries can have payables that are
denominated in a currency other than their own functional currency. The
Company has not historically hedged foreign currency denominated transactions
for receivables or payables related to current operations. The terms of the
Senior Credit Facility commitment (see Note 5) would require the Company to
enter into and maintain hedging arrangements in an attempt to reduce its
exposure to currency fluctuations with respect to the dollar denominated
Notes issued in the Offering (see Note 5); however, there can be no assurance
that any such hedging transactions would be successful and that the exchange
rate fluctuations would not have a material adverse effect on the Company.
Accordingly, the Company may experience economic loss and a negative impact
on earnings and equity with respect to its holdings solely as a result of
foreign currency exchange rate fluctuations, which include foreign currency
devaluation against the dollar.
The functional currency of Parent's subsidiaries could change in the future,
depending on the denomination of certain planned financing transactions and
the nature of subsequent investment and operating activities.
NEW ACCOUNTING STANDARD
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments,
including certain instruments embedded in other contracts, and for hedging
activities. SFAS 133 requires that an entity recognize all derivatives as
either assets or liabilities and measure those instruments at fair value. It
also specifies the accounting for changes in the fair value of a derivative
instrument depending on the intended use of the instrument and whether (and
how) it is designated as a hedge. SFAS 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Subsequent to April
20, 1999 (date of Auditor's Report), the Financial Accounting Standards Board
issued SFAS 137 which delayed the effective date of SFAS 133 until all fiscal
quarters of fiscal years beginning after June 15, 2000. Through June 30,
1999, the Company had not entered into any transactions involving derivative
financial instruments and, therefore, cannot predict the financial statement
impact of adopting SFAS 133 with respect to transactions which have not yet
been entered into.
SAB NO. 51 ACCOUNTING POLICY--SALE OF STOCK BY COMPLETEL
HOLDINGS LLC (SUBSIDIARY)
The Company has adopted a policy of recording all gains attributable to
subsidiary common equity sales in the statement of operations, except for
gains on subsidiary equity sale transactions which must be recorded directly
in equity in accordance with the provisions of Staff Accounting Bulletin
Number 51 ("SAB No. 51.") In February 1999, as part of the Company's Senior
Discount Notes and Class B Membership Interests Offering, the gross proceeds
of approximately $75 million were allocated approximately $70.5 million to
the Notes (issued by CompleTel Europe) and approximately $4.5 million to the
Class B Interests (in CompleTel Holdings LLC) representing a 7% interest in
CompleTel Holdings LLC. This resulted in a $698,000 SAB No. 51 gain recorded
directly in equity in accordance with SAB No. 51.
RECLASSIFICATION
Certain amounts in the consolidated financial statements for the period from
commencement of operations (January 8, 1998) to June 30, 1998, have been
reclassified to conform with the current presentation.
F-32
<PAGE>
(3) CAPITALIZATION
LLC AGREEMENT
On May 18, 1998, an affiliate of Madison Dearborn Partners, Inc. ("Madison
Dearborn Partners"), an affiliate of LPL Investment Group, Inc.
("LPL")(together with Madison Dearborn Partners, the "Private Equity
Investors") and certain members of management (the "Management Investors")
entered into an amended and restated limited liability company agreement (the
"LLC Agreement"), amending and restating the original limited liability
agreement of CableTel Delaware dated January 8, 1998. The LLC Agreement, as
amended, authorized the issuance of (i) 61,950 redeemable cumulative
convertible preferred ownership interests (the "Preferred Units"), (ii)
107,500 common ownership interests (the "Common Units"), and (iii) certain
other units (Class A Senior Units, Class B Senior Units and Class C Senior
Units) issuable only in limited circumstances and only in exchange for other
Units. The initial 61,950 Preferred Units were issued to the Private Equity
Investors and Management Investors under an Equity Purchase Agreement (the
"Equity Purchase Agreement") (see Note 4). Of the 107,500 Common Units,
82,500 are reserved for issuance upon conversion of the Preferred Units and
25,000 were issued, or are reserved for issuance, to the Management Investors
under executive securities agreements (the "Executive Securities
Agreements"). Of the 25,000 Common Units issued or issuable to the Management
Investors, 17,500 (the "Non-Performance Vesting Units") are subject to
vesting only through the passage of time under the Executive Securities
Agreements and 7,500 (the "Performance Vesting Units") are subject to time
vesting and to performance vesting under a performance vesting agreement (the
"Performance Vesting Agreement"). Of the 25,000 Common Units issued or
issuable to the Management Investors, 2,250 were issued to LPL under the LPL
Investor Purchase Agreement. On January 22, 1999, the 2,250 immediately
vested common units previously issued to LPL were canceled. These units were
then issued to one of the Management Investors as additional Non-Performance
Vesting Units. No Class A Senior Units, Class B Senior Units or Class C
Senior Units had been issued as of June 30, 1999. On January 28, 1999, the
LLC Agreement was amended and restated, increasing the authorized Preferred
Units to 65,750 (see Note 4).
COMMON UNITS
The holders of Common Units are entitled to one vote for each Common Unit
held on all matters submitted to a vote of the members. Holders of Common
Units are entitled, subject to the preferences of the Preferred Units, to
receive such distributions, if any, as may be declared by Parent's Board of
Directors out of profits allocated to the members. The Indenture related to
the Offering restricts the ability of CompleTel Europe to pay dividends to
Parent in order to pay distributions with respect to the Common Units. In
addition, Parent may not make any distributions with respect to the Common
Units without the prior consent of the Private Equity Investors. In the event
of a liquidation, dissolution, or winding up of Parent, the holders of Common
Units are entitled to share ratably in the assets of Parent which are
available for distribution, if any, after the payment of all debts and
liabilities of Parent and the liquidation preference of any outstanding
Preferred Units.
Upon the affirmative vote of Parent's Board and the holders of a majority of
the Common Units (including the Preferred Units, on an as-if-converted
basis), Parent will be converted into a corporation (as that term is used in
Subchapter C of the Internal Revenue Code). In connection with such
conversion, each holder of Preferred Units or Common Units of Parent will
receive comparable equity securities of such corporation on the terms set
forth in the LLC Agreement.
Upon the initial formation of CableTel Delaware on January 8, 1998, the
founding members of CableTel Delaware each received a 25% member interest in
CableTel Delaware. The founding members were comprised of three of the
Management Investors and LPL. As part of the reorganization on May 18, 1998,
the founding members of CableTel Delaware were deemed to have received Common
Units of Parent in
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<PAGE>
exchange for their interests in CableTel Delaware. For accounting purposes, a
portion of the fully vested Common Units (2,400 units) of Parent received by
the founders under the Executive Securities Agreements and the LPL Investor
Purchase Agreement were deemed to have been issued in exchange for their
prior member interests in CableTel Delaware. The remaining fully vested
Common Units (2,925 units) received by the founders were deemed to have been
issued in consideration for prior services provided. The intrinsic value of
the Common Units deemed received for prior services totaling approximately
$115,000 was charged to general and administrative expense in the
accompanying consolidated statement of operations.
As of June 30, 1999 and December 31, 1998, 13,090 and 10,797 Non-Performance
Vesting Units had been issued to the Management Investors and other
employees, respectively. The Non-Performance Vesting Units issued to the
Management Investors vest ratably on each anniversary of the Executive
Securities Agreements over a four-year period. The Non-Performance Vesting
Units issued to other employees generally vest ratably over a four year
period on each December 31, with pro rata vesting in the year of employment
and final vesting on the fourth anniversary date of the applicable Employee
Securities Agreement. Vesting ceases upon the termination of employment with
the Company, for any reason, and the related Common Units are subject to
repurchase by Parent at fair value for vested Common Units and at original
cost for nonvested Common Units. Vesting for Non-Performance Vesting Units is
accelerated upon a Qualified Public Offering or a Qualified Sale of Parent,
as defined in the Executive Securities Agreements. The Non-Performance
Vesting Units are accounted for as issued Common Units, subject to
forfeiture, until vested. Accordingly, the intrinsic value of the
Non-Performance Vesting Units was accounted for at issuance as additional
paid-in capital, with an offsetting entry to deferred compensation. The
intrinsic value of the Common Units issued subject to forfeiture totaled
approximately $1,192,000 and $604,000 for the Non-Performance Vesting Units
issued through June 30, 1999 and December 31, 1998. This deferred
compensation is being amortized over the four year vesting period. As of June
30, 1999 and December 31, 1998, 8,571 and 10,588 of the issued
Non-Performance Vesting Units are subject to forfeiture, respectively. The
status of the issued Non-Performance Vesting Units as of June 30, 1999 and
December 31, 1998 are as follows.
As of June 30, 1999 (Unaudited):
<TABLE>
<CAPTION>
Vested Nonvested
Total Units (1) Units Units
--------------- ---------- -----------
<S> <C> <C> <C>
Units issued upon formation 1,800 1,800 -
Units issued for services provided 2,213 2,213 -
Units issued subject to forfeiture 13,090 4,519 8,571
--------------- ---------- -----------
Total 17,103 8,532 8,571
--------------- ---------- -----------
--------------- ---------- -----------
</TABLE>
(1) Reflects the January 22, 1999 cancellation of the 2,250
immediately vested Common Units previously issued to LPL and the
issuance of those units to one of the Management Investors as
Non-Performance Vesting Units. Of the 2,250 units issued to LPL,
600 were deemed issued upon formation and 1,650 were issued for
services provided.
F-34
<PAGE>
As of December 31, 1998:
<TABLE>
<CAPTION>
Total Units Vested Units Nonvested Units
--------------- ------------ ---------------
<S> <C> <C> <C>
Units issued upon formation 2,400 2,400 -
Units issued for services provided 3,188 3,188 -
Units issued subject to forfeiture 10,797 209 10,588
--------------- ------------ ---------------
Total 16,385 5,797 10,588
--------------- ------------ ---------------
--------------- ------------ ---------------
</TABLE>
PERFORMANCE VESTING AGREEMENT
The Private Equity Investors, the Management Investors, and Parent entered
into the Performance Vesting Agreement originally dated May 18, 1998 and
amended and restated January 28, 1999. Under the Performance Vesting
Agreement, 7,500 of the 25,000 Common Units issued or reserved for issuance
to the Management Investors (the "Performance Vesting Units") are, in
addition to time vesting, subject to performance vesting according to certain
multiple-of-invested-capital tests calculated based upon the valuation of
Parent's equity implied by a Qualified Public Offering and/or by actual sales
of Parent's securities by Madison Dearborn Partners. If any Performance
Vesting Units remain unvested on May 18, 2005, there shall be deemed to have
occurred a sale of the Parent's securities by Madison Dearborn Partners at
fair market value. Any Performance Vesting Units that do not vest upon such a
deemed sale will be forfeited. In addition, up to 7,500 of the Common Units
issuable upon conversion of the Preferred Units (see Note 4) are subject to
forfeiture if and when Performance Vesting Units performance vest under the
terms of the Performance Vesting Agreement. As a result, depending upon the
percentage of the Performance Vesting Units that are ultimately performance
vested (and the corresponding percentage of Common Units issuable upon
conversion of the Preferred Units that are ultimately forfeited), the
allocation of total equity ownership of CompleTel between the holders of
Preferred Units (on an as-if-converted basis) and the holders of Common Units
(assuming no other issuances of Parent's securities) will range between
82.5%/17.5% and 75.0%/25.0%.
For financial reporting periods ending prior to final determination of the
number of Performance Vesting Units that will vest, compensation cost will be
recorded based upon management's estimate of the number of such units that
would vest and the fair market value of those units as of the end of the
reporting period. As of June 30, 1999 and December 31, 1998, 7,289 and 6,981
Performance Vesting Units had been issued, respectively. As of June 30, 1999
and December 31, 1998, no compensation cost has been recorded related to the
Performance Vesting Units as the number of units that will vest is not yet
reasonably determinable.
SECURITYHOLDERS AGREEMENT
The Private Equity Investors, the Management Investors and Parent are parties
to a securityholders agreement dated May 18, 1998 (the "Securityholders
Agreement"). The Securityholders Agreement established the size of Parent's
Board of Directors at six and established a voting agreement among the
investors with respect to the election of the members of that board (the
Executive Committee of which acts as the board of directors of certain of
Parent's subsidiaries). On January 28, 1999, the Securityholders Agreement
was amended and restated to increase the size of Parent's Board of Directors
to eight and make corresponding changes in the voting agreement among the
investors. Pursuant to the terms of the Securityholders Agreement, the
Private Equity Investors may not transfer any Preferred Units (or securities
issued upon exercise thereof or otherwise in connection therewith)
("Preferred Securities") prior to May 18, 1999, other than to their
affiliates or as part of a sale of Parent. The Management Investors may not
transfer any Preferred Securities prior to May 18, 2000, other than to their
affiliates, family members or estate planning entities, or as part of a sale
of Parent.
F-35
<PAGE>
Transfers of Preferred Securities by the Private Equity Investors after May
18, 1999, and by the Management Investors after May 18, 2000, (in each case
other than to their affiliates, family members or estate planning entities,
to the public, or as part of a sale of Parent) are subject to first refusal
rights in favor of the other holders of Preferred Securities, and to pro rata
participation in such transfer, under "tag-along" rights, by the holders of
Preferred Securities and of the Management Investors with respect to their
Common Units that have vested under the Executive Securities Agreements and
(if applicable) performance vested under the Equity Purchase Agreement. In
the event a sale of Parent is approved by the holders of a majority of the
Preferred Securities (which currently is held by Madison Dearborn Partners),
each of the Private Equity Investors and Management Investors (and their
transferees) agrees to approve and, if requested, sell its Parent securities
in such sale.
REGISTRATION RIGHTS AGREEMENT
The Private Equity Investors, the Management Investors and Parent are parties
to a registration rights agreement originally dated May 18, 1998 and amended
and restated January 28, 1999 (the "Registration Agreement"). Under the terms
of the Registration Agreement, the holders of a majority of the Preferred
Securities (which currently is held by Madison Dearborn Partners) may require
Parent to consummate an initial public offering. After Parent's initial
public offering, Madison Dearborn Partners is entitled to demand two
long-form registrations, LPL is entitled to demand one long-form
registration, and the holders of at least 10% of the Preferred Securities
then outstanding may request unlimited short-form registrations. In addition,
the Private Equity Investors and the Management Investors are entitled to
"piggyback" on primary or secondary registered public offerings of Parent's
securities. Each Private Equity Investor and Management Investor is subject
to holdback restrictions in the event of an initial public offering or other
public offering of Parent securities.
(4) REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED UNITS
On May 18, 1998, the Private Equity Investors, the Management Investors and
Parent entered into the Equity Purchase Agreement. Under the Equity Purchase
Agreement, the Private Equity Investors purchased 60,000 Preferred Units for
an initial aggregate purchase price of $3.5 million and a commitment to make
subsequent capital contributions to Parent of up to an additional $56.5
million (for a total commitment of $60 million) on the terms and conditions
set forth in the Equity Purchase Agreement. Certain of the Management
Investors purchased 750 Preferred Units for an initial aggregate purchase
price of $44,000 and a commitment to make capital contributions to Parent of
up to an additional $706,000 (for a total commitment of $750,000) on the
terms and conditions set forth in the Equity Purchase Agreement. As of July
15, 1998, Parent entered into Additional Investor Equity Purchase and Joinder
and Rights Agreements for the issuance of 500 Preferred Units in exchange for
a capital commitment of $500,000 by each of two new investors. As of November
11, 1998, Parent entered into an Additional Preferred Units Purchase
Agreement with one of the Management Investors for the issuance of an
additional 150 Preferred Units in exchange for a capital commitment of
$150,000. On December 2, 1998, Parent entered into an Additional Investor
Equity Purchase and Joinder and Rights Agreement with a new management
investor for the issuance of 50 Preferred Units in exchange for a capital
commitment of $50,000. On January 28, 1999, the Equity Purchase Agreement was
amended and restated to supersede the Equity Purchase Agreement and the
agreements referred to above dated July 15, 1998, November 11, 1998 and
December 2, 1998 and to admit the new management investor (included together
with other "Management Investors") and other investors (included together
with Madison Dearborn Partners and LPL as the "Private Equity Investors").
The First Amended and Restated Equity Purchase Agreement increased the total
number of Preferred Units to 64,743 and 1,007, and total equity commitments
to $64.7 million and $1 million, by the Private Equity Investors and the
Management Investors, respectively. Additionally, Parent's Board approved the
drawdown of the remaining commitment under the Equity Purchase Agreement,
which was funded in connection with, and as a condition to the closing of the
Offering.
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<PAGE>
The Preferred Units accrue a preferred yield at a per-annum rate of 8% of the
sum of the Liquidation Value thereof and all accumulated and unpaid preferred
yield thereon. "Liquidation Value" for any Preferred Unit is equal to (i) the
initial price paid to Parent for such Preferred Unit on its date of issuance,
plus (ii) the aggregate contributions to the capital of Parent made pursuant
to the Equity Purchase Agreement with respect to such Preferred Unit after
its date of issuance, minus (iii) all distributions constituting a return of
capital with respect to such Preferred Unit after its date of issuance. The
Indenture related to the Offering restricts the ability of CompleTel Europe
to pay dividends to Parent in order to pay the preferred yield on the
Preferred Units.
No distributions out of earnings and profits may be made to the holders of
Common Units unless Parent has first made distributions to the holders of
Preferred Units to pay the full amount of accrued preferred yield on the
Preferred Units. Upon any liquidation, dissolution or winding up of Parent
(whether voluntary or involuntary), each holder of Preferred Units will be
entitled to receive, before any distribution is made with respect to any
other class of Parent's equity, distributions in cash equal to the aggregate
Liquidation Value of all Preferred Units held by such holder plus all accrued
and unpaid preferred yield thereon.
The Preferred Units are convertible at any time and from time to time into
Common Units at the election of the holder thereof. In addition, all holders
of Preferred Units will be required to convert their Preferred Units into
Common Units upon (i) a Qualified Public Offering of Parent's common equity,
as defined, or (ii) the affirmative vote of the holders of a majority of the
outstanding Preferred Units. Upon any conversion of Preferred Units, the
holder thereof has the right to receive a distribution in cash equal to the
amount of accrued but unpaid preferred yield on the Preferred Units being
converted (provided that if the conversion occurs in connection with an
initial public offering of Parent's common equity, the converting holder may
elect to receive such payment in the form of Parent securities at the initial
public offering price). The 65,750 currently outstanding Preferred Units are
convertible into 82,500 Common Units (7,500 of which are subject to
forfeiture upon the vesting of the Performance Vesting Units - see Note 3),
which conversion ratio is also subject to adjustment on a weighted-average
basis upon any issuance or deemed issuance of Common Units (or securities
convertible into or exercisable for Common Units) that otherwise would dilute
the economic interests of the holders of Preferred Units. The holders of
Preferred Units are entitled to vote their Preferred Units with the holders
of Common Units on an as-if-converted basis on all matters submitted to a
vote of the members.
The Equity Purchase Agreement provides the Private Equity Investors with
certain restrictive covenants. The Private Equity Investors have the right to
approve or disapprove Parent's taking or agreeing to take certain actions,
including, among other things, (i) making distributions with respect to
redeeming, or issuing any equity securities, any securities convertible into
or exercisable for equity securities, or any debt with equity features, (ii)
loaning monies, (iii) disposing of significant assets, (iv) making
acquisitions or entering into joint ventures, (v) entering into any merger,
consolidation, liquidation, recapitalization or reorganization, (vi) entering
into transactions with affiliated persons, (vii) incurring significant
indebtedness, and (viii) entering into or modifying any employment
arrangement with Parent's Chief Executive Officer. The Private Equity
Investors have approved the Company's consummation of the Senior Credit
Facility and the Offering (see Note 5).
The Equity Purchase Agreement also provides the Private Equity Investors and
the Management Investors with certain anti-dilutive rights prior to
consummation of a Qualified Public Offering or a Sale of Parent, as defined
in the Equity Purchase Agreement.
If a Qualified Public Offering or Sale of Parent has not occurred by May 18,
2005, each holder of Preferred Units or Common Units issued or issuable upon
conversion of the Preferred Units ("Purchaser Securities") will have the
right to require Parent to take all actions necessary to purchase the
Purchaser Securities held by such holder for fair market value (or, in the
case of Preferred Units to be repurchased, the greater of fair
F-37
<PAGE>
market value and the Liquidation Value (together with all accrued but unpaid
preferred yield) of such Preferred Units). Fair market value is defined as
the amount agreed to by the holders of the Preferred Units to be repurchased
and the holders of the Parent's Common Units, excluding Unvested Performance
Units. If mutual agreement can not be reached within twenty days of the
issuance of the repurchase notice, the fair market value for (a) publicly
traded securities generally means the average of the closing prices of such
securities for the 21 day period preceding the filing of the repurchase
notice and (b) non-publicly traded securities generally means a valuation
determined by an appraisal mechanism. The Indenture related to the Offering
limits the ability of CompleTel Europe to pay dividends or take certain other
actions that may be necessary to effectuate the repurchase of any such
securities.
In the event the repurchase options are exercised, Parent is obligated to do
everything within its power to satisfy its repurchase obligations, which may
involve the sale of some or all of its subsidiaries, or a portion or all of
its assets. Accordingly, as required by the Securities and Exchange
Commission ("SEC") accounting standards, the Company is recognizing the
accretion of the value of the Preferred Units to reflect the estimated future
redemption value of the Preferred Units payable in the event the repurchase
provisions are exercised. Due to the significant uncertainty regarding the
market value of the Preferred Units on May 18, 2005, the Preferred Units are
being accreted using the 8% per annum preferred yield. The accretion rate
will be adjusted prospectively through May 18, 2005 (the earliest redemption
date) upon any event reasonably indicating a higher fair value as of that
date. The accretion is recorded each period as an increase in the balance of
Preferred Units outstanding and a non-cash increase in the net loss
applicable to common units. As of June 30, 1999 and December 31, 1998, the
value of the Preferred Units has been accreted approximately $2,657,000 and
$363,000, respectively.
Upon a Qualified Public Offering, the Preferred Units would automatically
convert to Common Units and the amounts accreted would be adjusted to the
indicated fair value as a non-cash increase in the net loss applicable to
common units and the carrying value of the Redeemable Cumulative Convertible
Preferred Units would be reclassified as a component of additional paid-in
capital in the members' deficit section of the consolidated balance sheet.
(5) INDEBTEDNESS
UNITS OFFERING
In February 1999, the Company completed an Offering of 147,500 units (the
"Units") consisting of $147.5 million aggregate principal amount of 14%
Senior Discount Notes due 2009 (the "Notes") issued by CompleTel Europe (a
wholly owned subsidiary of the Company) and 1,475,000 non-voting Class B
Membership Interests of CompleTel Holdings LLC (a wholly owned subsidiary of
the Company). CompleTel Europe issued the Notes at a substantial discount
from their principal amount at maturity on February 16, 2009. A principal
investor in Parent acquired 400 Units in the Offering. The proceeds of the
Offering, net of offering fees and costs, were approximately $70.5 million
and were held in an escrow account until CompleTel Europe received a minimum
commitment of $90 million in senior credit facilities, which was received in
April 1999. To comply with Netherlands laws, the Notes are guaranteed by
Parent on a senior unsecured basis. As Parent is a holding company with no
operations other than the operations to be conducted by CompleTel Europe and
its subsidiaries, it is unlikely that Parent would have sufficient funds to
satisfy CompleTel Europe's obligations on the Notes if CompleTel Europe is
unable to satisfy its own obligation on the Notes. Of the $75 million gross
proceeds from the Offering, approximately $70.5 million was attributed to the
Notes and approximately $4.5 million was attributed to the 1,475,000 Class B
Membership Interests of CompleTel Holdings LLC. The $4.5 million allocated to
the Class B Membership Interests represents additional discount on the Notes.
F-38
<PAGE>
Cash interest will not accrue on the Notes prior to February 15, 2004.
Commencing February 15, 2004, interest on the Notes will accrue at 14% per
annum and will be payable in cash on August 15 and February 15 of each year.
The effective interest rate on the Notes is approximately 15.1%, including
amortization of the discount and the deferred financing costs.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------- --------------
(Unaudited)
<S> <C> <C>
14% Senior Discount Notes, face amount
$147.5 million, due 2009, effective
interest rate of 15.1% $ 74,582 $ -
--------------- --------------
--------------- --------------
</TABLE>
BANK FINANCING COMMITMENT
The Company's French subsidiaries, CompleTel SAS and CompleTel Services SAS
(the "Borrowers"), have received commitments for senior secured credit
facilities (the "Facilities") of $90 million from Paribas and from Nortel
Networks ("Nortel") to finance the Company's deployment of its networks in
France. The terms of the Facilities provide that the borrowings of up to the
first $20 million will be provided solely by the Nortel senior secured credit
facility. Additional borrowings from Paribas under the Paribas senior credit
facility (the "Paribas Facility") and other lenders (the "Senior Lenders")
would first be used to retire indebtedness from Nortel, who would lend up to
$20 million as part of the Paribas Facility, along with the other Senior
Lenders. The Paribas Facility is comprised of two Tranches. Borrowings under
Tranche A would be available through March 31, 2002, and subject to a maximum
of $80 million. On March 31, 2002, this revolving credit facility would
convert to a term loan facility, payable quarterly, in increasing increments
commencing December 31, 2002. Borrowings under Tranche B would be subject to
an initial maximum amount of $10 million, with the available commitment
decreasing quarterly commencing with the fourth quarter of 2002. The Paribas
Facility would mature on December 31, 2006 and would bear interest at the
rate of LIBOR plus a margin ranging from 1.25% to 3.50% based upon the
Company's ratio of total debt to annualized earnings before interest, taxes,
depreciation and amortization ("EBITDA").
The final implementation of the Facilities remains subject to the
satisfaction of a number of conditions, including preparation of definitive
documentation, obtaining all regulatory approvals and completion of due
diligence. In addition, the availability of credit under the Facilities would
be contingent on a number of conditions precedent, including the Borrowers
achieving a minimum number of business access lines in service and maximum
ratios of senior debt to the number of access lines in service. The Paribas
Facility would be secured by all of the Borrowers' assets as well as a pledge
of the stock of the Borrowers and assignment of inter-affiliate loans and all
licenses and material contracts.
(6) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has entered into various operating lease agreements, for office
space and employee residences. Future minimum lease obligations related to
the Company's operating leases for the 12-month periods subsequent to March
31, 1999 and December 31, 1998 are as follows (in thousands):
F-39
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
June 30, 2000 and December 31, 1999 $1,065 $ 976
June 30, 2001 and December 31, 2000 1,176 1,087
June 30, 2002 and December 31, 2001 1,058 1,037
June 30, 2003 and December 31, 2002 963 955
June 30, 2004 and December 31, 2003 929 948
Thereafter 4,549 4,975
------------ ------------
Total $9,740 $9,978
------------ ------------
------------ ------------
</TABLE>
Total rent expense for the period from January 8, 1998 through December 31,
1998 was approximately $160,000 and for the six months ended June 30, 1999
was $612,000.
MANAGEMENT EMPLOYMENT AGREEMENTS
Certain employees of Management Co. that have been seconded to Parent's
subsidiaries are parties to employment agreements. The agreements generally
provide for a specified base salary, as well as a bonus set as a specified
percentage of the base salary. The bonus is based on attainment of certain
identified performance measures. The employment agreements generally provide
for cost of living differentials, relocation and moving expenses, automobile
allowances and income tax equalization payments, if necessary, to keep the
employee's tax liability the same as it would be in the United States.
FRENCH SERVICE LICENSE
On December 13, 1998 the Secretaire d'Etat a l'Industrie ("the Ministry"),
based on the recommendation of the Autorite de Regulation des
Telecommunications ("ART"), awarded CompleTel France an L.33-1 fixed wireline
license and an L.34-1 service license for network deployment and the
provision of services in 10 regions in France that the Company intends to
target. The Company's business plan forming the basis for the issuance of the
French licenses contemplates the Company's deploying networks in 16 French
markets and raising sufficient financing to fund such deployment. The amount
of the proceeds from the Offering and the funds expected to be available
under the Senior Credit Facility (see Note 5) are less than the amount of
financing required for the Company to deploy and operate networks in all of
the markets contemplated by this business plan, and the Company intends to
continue to seek additional financing in order to fund its business plan
beyond deployment of networks in its initial target markets. The Company has
been advised that this does not, by itself, constitute a violation of
CompleTel France's requirements under the French licenses. However, the ART
may take this into account, together with any other relevant items, when
assessing whether there exists a material adverse variation to the financial
and/or technical capacity of CompleTel France. If and to the extent that the
ART were to determine that the Company has materially and adversely deviated
from its business plan or that the Company lacks the financial capacity to
implement this plan, the ART could seek to modify or revoke the licenses in
whole or in part.
F-40
<PAGE>
(7) INCOME TAXES
UNITED STATES
In general, a United States limited liability company, treated as a
partnership for U.S. federal income tax purposes, will not be subject to U.S.
federal income tax. Instead, the income, gain, and loss (including Subpart F
income or foreign personal holding company income recognized) will be
allocated to its members. Any direct foreign income taxes paid on the
remittance of dividends from its foreign subsidiaries will likewise pass to
Parent's members. The LLC Agreement provides for distributions to its members
to cover income taxes in the event Parent recognizes any income or gain
(including Subpart F income or foreign personal holding company income). Such
distribution would be contingent upon a distribution of cash from its foreign
subsidiaries.
NETHERLANDS
As of December 31, 1998, the Company held all operating subsidiaries
indirectly through BVI. In general, a Dutch holding company may benefit from
the so-called "participation exemption". The participation exemption is a
facility in Dutch corporate tax law which allows a Dutch company to exempt
from Dutch income tax any dividend income and capital gains in relation to
its participation in subsidiaries which are legal entities residing in a
foreign country. Capital losses are also exempted, apart from liquidation
losses (under stringent conditions). Any costs in relation to participations,
to the extent these participations do not realize Dutch taxable profit are
not deductible. These costs include costs to finance such participation.
For Dutch income tax purposes, net operating loss ("NOL") carryforwards may
be carried forward indefinitely.
FRANCE
The majority of the Company's approximately $3.8 million of NOL carryforwards
for income tax purposes at December 31, 1998, were generated by CompleTel
France. For French income tax purposes, NOL carryforwards may generally be
carried forward for a period of up to five years. Start-up costs will be
capitalized for French tax purposes. The Company considers the majority of
these costs as eligible for the deferred depreciation regime for French tax
purposes, resulting in an indefinite carryforward life of the corresponding
amortization expense. The Company has recorded a valuation allowance equal to
the net deferred tax assets at December 31, 1998 due to the uncertainty of
future operating results. The valuation allowance will be reduced at such
time as management believes it is more likely than not that the net deferred
tax assets will be realized. Any reductions in the valuation allowance will
reduce future provisions for income tax expense.
The difference between the income tax provision in the consolidated financial
statements and the expected income tax benefit at statutory rates related to
the Company's corporate and foreign subsidiary operations for the period from
commencement of operations (January 8, 1998) to December 31, 1998, is
reconciled as follows (in thousands):
F-41
<PAGE>
<TABLE>
<CAPTION>
Commencement
of Operations
(January 8, 1998)
to December 31,
1998
------------------
<S> <C>
Expected income tax benefit at the U.S.
statutory rate of 38.25% $ 3,095
Parent operating losses passed through
to its members (153)
International rate differences (369)
Non-deductible expenses (99)
Valuation allowance (2,474)
-----------
Total income tax benefit $ -
-----------
-----------
</TABLE>
Deferred tax assets and liabilities at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1998
------------------
<S> <C>
Deferred tax assets-
Operating loss carryforwards $ 1,222
Capitalized start-up costs 1,214
Net unrealized foreign exchange gain 20
Deferred depreciation 16
Other 2
-----------
Total deferred tax assets 2,474
Less valuation allowance (2,474)
-----------
Net deferred taxes $ -
-----------
-----------
</TABLE>
(8) PARENT COMPANY ONLY FINANCIAL INFORMATION
The following financial information reflects the parent company only
condensed statement of operation data, condensed balance sheet data, and
condensed cash flows data.
<TABLE>
<CAPTION>
Commencement
of Operations
(January 8, 1998) to
December 31, 1998
--------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Interest income $ 11
General and administrative expense (400)
Equity in losses of subsidiaries (7,703)
-----------
Net Loss $ (8,092)
-----------
-----------
</TABLE>
F-42
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998
-----------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,743
Receivables from affiliates 9,492
Other current assets 42
-----------
Total current assets 11,277
Investments in subsidiaries (6,185)
-----------
Total assets $ 5,092
-----------
-----------
<CAPTION>
December 31,
1998
-----------------
<S> <C>
Current liabilities $ 322
-----------
Redeemable cumulative convertible preferred units:
No par value, 61,950 units authorized, issued and outstanding 13,188
-----------
Common units, no par value, 106,750 units authorized, 16,385
units issued and outstanding 737
Deferred compensation (540)
Other comprehensive loss (160)
Deficit accumulated during the developmental stage (8,455)
-----------
Total members' deficit (8,418)
-----------
Total liabilities and members' deficit $ 5,092
-----------
-----------
</TABLE>
F-43
<PAGE>
<TABLE>
<CAPTION>
Commencement of
Operations
(January 8, 1998) to
December 31, 1998
---------------------
<S> <C>
Cash Flows Data:
Cash flows from operating activities:
Net loss $ (8,092)
Equity in losses of subsidiaries 7,703
Changes in-
Other current assets (10)
Receivables from affiliates (9,492)
-----------
Net cash used in operating activities (9,891)
-----------
Cash flows from investing activities:
Investment in subsidiaries (1,518)
-----------
Net cash from investing activities (1,518)
-----------
Cash flows from financing activities:
Issuance of redeemable cumulative convertible preferred units 12,113
Loan from member 1,300
Payment of loan from member (266)
Issuance of common units 5
-----------
Net cash from financing activities 13,152
-----------
Net increase in cash and cash equivalents 1,743
Cash and cash equivalents, beginning of period -
-----------
Cash and cash equivalents, end of period $ 1,743
-----------
-----------
</TABLE>
(9) SEGMENT REPORTING
SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
The Company is currently in the development stage. Through June 30, 1999, the
significant portion of the Company's expenditures were associated with its
network deployment in France. The Company expects to incur significant costs
associated as it expands its network deployment efforts into Germany. The
Company is not deploying networks in the UK and, as a result, development
costs in the UK are minimal.
Management currently evaluates the Company's development efforts according to
the geographic location of its markets. Certain financial information
reflecting the Company's development efforts is presented below. Results for
Germany and the UK are included in "corporate and other" since the results of
those markets are not significant to the consolidated financial statements:
F-44
<PAGE>
As of and for the period from inception (January 8, 1998) to December 31,
1998 (In thousands):
<TABLE>
<CAPTION>
Corporate
France and Other Consolidated
--------- ------------ --------------
<S> <C> <C> <C>
Revenue $ - $ - $ -
Depreciation $ 46 $ 13 $ 59
Management Fee (Expense) Income $ (2,661) $ 2,661 $ -
Net Loss $ (5,949) $ (2,506) $ (8,455)
Total Assets $ 6,180 $ 3,862 $ 10,042
Expenditures for Long-lived Assets $ 3,647 $ 788 $ 4,435
</TABLE>
As of and for the six months ended June 30, 1999 (In thousands):
<TABLE>
<CAPTION>
Corporate
France and Other Consolidated
--------- ------------ --------------
<S> <C> <C> <C>
Revenue $ 281 $ 40 $ 321
Depreciation and Amortization $ 326 $ 113 $ 439
Management Fee (Expense) Income $ (1,609) $ 1,609 $ -
Net Loss $ (9,548) $ (5,934) $ (15,482)
Total Assets $ 51,752 $ 77,966 $ 129,718
Expenditures for Long-lived Assets $ 25,781 $ 3,747 $ 29,528
</TABLE>
As of and for the three months ended June 30, 1999 (In thousands):
<TABLE>
<CAPTION>
Corporate
France and Other Consolidated
--------- ------------ --------------
<S> <C> <C> <C>
Revenue $ 281 $ 40 $ 321
Depreciation and Amortization $ 184 $ 110 $ 294
Management Fee (Expense) Income $ (841) $ 841 $ --
Net Loss $ (5,418) $ (4,209) $ (9,627)
Total Assets $ 51,752 $ 77,966 $ 129,718
Expenditures for Long-lived Assets $ 15,719 $ 792 $ 16,511
</TABLE>
(10) SUBSEQUENT EVENT
ASI ACQUISITION
On March 24, 1999, CompleTel SAS acquired all of the outstanding stock of
Acces Internet et Solutions ("ASI"), an Internet service provider based in
Lyon, for approximately $2.1 million in cash. The transaction was recorded
under the purchase method of accounting as of March 31, 1999. The purchase
price was first allocated to the fair value of the net tangible assets
acquired $73,000, which is classified as property and equipment in the
accompanying balance sheet. The resulting excess of cost over the fair value
of tangible net assets acquired, or goodwill, was recorded in the amount of
approximately $2.0 million and is being amortized under the straight-line
method over a ten-year period. The goodwill is classified as other
intangibles in the accompanying balance sheet.
The following unaudited pro forma condensed consolidated operating results
for the period from commencement of operations (January 8, 1998) to December
31, 1998, and for the six months ended June 30, 1999, reflect the pro forma
effects on operations of the ASI acquisition as if the acquisition occurred
on January 8, 1998. For purposes of the pro forma condensed consolidated
operating results, the acquisition is assumed to have been financed through
an equity contribution from the Company.
The unaudited pro forma condensed consolidated operating results are based on
the historical consolidated financial statements of the Company and ASI,
giving effect to certain assumptions and adjustments that
F-45
<PAGE>
management believes are reasonable based upon currently available
information. This pro forma condensed consolidated financial data is
presented for illustrative purposes and does not purport to represent what
the Company's results of operations would actually have been if the
acquisition had been consummated as of January 8, 1998.
<TABLE>
<CAPTION>
For the Period from
Commencement of
Operations
(January 8, 1998) to For the Six Months Ended
December 31, 1998 June 30, 1999
-------------------------- --------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $ - $ 1,020 $ 321 $ 578
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Net loss applicable to common
units $ (8,455) $ (8,583) $ (17,776) $ (17,873)
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Basic and diluted loss
per common unit $ (1,940) $ (1,969) $ (3,309) $(3,328)
---------- --------- ---------- ---------
---------- --------- ---------- ---------
Weighted average number of
non-forfeitable common units
outstanding 4,359 4,359 5,371 5,371
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
F-46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of CompleTel S.A.S.:
We have audited the accompanying balance sheet of Acces et Solutions Internet
S.A.R.L. ("the Company") (a wholly-owned subsidiary of CompleTel S.A.S. since
March 24, 1999) as of December 31, 1998 and the related statements of
operations and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in France, which are substantially the same as those generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Acces et Solutions Internet
S.A.R.L. as of December 31, 1998, and the results of its operations and its
cash flows for the year then ended, in conformity with generally accepted
accounting principles in France.
BARBIER FRINAULT & ASSOCIES
ARTHUR ANDERSEN
Paris, France,
June 24, 1999.
F-47
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
BALANCE SHEET
DECEMBER 31, 1998
(Stated in thousands of U.S. Dollars)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 211
Receivables 400
Inventory 6
Prepaid expenses 12
--------
Total current assets 629
--------
FIXED ASSETS:
Property and equipment, net 70
Licenses and other intangibles 2
Financial assets 15
--------
Total fixed assets 87
--------
TOTAL ASSETS $ 716
--------
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 94
Accrued liabilities 241
Deferred income 238
--------
Total current liabilities 573
--------
LONG-TERM DEBT 28
STOCKHOLDERS' EQUITY:
Common stock at historical rate 25
Reserves and translation adjustment 3
Retained earnings prior year 25
Result for the year at average rate through year end 62
--------
TOTAL STOCKHOLDERS' EQUITY 115
--------
Total liabilities and stockholders' equity $ 716
--------
--------
</TABLE>
The accompanying notes are an integral part of this
balance sheet.
F-48
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Stated in thousands of U.S. Dollars)
<TABLE>
<S> <C>
REVENUES $1,020
OPERATING EXPENSES:
Network costs and cost of goods sold 324
Selling, general and administrative 551
Depreciation and amortization 35
--------
Total operating expenses 910
--------
OPERATING RESULT 110
OTHER INCOME (EXPENSE):
Interest income 2
Interest expense (2)
--------
Total other income (expense) -
--------
NET RESULT BEFORE INCOME TAXES 110
INCOME TAX PROVISION 48
--------
NET PROFIT $ 62
--------
--------
</TABLE>
The accompanying notes are an integral part of this
financial statement.
F-49
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Stated in thousands of U.S. Dollars)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net profit $ 62
Add-
Depreciation and amortization 60
Increase in receivables (76)
Inventory (4)
Increase in trade accounts payable 16
Increase in accrued liabilities 16
Increase in prepaid expenses (5)
Increase in deferred income 158
--------
Net increase in working capital 105
--------
Net cash provided by operating activities 227
--------
INVESTING ACTIVITIES:
Purchase of property and equipment (54)
Purchase of licenses and other intangibles (3)
Purchase of financial assets (6)
--------
Net cash used by investing activities (63)
--------
FINANCING ACTIVITIES:
Loan 34
Loan repayment (6)
--------
Net cash provided by financing activities 28
--------
Effect of exchange rates on cash flow 10
NET INCREASE IN CASH AND CASH EQUIVALENTS 202
CASH AND CASH EQUIVALENTS, opening 9
--------
CASH AND CASH EQUIVALENTS, closing $ 211
--------
--------
</TABLE>
The accompanying notes are an integral part of this
financial statement.
F-50
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(1) DESCRIPTION OF THE BUSINESS AND ORGANIZATION
ASI is an Internet Services Provider. The company was incorporated in
September 1995 as a limited liability company (French S.A.R.L.).
(2) ACCOUNTING RULES AND METHODS
(Decree no. 83 - 1020 of November 11, 1983 - Articles 7, 21, 24 beginning,
24-1,24-2 and 24-3) The accounting period is 12 months and covers the period
from January 1, 1998 to December 31, 1998.
Generally accepted accounting principles have been applied in line with the
prudence principle, in accordance with the basic assumptions of:
- going concern status,
- consistency in accounting methods from one accounting period to
another,
- the matching concept,
and in accordance with the general accounting rules and presentation of the
annual accounts applicable in France.
The accompanying financial statements result from the translation of the
French Financial Statements of the company. The conversion from French francs
to US Dollars was performed with the following exchange rates:
- Balance sheet : closing rate as of December 31, 1998 ( 1 USD = 5.6221)
except for the following items in stockholders' equity: Common stock
(historical rate as of December 31, 1995 : 1 USD = 5.0525 FRF) and
Result for the year (average rate for the year 1998 : 1 USD = 5.8993
FRF).
- Statement of operations and statement of cash flows (average rate for
the year 1998 : 1 USD = 5.8993 FRF).
The adjustments which would be necessary to convert the financial statements
from French to US GAAP are as follows:
F-51
<PAGE>
- No deferred tax has been calculated, since it would result in a net
deferred tax asset of USD 22,000 that the company would have fully
reserved for on a prudence basis.
- No provision for pension/retirement leave-pay commitments has been
calculated, given that, the age profile of the employees is young,
there are a small number of employees and management have become
employees of CompleTel S.A.S. since the takeover of the company.
- Intangible assets amounting to USD 268 are not amortized.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles in France. The preparation of
financial statements in conformity with French GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.
(3) INTANGIBLE FIXED ASSETS
Expenses for registering trademarks are not amortized. Registered trademarks
amounting to USD 268 are recorded on the balance sheet as intangible fixed
assets.
Computer software acquired from outside companies is capitalized and
systematically amortized over one year on a straight-line basis.
(4) TANGIBLE FIXED ASSETS
Fixed assets are valued at their acquisition cost (purchase price and
associated costs). Depreciation costs are calculated using the straight-line
method, according to the forecast useful life.
<TABLE>
<S> <C>
- Machinery and equipment 3 years
- Miscellaneous fixtures and fittings 5 years
- Office equipment Between 3 and 5 years
</TABLE>
As of December 31, 1998, breakdown of fixed assets is as follows:
<TABLE>
<CAPTION>
Description Gross Value Accumulated Depreciation Net Book Value
- --------------------- ----------- ------------------------ --------------
(USD'000) (USD'000) (USD'000)
<S> <C> <C> <C>
Tangible 135 65 70
Intangible 4 2 2
Financial 15 - 15
</TABLE>
F-52
<PAGE>
(5) FINANCIAL ASSETS
Financial assets include the acquisition cost of securities acquired by the
company to the extent that the amount of the equity investments represent at
least 10% of the capital of the target companies.
No dividends have been distributed on these investments.
A provision for depreciation is set aside when the value-in-use of the
securities is less than their historical value.
(6) INVENTORIES
Inventories are valued using the "first in - first out" method.
The gross value of goods and supplies includes the purchase price and
associated costs.
A reserve for depreciation of inventories is booked to the extent that the
gross value calculated according to the method indicated above is superior to
the current purchase price and associated costs.
(7) RECEIVABLES
Receivables are valued at their face value.
As of December 31, 1998, accounts receivable were as follows:
<TABLE>
A/R (Gross) Reserve A/R (Net)
----------- --------- ---------
(USD'000) (USD'000) (USD'000)
<S> <C> <C>
466 66 400
</TABLE>
(8) RESERVES FOR CONTINGENCIES AND LOSSES
A reserve for contingency loss amounting to USD 8,000 has been provided in
order to cover the possible consequences of a legal dispute between the
company and one of its customers, ISICOM. This provision corresponds to the
maximum costs which the company would be required to bear in this matter (USD
44,000) less an accrued contingent gain (USD 36,000) representing the
insurance cover with respect to the matter in litigation.
F-53
<PAGE>
In addition, a reserve for contingency loss has been accrued for an amount of
USD 19,000 with respect to social security charges concerning trainees, those
not having been filed to the French tax administration.
(9) CHANGE IN METHODS
No change in method took place with respect to the methods used in the
previous period.
(10) SHARE CAPITAL
The share capital of the company is FRF 125,000 (USD 25,000) and is made up
of 125 shares each with a par value of FRF 1,000 (USD 200). It can be broken
down as follows as of December 31, 1998, prior to takeover by CompleTel SAS
in March 1999:
<TABLE>
<CAPTION>
Number of shares % shares
---------------- ----------
<S> <C> <C>
Mr. Michel Cerdini 40 32.00%
Mr. Samuel Triolet 30 24.00%
Ms. Christiane Cerdini 20 16.00%
Ms. Pascale Cerdini 10 8.00%
Mr. Patrick Kuchard 10 8.00%
Mr. Philippe Duby 10 8.00%
Mr. Jean Daniel Pauget 2 1.60%
Mr. Marc Jouineau 3 2.40%
---------------- ----------
Total 125 100.00%
---------------- ----------
---------------- ----------
</TABLE>
(11) CASH AND CASH EQUIVALENTS
There are no restrictions on the bank balances of USD 211,000 as of December
31, 1998.
(12) REVENUE RECOGNITION
Customers are invoiced as they are connected. They are invoiced for periods
of 3, 6 or 12 months. The company defers revenue on that part of turnover
properly relating to the period post balance sheet date.
(13) DEBT FINANCING ARRANGEMENTS
ASI borrowed a sum of USD 34,000 from the bank CIC in July 1998 for 36
months, bearing an annual interest rate of 5.9%.
F-54
<PAGE>
(14) RELATED PARTY ASSETS AND LIABILITIES
There are no material transactions, assets, or liabilities as of December 31,
1998 between the company and its future shareholder CompleTel SAS or between
the company and its existing stockholders as of December 31, 1998.
(15) LEASING ARRANGEMENTS
The company does not have any material leasing arrangements.
(16) CORPORATION TAX
The income tax provision corresponds to the calculation as per the French
corporation tax law. As indicated in Note 1, the company has not calculated
and accounted for deferred tax at December 31, 1998. The calculation of
deferred tax would give rise to a deferred tax asset amounting to USD 22,000,
which would have been immediately fully reserved for.
(17) STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Translation
Common Stock Retained Earnings Adjustments Total
---------- ----------------- ------------ -------
USD'000 USD'000 USD'000 USD'000
<S> <C> <C> <C> <C>
Balance, December 31, 1997 25 25 - 50
Net earnings - 62 - 62
Translation adjustments - - 3 3
---------- ----------------- ------------ -------
Balance, December 31, 1998 25 87 3 115
---------- ----------------- ------------ -------
---------- ----------------- ------------ -------
</TABLE>
F-55
<PAGE>
"Until __________, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions."
[LOGO]
COMPLETEL EUROPE N.V.
$147,500,000 14% Series B Senior Discount Notes due 2009
-----
PROSPECTUS
Dated ___________, 1999
-----
The exchange offer will expire at 5:00 p.m., New York City time, on
___________, 1999, unless we extend it.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
COMPLETEL LLC
GENERAL LIMITED LIABILITY COMPANY LAW
CompleTel LLC is organized under the limited liability company laws of
the State of Delaware. Section 18-108 of the Delaware Limited Liability
Company Act (the "Act") permits a limited liability company to indemnify and
hold harmless any member, manager or other person from and against any and
all claims and demands whatsoever, subject to standards and restrictions if
any set forth in its limited liability company agreement.
LIMITED LIABILITY COMPANY AGREEMENT
CompleTel LLC's Limited Liability Company Agreement provides for
CompleTel LLC to indemnify and hold harmless any person to the fullest extent
permitted by the Act, against all expenses, liabilities and losses (including
attorney fees, judgments, fines, excise taxes or penalties) reasonably
incurred or suffered by such person because such person is or was a member or
was serving as a representative, officer, employee or agent of CompleTel LLC
or of another partnership, corporation, joint venture, limited liability
company, trust or other enterprise at the request of CompleTel LLC.
Indemnification is not permitted, unless the Board of Managers consents, for
any expenses, liabilities, and losses suffered that are attributable to such
persons gross negligence, willful misconduct or knowing violation of law.
Indemnification also is not permitted, unless the Board of Managers consents,
for any breaches of any representations, warranties or covenants by a person
contained in any agreement with the company. The company will pay expenses,
including attorney fees, incurred in defending a proceeding in advance of the
final disposition only if the company has received an undertaking by the
indemnified person to repay all amounts advanced if ultimately the person is
not entitled to indemnification. Any indemnification is limited to the extent
of company assets. No member has personal liability for any indemnification.
COMPLETEL EUROPE N.V.
PARENT COMPANY UNDERTAKING
CompleTel LLC, as the ultimate parent of CompleTel Europe N.V., has
undertaken to hold the managing director free and harmless against any claim
which may be made upon the managing director arising from or connected with
the managing director's performance of its duties to manage the company.
CompleTel LLC has agreed to reimburse the managing director for any costs and
expenses, including attorney fees, incurred in connection with any claim
except in the event of wilful misconduct or gross negligence committed by the
managing director.
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<S> <C>
3.1+ Amended and Restated Certificate of Formation of CompleTel LLC
3.2+ Second Amended and Restated Limited Liability Company
Agreement of CompleTel LLC dated January 28, 1999
3.3+ Articles of Association of CompleTel Europe N.V.
4.1+ Purchase Agreement, dated February 8, 1999 among CompleTel
Europe N.V., CompleTel Holdings LLC and the Initial
Purchasers.
4.2+ Note Registration Rights Agreement, dated as of February 16,
1999 among CompleTel Europe N.V. and the Initial Purchasers.
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.3+ Indenture, dated as of February 16, 1999, among CompleTel
Europe N.V., CompleTel ECC B.V. and the Trustee.
4.4+ Form of 14% Senior Discount Notes due 2009 of CompleTel Europe
N.V.
4.5 Form of 14% Series B Senior Discount Notes due 2009 of
CompleTel Europe N.V.
5.1* Opinion of Nauta Dutilh regarding the legality of the 14%
Series B Discount Notes due 2009.
5.2* Opinion of Holme Roberts & Owen LLP regarding the legality of
the 14% Series B Senior Discount Notes due 2009.
8.1* Opinion of Holme Roberts & Owen LLP regarding certain United
States federal income tax matters.
8.2* Opinion of Arthur Andersen Belastingadviseurs regarding
certain Netherlands tax matters.
10.1+ Employment Agreement by and between CableTel Management, Inc.
and James E. Dovey, dated as of May 18, 1998.
10.2+ Employment Agreement by and between CableTel Management, Inc.
and Richard N. Clevenger, dated as of May 18, 1998.
10.3+ Employment Agreement by and between CableTel Management, Inc.
and William H. Pearson, dated as of May 18, 1998.
10.4+ Employment Agreement by and between CableTel Management, Inc.
and David Lacey dated as of December 16, 1998.
10.5+ Executive Securities Agreement by and between CableTel Europe
LLC and James E. Dovey, dated as of May 18, 1998
10.6+ First Amended and Restated Executive Securities Agreement by
and between CableTel Europe LLC and Richard N. Clevenger,
dated as of January 28, 1999
10.7+ Executive Securities Agreement by and between CableTel Europe
LLC and William H. Pearson, dated as of May 18, 1998
10.8+ Executive Securities Agreement by and between CompleTel LLC
and David Lacey dated as of December 2, 1998
10.9+ Joinder and Rights Agreement by and between CompleTel LLC and
David Lacey dated as of December 2, 1998
10.10+ Equity Registration Rights Agreement, dated as of February 16,
1999 among CompleTel LLC, CompleTel Holdings LLC, CompleTel
(N.A.) N.V., CompleTel Europe N.V., the Shareholders named
therein, the Initial Purchasers and U.S. Bank Trust National
Association, as Transfer Agent.
10.11(a)+ CompleTel LLC Guaranty Agreement, dated as of February 16,
1999, by CompleTel LLC in favor of the Noteholders.
10.11(b) Amended and Restated CompleTel LLC Guaranty Agreement,
dated as of July 14, 1999, by CompleTel LLC in favor of the
Noteholders.
10.12+ First Amended and Restated Equity Purchase Agreement, dated as
of January 28, 1999, by and among CompleTel LLC and Madison
Dearborn Capital Partners II, LP, DeGeorge Holdings Limited
Partnership, James C. Allen, Royce J. Holland, George T. Laub,
Reed E. Hundt, Dovey Company LLC, William H. Pearson, Richard
Clevenger and David A. Lacey.
10.13+ First Amended and Restated Securityholders Agreement dated as
of January 28, 1999, by and among CompleTel LLC and Madison
Dearborn Capital Partners II, LP, DeGeorge Holdings Limited
Partnership, James C. Allen, Royce J. Holland, George T. Laub,
Reed E. Hundt, Dovey Company LLC, William H. Pearson, Richard
Clevenger and David A. Lacey.
10.14+ First Amended and Restated Performance Vesting Agreement dated
as of January 28, 1999, by and among CompleTel LLC and Madison
Dearborn Capital Partners II, LP, DeGeorge Holdings Limited
Partnership, James C. Allen, Royce J. Holland, George T. Laub,
Reed E. Hundt, Dovey Company LLC, William H. Pearson, Richard
Clevenger and David A. Lacey.
10.15+ First Amended and Restated Registration Agreement dated as of
January 28, 1999, by and among CompleTel LLC and Madison
Dearborn Capital Partners II, LP, DeGeorge Holdings Limited
Partnership, James C. Allen, Royce J. Holland, George T. Laub,
Reed E. Hundt, Dovey Company LLC, William H. Pearson, Richard
Clevenger and David A. Lacey.
10.16+ Form of Executive Securities Agreement
10.17+ Form of Joinder Agreement
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.18+ Arrete dated November 17, 1998 authorising CompleTel SARL to
set up and operate a telecommunication Network open to the
public and to supply the public with the telephone service.
10.19+ Licence dated January 11, 1999 granted by the Secretary of
State for Trade and Industry to CompleTel UK Limited under
Section 7 of the Telecommunications Act 1984.
10.20(a) German License Certificate Class 4 for the Operation of
Voice Telephone Service on the Basis of a Self-Operated
Telecommunications Network dated March 8, 1999.
10.20(b) German License Certificate Class 3 for the Operation for
the Performance of Public Telecommunications Services by the
Licensee or Others dated March 8, 1999.
10.20(c)* Extension of Class 3 German Licenses
10.21+ Management Agreement, dated as of February 25, 1999, by and
between ING Trust, CompleTel Europe N.V. and CompleTel LLC.
10.22+ Supply Agreement dated January 8, 1999, between CompleTel SAS
and Matra Nortel Communications.
10.23 Contract for sale in Acces et Solutions Internet dated March
24, 1999.
12.1 Statement Regarding Computation of Ratios of Earnings to Fixed
Charges.
21.1+ Subsidiaries
23.1 Consent of Arthur Andersen LLP on CompleTel N.V. and CompleTel
LLC.
23.2 Consent of Barbier, Frinault & Associes(Arthur Andersen) on
Acces Internet et Solutions S.A.R.L.
23.3* Consent of Nauta Dutilh (included in the opinion filed as Exhibit
5.1 to this Registration Statement).
23.4* Consent of Holme Roberts & Owen LLP (included in the opinion
filed as Exhibit 8.1 to this Registration Statement).
23.5* Consent of Arthur Andersen Belastingadviseurs (included in the
opinion filed as Exhibit 8.2 to this Registration Statement).
23.6* Consent of Holme Roberts & Owen LLP (included in the Opinion
filed as Exhibit 5.2 to this Registration Statement)
24.1 Power of Attorney from officers and directors (included on the
signature page hereof).
25.1+ Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule for CompleTel Europe N.V.
27.2 Financial Data Schedule for CompleTel LLC.
99.1+ Form of Letter of Transmittal.
99.2+ Form of Notice of Guaranteed Delivery.
</TABLE>
----------
* To be filed by amendment
+ Previously filed
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act 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 Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceedings) 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
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(b) The undersigned Company hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(c) The undersigned Company hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved
II-3
<PAGE>
therein, that was not the subject of and included in the registration
statement when it became effective.
(d) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
Prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of CompleTel LLC and CompleTel Europe N.V. has duly caused this
registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, in the city of Denver, State of Colorado, on
August 27, 1999.
COMPLETEL LLC,
a Delaware limited liability company
By: /s/ James E. Dovey
--------------------------------------
Name: James E. Dovey
Title: Chairman of the Board
and Chief Executive Officer
COMPLETEL EUROPE N.V.,
a public limited liability company organized
under the laws of The Netherlands
By: /s/ James E. Dovey
--------------------------------------
Name: James E. Dovey
Title: Attorney-in-Fact
POWER OF ATTORNEY
Each of the undersigned constitutes and appoints James E. Dovey and
David E. Lacey, and each of them, as attorneys for him and in his name,
place, and stead, and in his capacity as a director, officer, or both, of
CompleTel LLC and CompleTel Europe N.V., to execute and file any amended
registration statement or statements or supplements thereto, with all
exhibits thereto and other documents in connection therewith, with the
Securities Exchange Commission, hereby giving and granting to said attorneys
full power and authority to do and perform all and every act and thing
whatsoever requisite and necessary to be done in and about the premises as
fully, to all intents and purposes, as he or she might or could do if
personally present at the doing thereof, hereby ratifying and confirming all
that said attorneys may or shall lawfully do, or cause to be done, by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed by the following
persons in the capacities indicated.
COMPLETEL LLC OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
REGISTRANT OFFICERS & DIRECTORS POSITION WITH REGISTRANT DATE
- ------------------------------- ------------------------ ----
<S> <C> <C>
/s/ James E. Dovey Chairman of the Board and Chief August 27, 1999
- ------------------------------ Executive Officer
James E. Dovey
* Senior Vice President and Chief August 27, 1999
- ------------------------------ Financial Officer
David E. Lacey
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
* Corporate Controller, Principal August 27, 1999
- ------------------------------ Accounting Officer
John M. Hugo
* President of European Operations August 27, 1999
- ------------------------------ and Director
William H. Pearson
* Director August 27, 1999
- ------------------------------
James C. Allen
Director August 27, 1999
*
- ------------------------------
Royce J. Holland
* Director August 27, 1999
- ------------------------------
Lawrence F. DeGeorge
* Director August 27, 1999
- ------------------------------
Paul J. Finnegan
* Director August 27, 1999
- ------------------------------
James H. Kirby
* Director August 27, 1999
- ------------------------------
James N. Perry, Jr.
*
-----------------------------
By: /s/ James E. Dovey
- ------------------------------
James E. Dovey, Attorney-in-Fact
</TABLE>
COMPLETEL EUROPE N.V. OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
REGISTRANT OFFICER & DIRECTORS POSITION WITH REGISTRANT DATE
- ------------------------------ ------------------------ ----
<S> <C> <C>
ING Trust (Netherlands) B.V. Managing Director August 27, 1999
By /s/ P.C.E. van Witteveen
- ------------------------------
Name: P.C.E. van Witteveen
Title: General Proxy Holder
By: /S/ J.A.C. Verhoeff
- ------------------------------
Name: J.A.C. Verhoeff
Title: General Proxy Holder
</TABLE>
II-6
<PAGE>
AUTHORIZED U.S. REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the undersigned in the capacity
and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE POSITION WITH COMPLETEL EUROPE N.V. DATE
- --------- ----------------------------------- ----
<S> <C> <C>
/s/ James E. Dovey Authorized Representative in the August 27, 1999
- ------------------------------ United States
James E. Dovey
</TABLE>
II-7
<PAGE>
{FACE OF NOTE}
COMPLETEL EUROPE N.V.
14% Series B Senior Discount Note Due 2009
CUSIP No. $
ISIN No.
No.
This Note is issued with original issue discount for purposes of Section 1271
et seq. of the Internal Revenue Code. For each $1,000 principal amount at
maturity of this Note, the issue price is $ and the amount of original
issue discount is $ . The issue date of this Note is _______________,
1999 and the yield to maturity is 14%.
COMPLETEL EUROPE N.V., a Netherlands public company with limited
liability (incorporated with limited liability in The Netherlands and having
its statutory domicile in Amsterdam), (the "Company," which term includes any
successor under the Indenture hereinafter referred to), for value received,
promises to pay to _______________, or its registered assigns, the principal
sum of _______________ ($_______) on February 15, 2009.
Interest Payment Dates: February 15 and August 15, commencing
August 15, 2004.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually by its duly authorized signatories.
COMPLETEL EUROPE N.V.
By:
Name:
Title:
By:
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 14% Series B Senior Discount Notes due 2009
described in the within-mentioned Indenture.
Date: __________, 1999 U.S. BANK TRUST NATIONAL
ASSOCIATION, as Trustee
By:
Authorized Signatory
<PAGE>
{REVERSE SIDE OF NOTE}
COMPLETEL EUROPE N.V.
14% Series B Senior Discount Note due 2009
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on February 15, 2009.
The Company promises to pay interest on the principal amount of
this Note on each Interest Payment Date, as set forth below, at the rate per
annum shown above.
Interest will be payable semiannually (to the holders of record of
the Notes at the close of business on the February 1 or August 1 immediately
preceding the Interest Payment Date (the "Regular Record Date"), on each
Interest Payment Date, commencing August 15, 2004; provided that no interest
shall accrue on the principal amount of this Note prior to February 15, 2004
and no interest shall be paid on this Note prior to August 15, 2004.
From and after February 15, 2004 interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest
has been paid, from February 15, 2004. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful,
at a rate per annum that is the then applicable interest rate borne by the
Notes.
2. METHOD OF PAYMENT.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each February 15 and
August 15 to the persons who are Holders (as reflected in the Security
Register at the close of business on the Regular Record Date), in each case,
even if the Note is canceled on registration of transfer or registration of
exchange after such record date; provided that, with respect to the payment
of principal, the Company will make payment to the Holder that surrenders
this Note to a Paying Agent on or after February 15, 2009.
<PAGE>
The Company will pay principal, premium, Additional Amounts if any,
and as provided above, interest in money of the United States that at the
time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal, premium, if any, and interest by its
check payable in such money. It may mail an interest check to a Holder's
registered address (as reflected in the Security Register). If a payment
date is a date other than a Business Day at a place of payment, payment may
be made at that place on the next succeeding day that is a Business Day and
no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as authenticating agent, Paying
Agent and Registrar in the Borough of Manhattan, The City of New York. The
Company may change any authenticating agent, Paying Agent or Registrar
without notice. The Company, any Subsidiary or any Affiliate of any of them
may act as Paying Agent, Registrar or co-Registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of
February 16, 1999 (the "Indenture"), between the Company, CompleTel ECC B.V.,
a Netherlands private limited company and U.S. Bank Trust National
Association (the "Trustee"). Capitalized terms herein are used as defined in
the Indenture unless otherwise indicated. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such
terms, and Holders are referred to the Indenture and the Trust Indenture Act
for a statement of all such terms. To the extent permitted by applicable
law, in the event of any inconsistency between the terms of this Note and the
terms of the Indenture, the terms of the Indenture shall control. This is
one of the Notes referred to in the Indenture. The Initial Notes and the
Exchange Notes are unsecured (except to the limited extent provided in the
Indenture) and unsubordinated obligations of the Company limited in aggregate
principal amount at maturity not to exceed $147,500,000.
5. ADDITIONAL AMOUNTS.
The Company will pay to the Holders of Notes such Additional
Amounts as may become payable under Section 4.21 of the Indenture.
<PAGE>
6. REDEMPTION.
(a) The Notes will be redeemable, at the Company's option, in
whole or in part, at any time or from time to time, on or after February 15,
2004 and prior to maturity, at the Redemption Prices (expressed in
percentages of principal amount at maturity) set forth below, plus accrued
and unpaid interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is on or prior to
the Redemption Date to receive interest due on an Interest Payment Date), if
redeemed during the 12-month period commencing February 15 of the years set
forth below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----------
<S> <C>
2004 107.000%
2005 104.667%
2006 102.333%
2007 and thereafter 100.000%
</TABLE>
(b) In addition, at any time prior to February 15, 2002 the
Company may redeem up to 33 1/3% of the principal amount at maturity of the
Notes originally issued with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at the Company's option,
at any time or from time to time in part, at a Redemption Price (expressed as
a percentage of Accreted Value on the Redemption Date) of 114% plus accrued
and unpaid interest, if any, to the Redemption Date; provided that (i) at
least $98,334,000 aggregate principal amount at maturity of Notes remains
outstanding after each such redemption and (ii) the Company mails a notice of
such redemption within 60 days of receipt of the Public Equity Offering
proceeds to be so applied.
Notice of any optional redemption will be mailed at least 30 days
but not more than 60 days before the Redemption Date to each Holder of Notes
to be redeemed at his last address as it appears in the Security Register.
On and after the Redemption Date, interest ceases to accrue and the original
issue discount ceases to accrete on Notes or portions of Notes called for
redemption, unless the Company defaults in the payment of the Redemption
Price. The Trustee may select for redemption portions of the principal
amount at maturity of the Notes that have denominations equal to $1,000
integral multiples thereof, so long as no Holder holds less than $100,000
principal amount at maturity after such redemption.
<PAGE>
7. REDEMPTION FOR CHANGES IN WITHHOLDING TAXES.
The Company may also have the option to redeem the Notes, in whole,
but not in part, in the event of certain changes in the tax laws such that
the Company would be required to pay Additional Amounts, subject to Section
3.01(c) of the Indenture.
8. REPURCHASE UPON CHANGE IN CONTROL.
Upon the occurrence of an Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash
pursuant to the offer described in the Indenture at a purchase price equal to
101% of the Accreted Value thereof plus accrued interest, if any, to the date
of purchase (the "Change of Control Payment").
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at his last address as it
appears in the Security Register. On and after the Change of Control Payment
Date, interest ceases to accrue and the original issue discount ceases to
accrete on Notes or portions of Notes surrendered for purchase by the
Company, unless the Company defaults in the payment of the Change of Control
Payment.
9. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations
of $100,000 of principal amount at maturity and multiples of $1,000 in excess
thereof. A Holder may register the transfer or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and
to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer or exchange of any Notes selected
for redemption. Also, it need not register the transfer or exchange of any
Notes for a period of 15 days before a selection of Notes to be redeemed is
made.
10. PERSONS DEEMED OWNERS.
A Holder shall be treated as the owner of a Note for all purposes.
11. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay
the money back to the
<PAGE>
Company at its request. After that, Holders entitled to the money must look
to the Company for payment, unless an abandoned property law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from this Indenture and the Notes, except in
certain circumstances for certain sections thereof, and (b) to the Stated
Maturity, the Company will be discharged from certain covenants set forth in
the Indenture.
13. LEGAL DEFEASANCE AND COVENANT DEFEASANCE.
The Company may be discharged from its obligations under the
Indenture and the Notes except for certain provisions thereof, and may be
discharged from obligations to comply with certain covenants contained in the
Indenture and the Notes, in each case upon satisfaction of certain conditions
specified in the Indenture.
14. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a
majority in principal amount at maturity of the Notes then outstanding, and
any existing default or compliance with any provision may be waived with the
consent of the Holders of at least a majority in principal amount at maturity
of the Notes then outstanding. Without notice to or the consent of any
Holder, the parties thereto may amend or supplement the Indenture or the
Notes to, among other things, cure any ambiguity, defect or inconsistency and
make any change that does not adversely affect the rights of any Holder in
any material respect. Certain modifications will require the consent of each
Holder affected thereby.
15. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur
additional Indebtedness, make Restricted Payments, use the proceeds from
Asset Sales, engage in transactions with Affiliates or merge, consolidate
<PAGE>
or transfer substantially all of its assets. Within 90 days after the end of
each fiscal quarter, the Company must report to the Trustee on compliance
with such limitations.
16. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
17. DEFAULTS AND REMEDIES.
If an Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 of the Indenture that occur with respect to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount at maturity of the Notes may declare all the Notes to
be due and payable. If a bankruptcy or insolvency default with respect to
the Company occurs and is continuing, the Notes automatically become due and
payable. Holders may not enforce this Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Notes. Subject to certain
limitations, Holders of at least a majority in principal amount at maturity
of the Notes then outstanding may direct the Trustee in its exercise of any
trust or power.
18. TRUSTEE DEALINGS WITH COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for
the Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
19. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner,
shareholder, other equity holder, officer, director, employee or controlling
person as such, of the Company or of any successor Person shall have any
liability for any obligations of the Company under the Notes or this
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
<PAGE>
20. AUTHENTICATION.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
21. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to CompleTel
Europe N.V., c/o CompleTel LLC, 6300 South Syracuse Way, Suite 335,
Englewood, Colorado, 80111, Attention: Chief Financial Officer.
22. CHOICE OF LAW.
The laws of the State of New York shall govern the Indenture and
this Note without regard to principles of conflicts of laws.
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Note to
(Print or type name, address and zip code of assignee or transferee)
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
------------------- ------------------------------
(Signed exactly as
name appears on the
other side of this Note)
Signature Guarantee:
Participant in a recognized Signature
Guarantee Medallion Program (or other
signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.10 or Section 4.12 of this Indenture, check the Box: [ ]
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10 or Section 4.12 of the Indenture, state the amount
(in principal amount at maturity): $____________________.
Date: _________________
Your Signature:
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee:____________________________
<PAGE>
AMENDED AND RESTATED
COMPLETEL LLC GUARANTY AGREEMENT
This AMENDED AND RESTATED GUARANTY AGREEMENT (this "GUARANTY") is made
and entered into this 14th day of July, 1999, by CompleTel LLC, a Delaware
limited liability company (the "GUARANTOR"), in favor of each holder from
time to time (the "NOTEHOLDERS") of the 14% Senior Discount Notes due 2009
(the "OLD NOTES") and/or the 14% Series B Senior Discount Notes due 2009 (the
"NEW NOTES" and, together with the Old Notes, the "NOTES") issued by
CompleTel Europe N.V., a public company with limited liability (NAAMLOZE
VENNOOTSCHAP) incorporated under the laws of The Netherlands and having its
corporate domicile in Amsterdam (the "ISSUER"), pursuant to an indenture
dated as of February 16, 1999 (the "INDENTURE") by and between the Issuer,
CompleTel ECC B.V., a private company with limited liability (BESLOTEN
VENNOOTSCHAP) incorporated under the laws of The Netherlands and having its
corporate domicile in Amsterdam, and U.S. Bank Trust National Association, a
National banking corporation. Capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed to them in the
Indenture.
RECITALS
A. The Guarantor is the ultimate parent of the Issuer.
B. The Issuer, on February 16, 1999, issued and sold $147.5 million
aggregate principal amount at maturity of the Old Notes to the Noteholders
pursuant to an exemption from the U.S. Securities Act of 1933, as amended,
and pursuant to certain exceptions from finance company laws of The
Netherlands that require, among other things, that the Notes be guaranteed by
the ultimate parent of the Issuer. As a result of this requirement, on
February 16, 1999 the Guarantor entered into a Guaranty Agreement (the
"GUARANTY AGREEMENT") in respect of the Old Notes.
C. The Issuer intends to issue and sell the New Notes in exchange for
the Old Notes pursuant to a registration statement filed with the U.S.
Securities and Exchange Commission registering the exchange, and pursuant to
the aforementioned exceptions from finance company laws of The Netherlands.
As a result, the Guarantor now desires to amend and restate the Guaranty
Agreement to include the New Notes when issued, which amendment and
restatement (1) is intended to, and does, continue the provisions of the
Guaranty Agreement without interruption or impairment of any kind, and (2) is
not intended to, and does not, constitute a novation.
D. The Guarantor, as the ultimate parent of the Issuer, hereby
acknowledges it has benefited from the Issuer's sale of the Old Notes to the
Noteholders and that it will benefit from the exchange of the New Notes for
the Old Notes and its guaranty of the Notes set forth herein.
<PAGE>
AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the Guaranty Agreement is hereby amended and restated in its
entirety, effective upon issuance of the New Notes, as follows:
In compliance with applicable Netherlands banking laws and U.S.
securities laws and in consideration of the Noteholders' purchase of the
Notes, Guarantor hereby covenants and agrees with, and represents and
warrants to the Noteholders as follows:
1. GUARANTY. The Guarantor hereby irrevocably and unconditionally
guarantees to each holder from time to time of any of the Notes, the due and
punctual payment in full of (a) the principal of, premium, if any, and
interest on, and any Additional Amounts due under, the Notes when and as the
same shall become due and payable (whether at stated maturity or by required
or optional prepayment, mandatory redemption, or by acceleration or
otherwise) and (b) any other sums that may become due under, or in connection
with, the terms and provisions of the Notes (all such obligations described
in clauses (a) and (b) above are herein called the "GUARANTEED OBLIGATIONS").
The guaranty in the preceding sentence is an absolute, and unconditional
present and continuing guaranty of payment and not of collectibility and is
in no way conditional or contingent upon any attempt to collect from the
Issuer or other guarantor of the Guaranteed Obligations, if any, or upon any
other action, occurrence or circumstance whatsoever. If the Issuer fails to
pay any of such Guaranteed Obligations, the Guarantor agrees to pay the same
when due to the holders of the Notes entitled thereto, without demand,
presentment, protest or notice of any kind, in lawful money of the United
States of America, at the place for payment specified in the Notes and the
Indenture.
2. WAIVERS. The Guarantor hereby waives: (a) notice of acceptance of
this Guaranty and of the creation and existence of the Notes; (b)
presentment, demand for payment, notice of dishonor, notice of nonpayment,
and protest of any instrument evidencing the Notes; (c) all other demands and
notices to the Guarantor or any other person and all other actions to
establish the liability of the Guarantor hereunder; and (d) the right to
trial by jury in any action in connection with this Guaranty. No delay or
failure by the Noteholders in the exercise of any right or remedy shall
constitute a waiver thereof, and no single or partial exercise by the
Noteholders of any right or remedy shall preclude other or further exercise
of any other right or remedy.
3. SEVERABILITY. Any invalidity or unenforceability of any provision
or application of this Guaranty, or any portion hereof, shall not affect
other lawful provisions and applications hereof, and to this end the
provisions of this Guaranty are declared to be severable. This Guaranty is
binding on the Guarantor and on the successors and assigns of the Guarantor,
and of each of them respectively, and shall inure to the benefit of the
Noteholders, their successors and assigns.
4. GOVERNING LAW. This Guaranty is governed by and must be construed
in accordance with the laws of the State of New York, U.S.A.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Amended and Restated
Guaranty Agreement to be executed and delivered as of the date first above
written.
COMPLETEL LLC,
a Delaware limited liability company
By: /S/ JAMES E. DOVEY
--------------------------------------
James E. Dovey,
Chief Executive Officer
<PAGE>
Page 1 of 3
LICENSE - LICENSE CLASS 4
FOR THE OPERATION OF VOICE TELEPHONE SERVICE
ON THE BASIS OF A SELF-OPERATED TELECOMMUNICATIONS NETWORK
The Regulatory authority for Telecommunications and Postal Services (Reg TP,
Licensor), in response to the application dated September 3, 1998, under the
terms of Section 6, Paragraph 2, No. 2, in connection with Section 8, Paragraphs
1 to 3 and Section 50, Paragraph 2, Clause 1 of the Telecommunications act (TKG)
of July 25, 1996 (Bundesgesetzblatt I, p.1120) from
COMPLE TEL GMBH
HOHENSTAUFENRING 62, 50 674 COLOGNE
(LICENSEE)
(hereinafter designated "the Licensee") hereby issues a license in License Class
4 for the operation of voice telephone service on the basis of self-operated
telecommunications networks.
The application dated September 3, 1998, is a component of this license.
This license is recorded under No. 98 04 0657.
<PAGE>
Page 2 of 3
1. SUBJECT OF THE LICENSE
1.1 SCOPE OF APPLICATION
With this license, the Licensee receives the right, under the terms of the
Telecommunications Act and the legal orders based on said Act, to offer
voice telephone service on the basis of self-operated telecommunications
networks in the context of License Class 4 in the License Territory.
This License does not include the right to operate transmission links.
1.2 GEOGRAPHIC TERRITORY
The License Territory of the territory of the cities of:
- Berlin
- Munich
- Frankfurt am Main
2. INCIDENTAL PROVISIONS
2.1 MODIFICATIONS TO THE COMMERCIAL REGISTER
The Licensor must be notified immediately of any modifications in the
information recorded in the Commercial Register, which notification must be
accompanied by a copy of a certified extract from the Commercial Register.
This information is required to determine whether the license requirements
set forth in Section 8, paragraph 3, Clause 2, No. 2 TKG are still met, and
to ensure compliance with the Licensee's obligations in the event of a
transformation and/or change in ownership of the Licensor under Section 9
TKG.
2.2 Safety Officer and Documents Required under Section 87 Paragraph 2 TKG
Before beginning operation of the service, the Licensee must designate the
Safety Officers, submit the documents stipulated in Section 87, Paragraph
2, TKG, and provide the statement stipulated by Section 87 paragraph 2,
Clause 2 TKG.
3. ADDITIONAL INFORMATION
3.1 TECHNICAL IMPLEMENTATION OF MONITORING MEASURES STIPULATED BY SECTION 88
TKG
It is expressly noted that the technical configuration of the equipment for
the implementation of legally required measures for monitoring
telecommunications under Sections 88, Paragraph 2, Clause 1, requires the
approval of the regulatory authorities. The operation of the
telecommunications systems before the demonstration that the approval
requirements have been met in the context of the acceptance procedure is a
violation of Sections 88 Paragraph 2, Clause 4, together with Section 96,
Paragraph 1, No. 13 and 14 TKG, and may result in the revocation of the
license under the terms of Section 15 TKG.
<PAGE>
Page 3 of 3
3.2 FEE
The License is issued in exchange for a fee as stipulated in Section 16,
Paragraph 1, Clause 1 TKG. The fee, on the basis of the Telecommunications
License Fee Order (TKLGebV) dated July 28, 1997 (BGBl. I, p. 1936) issued
on the basis of Section 16, Paragraph 1, No. 2, TKG, shall be determined by
a separate decision.
3.3 FUTURE AMENDMENTS OR ADDITIONS TO INCIDENTAL PROVISIONS
This License may be provided with additional incidental provisions after it
has been issued, as stipulated in Section 8, Paragraph 2, Clause 2, TKG.
3.4 MISCELLANEOUS
It is expressly noted that the remaining provisions of the
Telecommunications Act also apply.
NOTICE OF RIGHT OF APPEAL
An appeal may be filed against this Decision within one month of its release,
with the Administrative Court of Cologne, Appellhofplatz, 50667 Cologne, in
writing or in person with the Court Documents Officer. The appeal must indicate
the name of the appellant, the respondent and the subject of the appeal. It must
contain a specific request. The facts and evidence produced in support of the
appeal must be indicated. The appeal and the documents must be attached in a
sufficient number of copies that all the parties involved can receive a copy.
The appeal has no suspensory effect.
Regulatory Authority for
Telecommunications and Postal Services Mainz, March 8, 1999
[signature]
Zufall [Seal]
<PAGE>
Page 1 of 4
LICENSE - LICENSE CLASS 3
FOR THE OPERATION OF TRANSMISSION LINKS
FOR THE PERFORMANCE OF PUBLIC TELECOMMUNICATIONS SERVICES
BY THE LICENSEE OR OTHERS
The Regulatory authority for Telecommunications and Postal Services (Reg TP,
Licensor), in response to the application dated September 3, 1998, under the
terms of Section 5, Paragraph 1, No. 1, Paragraph 2, No. 1, letter c) in
connection with Section 8, Paragraphs 1 to 3 and Section 50, Paragraph 2, Clause
1 of the Telecommunications Act (TKG) of July 25, 1996 (Bundesgesetzblatt I,
p.1120) from
COMPLE TEL GMBH
HOHENSTAUFENRING 62, 50 674 COLOGNE
(LICENSEE)
(hereinafter designated "the Licensee") hereby issues a license in License Class
3 for the operation of transmission links to offer telecommunications services
to the public by the Licensee or others.
The application dated September 3, 1998, is a component of this license.
This license is recorded under No. 98 03 0216.
<PAGE>
Page 2 of 4
1. SUBJECT OF THE LICENSE
1.1 SCOPE OF APPLICATION
With this license, the Licensee receives the right, under the terms of the
Telecommunications Act and the legal orders based on said Act, to operate
transmission links in the context of License Class 3 in the License
Territory, by means of which telecommunications services are offered to the
public by the Licensee and by other parties.
The Licensee is also entitled to operate transmission links in the form of
wireless communications links, if the frequencies required have been
allocated under the terms of Sections 44 to 48 TKG and the frequency
regulations based on said TKG. These frequency allocations are a component
of this License.
The License does not authorize the Licensee to offer voice telephone
service (Section 6, paragraph 2, No. 2 TKG), or to operate transmission
links for public wireless telephone services or satellite wireless services
(Section 6, Paragraph 2, No. 1, letters a) and b) TKG).
1.2 GEOGRAPHIC TERRITORY
The License Territory of the territory of the cities of:
- Berlin
- Munich
- Frankfurt am Main
2. USE OF PUBLIC ROADS
The Licensor transfers to the Licensee, under the terms of Section 50,
Paragraph 2, No. 1 TKG, the right to use public roads, free of charge, for
telecommunications lines (Section 3, No. 20 TKG) as required for the
exercise of the license rights, under the terms of Sections 50 to 58 TKG,
to the extent that such telecommunications lines will not cause any
long-term restriction of the use of the public roads for their intended
purpose.
3. INCIDENTAL PROVISIONS
3.1 MODIFICATIONS TO THE COMMERCIAL REGISTER
The Licensor must be notified immediately of any modifications in the
information recorded in the Commercial Register, which notification must be
accompanied by a copy of a certified extract from the Commercial Register.
This information is required to determine whether the license requirements
set forth in Section 8, paragraph 3, Clause 2, No. 2 TKG are still met, and
to ensure compliance with the Licensee's obligations in the event of a
transformation and/or change in ownership of the Licensor under Section 9
TKG.
<PAGE>
Page 3 of 4
3.2 OFFER TO SELL TRANSMISSION LINKS
The Licensee must be notified immediately of the offer to sell transmission
links under the terms of Appendix II to "Guideline 92/44/EWG of the Council
dated June 5, 1992, on the Introduction of Open Network Access to Leased
Lines" (Abl. EG No. L 165 dated June 19, 1992, p. 27), as amended by
Commission Resolution 94/439/EWG dated June 15, 1994 (Abl. EG No. L 181
dated July 15, 1994, p. 40). The information is required to determine the
market share with regard to the obligation to provide universal services as
set forth in Section 18, paragraph 1 TKG.
3.3 SAFETY OFFICER AND DOCUMENTS REQUIRED UNDER SECTION 87 PARAGRAPH 2 TKG
Before beginning operation of the service, the Licensee must designate the
Safety Officers, submit the documents stipulated in Section 87, Paragraph
2, TKG, and provide the statement stipulated by Section 87 paragraph 2,
Clause 2 TKG.
4. ADDITIONAL INFORMATION
4.1 TECHNICAL IMPLEMENTATION OF MONITORING MEASURES STIPULATED BY SECTION 88
TKG
It is expressly noted that the technical configuration of the equipment for
the implementation of legally required measures for monitoring
telecommunications under Sections 88, Paragraph 2, Clause 1, requires the
approval of the regulatory authorities. The operation of the
telecommunications systems before the demonstration that the approval
requirements have been met in the context of the acceptance procedure is a
violation of Sections 88 Paragraph 2, Clause 4, together with Section 96,
Paragraph 1, No. 13 and 14 TKG, and may result in the revocation of the
license under the terms of Section 15 TKG.
The configuration and presentation of technical equipment for the
implementation of legally required measures for monitoring
telecommunications are not necessary:
- if at the ends of the transmission links that lie within the scope
and/or territorial range of the license, the only network nodes that
have been activated are those whose operators are for their part
subject to the requirements of Sections 88 TKG or if the transmission
links are used to connect network nodes to which no terminals within
the meaning of Section 2, No. 4 FUV or within the meaning of Sections
88 Paragraph 2 TKG can be connected;
- if the Licensee operates only transmission links via which only the
telecommunications services "Transmission of Audio and Video Programs"
for the public are offered by it or by others.
4.2 FEE
The License is issued in exchange for a fee as stipulated in Section 16,
Paragraph 1, Clause 1 TKG. The fee, on the basis of the Telecommunications
License Fee Order (TKLGebV) dated July 28, 1997 (BGBl. I, p. 1936) issued
on the basis of Section 16, Paragraph 1, No. 2, TKG, shall be determined by
a separate decision.
<PAGE>
Page 4 of 4
4.3 FEES AND ASSESSMENTS IN THE EVENT OF ALLOCATION OF FREQUENCIES
Any allocation of frequencies for the operation of transmission links in
the form of wireless links shall be subject to the payment of fees and
assessments under the terms of Section 48 TKG and the Frequency Fee Order
(FGebV) dated May 21, 1997 (BGBl. I, p. 1126) and the Frequency Usage
Assessment Order (FBeitrV) dated November 19, 1996 (BGBl. I, p. 1790)
issued on the basis of the TKG. Frequency allocation fees and frequency
usage assessments shall be determined by a separate decision. Modifications
to the allocation and re-allocation of frequencies shall be made by
independent administrative orders.
4.4 TRANSMISSION OF RADIO PROGRAMS
For the operation of transmission links for which an allocation of
frequencies is necessary for the transmission of radio programs, please
refer to Section 47, Paragraph 3, TKG, which is applicable in the context
of the frequency allocation.
4.5 FUTURE AMENDMENTS OR ADDITIONS TO INCIDENTAL PROVISIONS
This License may be provided with additional incidental provisions after it
has been issued, as stipulated in Section 8, Paragraph 2, Clause 2, TKG.
4.6 MISCELLANEOUS
It is expressly noted that the remaining provisions of the
Telecommunications Act also apply.
NOTICE OF RIGHT OF APPEAL
An appeal may be filed against this Decision within one month of its release,
with the Administrative Court of Cologne, Appellhofplatz, 50667 Cologne, in
writing or in person with the Court Documents Officer. The appeal must indicate
the name of the appellant, the respondent and the subject of the appeal. It must
contain a specific request. The facts and evidence produced in support of the
appeal must be indicated. The appeal and the documents must be attached in a
sufficient number of copies that all the parties involved can receive a copy.
The appeal has no suspensory effect.
Regulatory Authority for
Telecommunications and Postal Services Mainz, March 8, 1999
[signature]
Zufall [Seal]
<PAGE>
CONTRACT FOR SALE OF STOCK IN A COMPANY
BETWEEN THE UNDERSIGNED:
The partners listed in Annex A, represented by Mr. Samuel Triolet, pursuant
to powers granted in Annex A (hereinafter, collectively, as "the sellers"),
on the one hand,
AND
CompleTel, a simplified stock company, with capital of FRF 342,392,800, with
head office in Washington Plaza, 44, rue de Washington, 75408 Paris Cedex 08,
appearing on the Paris Commercial Register (RCS) as No. B 418 399 699,
Represented by Mr. Jerome de Vitry, Chairman (hereinafter "the buyer")
specifically authorized to execute this agreement by a decision of the Board
of Directors of CompleTel LLC,
On the other hand.
WITH THIS PRIOR UNDERSTANDING:
Namely, that the sellers hold 125 shares in the company, each with a face
value of FRF 1,000, representing 100% of Acces et Solutions Internet (ASI,
hereinafter "the company"), a limited company with capital of FRF 125,000,
with head office at 43 boulevard du 11 novembre 1918, Espace le double mixte,
69622 Villeurbanne Cedex, appearing on the Lyons Commercial Register (RCS) as
No. B 402 063 297 ("the company").
The buyer has expressed his interest in immediately acquiring 100% of the
sellers' shares (hereinafter, "the shares") making up the company's
authorized capital.
THE PARTIES HAVE AGREED AS FOLLOWS:
ARTICLE 1. SALE
1.1 SALE
The sellers hereby sell the shares to the buyer, and the buyer hereby
acquires the shares.
<PAGE>
The conveyance of the shares is effective on the date of this contract, upon
completion by the sellers of all the formalities necessary for transferring
full and entire ownership of the shares to the buyer.
1.2 DOCUMENTS PROVIDED
A. On the date of the present contract, the sellers provided the buyer
with the following documents:
a. The minutes of the General Partners' Meeting that certified the
buyer as a new partner respecting the provisions of the Law of
July 24, 1966;
b. A certified updated copy of the Bylaws containing all provisions
in force on the date of the present contract;
c. The letters by which Messrs. Samuel Triolet, Michel Cerdini and
Philippe Duby voluntarily terminate their paid functions at ASI;
d. The original record containing the minutes of partners' meetings
of the company;
e. All other books and records maintained by the company in
accordance with applicable law and regulations;
f. The receivership contract referred to in Article 4.3
B. On the date of the present contract, the buyer provided the sellers
with the following:
a. The price of the sale paid in liquid funds by check: one check
in the amount of FRF 4,000,000 made out to the order of SCP
Jean-Marie Dalmais, Christophe Escoffier, Frederic Heuze,
associated court bailiffs, and 10 checks made out to the order
of each of the sellers, the whole totaling the sum of FRF
8,000,000.
b. A service contract signed on the date of the present contract
between Messrs. Samuel Triolet, Philippe Duby and Michel Cerdini
and CompleTel SAS.
ARTICLE 2. PRICE. METHOD OF PAYMENT
The price of the shares (hereinafter, "the price") is set by the contracting
parties at twelve million French francs (FRF 12,000,000).
The price is to be paid in liquid funds to the sellers on the date of the
present contract.
2
<PAGE>
The sum of FRF 4,000,000 shall be deposited in a receiver account opened on
the books of Lyonnaise de Banque CIC, in accordance with the provisions of
Article 4.3 of the present contract.
The sum of FRF 8,000,000 shall be paid out in the form of 10 checks made out
to each of the sellers.
The sellers acknowledge receipt of the entire price and hereby provide valid
and sound receipt thereof.
It is specified that the present receipt is provided by Mr. Alain Giroux,
Director of private clients at CIC Lyonnaise de Banque, duly authorized.
RECEIPT WHEREOF IS HEREBY ACKNOWLEDGED
/s/
ARTICLE 3. DECLARATIONS AND GUARANTEES
The sellers hereby declare and guarantee to the buyer that on the date of
this contract, the following declarations are exact and authentic:
3.1 LEGAL STATUS AND EXISTENCE OF THE COMPANY. COMPANY SHARES
(a) The company was established according to normal legal procedures and
exists as a valid concern.
(b) The updated copy of the company Bylaws provided to the buyer on this
contract date is a true and authentic.
(c) The company's administrative and executive bodies are currently
functioning in normal and usual manner, and in accordance with
pertinent law and regulations, and have so functioned in the past.
(d) The shares in question represent 100% of the company capital and 100%
of their voting rights; they are the property of the sellers, who are
duly authorized to sell the same without any restrictions whatsoever.
(e) The sellers certify that the shares in question are free of any liens,
pledges and any other interests whatsoever, and have not been the
subject of any promises to or originating with any third parties;
furthermore, generally speaking, the shares are in no sense under the
control, either direct or indirect, of any third party.
(f) The sellers declare that company business assets were pledged as
collateral to Lyonnaise de Banque in the amount of FRF 230,000 in
connection with a loan granted by that bank to the company on June 30,
1998. The amount of the loan was FRF 200,000 and a copy of the
transaction is provided in Annex L. The
3
<PAGE>
buyer declares that he intends to pay off this loan within 30 days
after the signing of the present contract.
3.2 FINANCIAL STATEMENTS, INVENTORY, ACCOUNTS RECEIVABLE
The company's balance sheet and profit and loss statement, including annexes,
as of December 31, 1998 (hereinafter collectively, as "the financial
statements") are attached in Annex B. These financial statements give an
accurate and reliable picture of the company's results and financial
situation as of December 31, 1998.
The financial statements were drawn up in accordance with generally accepted
French accounting principles, applied faithfully by the company.
As of December 31, 1998, the company had no liability, either known or
probable, not reflected on its balance sheet and annexes, including
specifically--but not exclusively--tax assessments, customs duty owed, Social
Security contributions due and/or appertaining penalties now overdue or
chargeable to periods prior to December 31, 1998.
The company has established statutory reserves in accordance with applicable
accounting rules that have been applied faithfully by the company. These
reserves provide adequate coverage for the period ended December 31, 1998. In
particular, full reserves covering paid vacation time accumulated but not yet
paid out have been constituted in the financial statements.
As of December 31, 1998, the company has granted no loan to any physical
person or entity, and in particular to the sellers, and this neither directly
nor indirectly.
All company inventories have characteristics of quality and quantity such
that they may be used and traded in the normal course of company business.
Outstanding receivables recorded in the company's financial statements under
the rubric "accounts receivable" are valid entries and are recoverable on the
payment deadlines indicated, in the amounts recorded on the company's books
of account as of the date of this contract, minus appropriate set-asides for
bad debts, all of which have been accounted for as of the date of this
contract (see details in Annex C).
3.3 NO SIGNIFICANT CHANGES
With the exception of the declarations made in Annex O, the company has been
carefully managed since December 31, 1998, under normal conditions and in
line with management principles used prior to that date.
4
<PAGE>
Since December 31, 1998, no decision has been made or implemented that goes
beyond the normal train of business, and no significant negative change has
occurred in the company's financial situation, operating profit, or in
general, company business.
The present sale of shares will not result in the termination, voiding or
significant modification of any company contract whatsoever, notably intuitu
personae.
3.4 TAXES AND DUTY, SOCIAL SECURITY
The company has filed all tax returns, made all Social Security contributions
and paid all duty owed to the pertinent governmental authorities, in timely
fashion and using the appropriate forms.
The company has paid all taxes, duties and Social Security contributions
owed, or has established appropriate reserves to cover such amounts owed, in
accordance with prudential rules and customary practice.
To the best of the sellers' knowledge, no late payment charge or penalty is
outstanding, and no procedure for recovering any payment from the company
will be forthcoming.
Annex D contains the sellers report to the buyer of any requests for
information or correspondence between the tax authorities and the company,
together with the responses made by the company to this correspondence.
3.5 ASSETS
With the exception of the contents of Annex E, the company owns and enjoys
full title to all the assets required for carrying on its business activity,
notably its fixed assets appearing in the financial statements; exceptions
are goods sold in the normal and ordinary course of business activity.
3.6 OFF BALANCE SHEET ITEMS
Without prejudice to the contents of the financial statements and Annex F,
the company has no off balance sheet liabilities; specifically--but not
exclusively--the company has granted no guarantee, pledge, indemnity or
surety whatsoever on behalf of any third party.
3.7 DISPUTES
Subject to the content of Annex G, the company is not currently the subject
of any legal or administrative procedure, either as plaintiff or defendant;
nor is it the subject of any arbitration proceeding; nor has the company been
the subject of a criminal
5
<PAGE>
proceeding. Furthermore, to the best knowledge of the sellers, and after duly
diligent research in this regard, no proceeding of the sorts aforementioned
is envisaged by the company, or with regard to it on the part of any third
party.
3.8 INTELLECTUAL PROPERTY
Annex H contains an exhaustive list and description of all company trademarks
and all trademarks used by the company in its business activity under
licensing agreements.
The company has renewed all trademarks listed in Annex H in timely fashion.
The company enjoys complete and unrestricted ownership of the trademarks
listed in Annex H, as well as the Internet access codes listed in Annex H.
Furthermore, the company enjoys usage rights without royalties to all the
software used in the course of conducting its business.
The company has granted no rights to any third party respecting either any
trademark or any Internet access code listed in Annex H and owned by the
company.
As of the date of the present contract, the company has engaged in no
infringement or violation of intellectual property rights (including source
code) belonging to any third party and not in the public domain.
3.9 INSOLVENCY
a) No legal administrator has been named to manage the totality or a
portion of the assets or stock in trade of the company.
b) No request or declaration has been made in view of seeking legal
redress or court-ordered liquidation of the company.
c) The company has not ceased paying its creditors and is not insolvent
or unable to pay its debts.
d) There is no outstanding, unexecuted legal judgment pending against the
company as regards its solvency, nor any legal action awaiting appeal.
3.10 EMPLOYEES, COMPANY AGENTS
a) No sum of money is due to any current or past company employee or
company agent for employment contract matters or matters affecting an
agent's agreement, other than rights to accumulated compensation not
yet able to be collected, or payment of professional fees.
b) No employment contract or agreement reached with company agents is
currently in force which would grant unusual employee benefits such as
profitsharing, longevity premiums or severance pay beyond such
benefits provided for in applicable collective labor agreements, nor
does any such contract or
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agreement specify the awarding of unusual employee benefits to some
beneficiary.
c) Annex I contains a list of labor contracts binding the company to
physical persons. This list is exhaustive as of the date of the
present contract, and there is no outstanding promise of employment
made by the company to any individual.
3.11 BUILDINGS, LEASES
Annex I contains an accurate and complete list of leases held by the company,
including leases for which the company holds a simple option. The list
includes the name of the lessor, the terms of the lease, the annual amount of
rent and other sums due. The company enjoys legal possession of the offices
where it conducts its business, and all company leases are valid. Signing of
the present contract will entail termination of none of these leases.
3.12 INSURANCE
Annex K contains a list of the insurance policies that the company owns.
Regarding these policies:
I. All premiums have been paid to date.
II. All policies are in force, and none is subject to termination as a
consequence the sale of the shares to the buyer.
3.13 CONTRACTS AND COMMITMENTS
With the exception of the contracts listed in Annex L, the company is party
to no contract or commitment, either written or oral, that may not be
terminated by the company with at least 30 days notice, and this without any
termination penalty, compensation, penalties or damages whatsoever redounding
to the company as the consequence of terminating such contracts or
commitments. To date, the company has initiated no termination of contract or
agreement that could have unfavorable consequences for the company.
3.14 BANK ACCOUNTS
The company's bank accounts are listed in Annex M. It has free access to the
amounts listed as credits in those accounts. Signatory powers for these
accounts are limited to those listed in Annex M.
7
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3.15 SUBSIDIARIES AND PARTNERSHIPS
The company has no stake in the capital of any French or foreign company, nor
is it party to any joint venture in any form whatsoever. As exception to this
declaration, it is explicitly mentioned that the company and the sellers are
associated with the following companies: ABCOM sarl, appearing on the
Commercial Register of Chalon sur Saone as No. B 417 647 104; Net Champagne
sarl, appearing on the Commercial Register of Troyes as No. B 420 695 652;
and SR2I sarl, appearing on the Commercial Register of Bourg as No. B 419 132
964. Annex N specifies the equity stake of the company in each of these three
companies.
3.16 YEAR 2000 COMPLIANCE
The sellers declare that they have conducted a study of company equipment
bearing on Y2K compliance.
This study included:
o Office equipment and software used in business management and
accounting;
o Company office equipment;
o Production equipment, both routers and servers.
The test made consisted in exposing all this equipment to the currently best
known major sources of failure as regards the Y2K transition (motherboard,
operating system, software error).
The test uncovered no failures based on this standard Y2K transition
measurement.
3.17 DISCLOSURE
None of the declarations made heretofore in this contract or in any of the
Annexes fails to mention a fact whose disclosure would be of importance to a
normally diligent buyer, nor would any disclosure render all or a portion of
the declarations made in the present contract misleading.
To the best understanding of the sellers, there is no fact able now or in the
future to have a prejudicial effect on the company's business, financial
situation or operating profit, which has not already been indicated in the
present contract and its annexes.
8
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ARTICLE 4. IMPLEMENTATION
4.1 COMPENSATION
A. In accordance with procedures to be defined hereinafter, the sellers agree
to compensate the buyer or the company--at the latter's discretion--for any
harm resulting from inaccuracy of the declarations made in accordance with
Article 3, above, or notwithstanding any information revealed in any annex,
for any increase in liability or decrease in assets of the company compared
to the situation described in the financial statements, which might arise or
be caused by an event, fact or transaction prior to the date of the present
contract.
B. The amount of potential compensation owed by the sellers shall be
determined with reference to the following conditions:
a) Tax adjustments of any sort resulting in a mere assessment delay (or
in a simple transfer of tax advantage from one year to another) are
excluded from the terms of the present contract, insofar as such
adjustments would not result in a specific charge in terms of
principal, interest and late penalty.
b) Any increase in assets (other than revaluation of assets) or reduction
in liability of the company that might emerge afterwards, compared
with the results of the financial statements, shall be considered an
exempt amount to be deducted from the overall sum of compensation that
might be due to the buyer under the terms of the present guarantee.
In any event, the aforementioned positive change may only be considered with
respect to the framework of compensation, and in no event may be deemed to
entail any payment whatsoever by the buyer to the sellers.
C. The sellers' obligation to provide compensation shall take effect only
when the cumulative sums due, calculated according to the conditions
specified above, shall exceed FRF 100,000, and in that event, beginning with
the first whole franc. As regards the present paragraph, only damages
resulting from individual complaints and exceeding FRF 10,000 will be
considered. The maximum amount of compensation payable by the sellers in the
context of the present mechanism is set at the sum of FRF 6,000,000. The time
frame for this compensation begins on the date of the present contract and
ends on June 30, 2000 at the end of the day. For the period beginning July 1,
2000 and ending on June 30, 2001 at the end of the day, the maximum amount
shall be reduced to FRF 4,000,000. After June 30, 2001, a ceiling of
[FRF 1,000,000] shall continue to apply, but solely for tax, corporate or
customs liabilities as provided for in Article 4.2.
D. The buyer must inform the sellers and the receiver indicated in Article
4.3 as soon as he has knowledge of the existence of any event or complaint
likely to bring the
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present guarantee mechanism into play. This information must be in writing,
in the form of a certified letter with return receipt sent to the sellers'
representative or to any other person designated by the sellers for that
purpose, thereby ensuring the ability of the sellers to defend their own
interests. In addition, the buyer must forward to the sellers' representative
all correspondence and all documentation related to these events or
complaints. For this purpose, the sellers designate Mr. Samuel Triolet and
Mr. Michel Cerdini as their representatives respecting the receipt of all
communications related to the implementation of this guarantee.
The sellers have a 15-day grace period in which to notify the buyer of their
reasoned response, failing which the buyer or the company may follow up as
they deem appropriate the events, facts, complaints or legal proceedings that
come to their notice, and the sellers shall be presumed to have agreed to
guarantee all the harmful consequences and bear fully the financial costs
that result from such action. This financial charge shall specifically
include all costs, penalties and interest charges bearing on the maximum
amount of compensation as defined in Paragraph 4.1 C, above, calculated as of
the date of the complaint made by the buyer. As for attorneys' fees, these
shall be included up to a reasonable limit in said financial charge. The
buyer agrees to give the sellers notice of his choice of legal counsel as
quickly as possible.
The sellers may choose to undertake direct settlement of the legal action by
assuming responsibility for the totality of expenses and risks related to
that action and based on the maximum amount of compensation as defined in
Paragraph 4.1 C above, calculated as of the date of the complaint made by the
buyer. As a condition of adopting this alternative procedure, which would
relieve the buyer and the company of any subsequent concern in the matter,
notice of its adoption must be sent from the sellers to the buyer within 15
days, and the sellers must keep the buyer abreast of the progress of the
procedure.
Moreover, it is agreed that any transaction agreement bearing on a complaint
likely to bring the present guarantee into play must receive the prior
approval of Mr. Samuel Triolet or Mr. Cerdini, representatives of the sellers.
The payment of any amount due by the sellers to the buyer or the company in
the context of the present mechanism must be carried out:
- By the receiver, in amounts not exceeding the sums in his possession;
or
- By the sellers, in the amount requested in the legal action when it
lies between the sums in the possession of the receiver and the
maximum amount of compensation provided for in Paragraph 4.1 C, above.
- within 15 days of the request made by the buyer in absence of a
challenge to the legal standing of the request by the buyer, or in the
event of a challenge to the legal standing of the buyer's request
within a period of 15 days following a
10
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court decision considered RES JUDICATA. By a court decision considered
RES JUDICATA the parties understand any judgment on the substance of
a case that allows of no appeal within the legal time limit,
including any decision made by a court of appeals ruling on the
substance of the case and itself giving rise to an appeal before the
Court of Cassation. In the event of a Court of Cassation finding in
favor of the sellers, the buyer would return the amounts already paid
by the sellers in connection with the complaint, within a period of
15 days starting from the date of the court decision on that
complaint, to which would be added the legal interest rate calculated
as of the date on which the sellers paid out such sums.
4.2 DURATION
The present guarantee may be implemented:
- Up to the expiration of time limits for taxes, Social Security
contributions and customs duties, in connection with sums due for tax,
Social Security and customs liabilities;
- For the payment of all other sums that may prove to be payable, up to
June 30, 2001,
beyond which time limits, the receipt of any complaint shall be without effect.
4.3 RECEIVER
For purposes of the present contract, the parties have named SCP Dalmais,
Escoffier, Heuze, court bailiffs, 41 rue Paul Chenavard, 69282 Lyon Cedex 01,
as receiver, in accordance with the terms of a legal document appearing in
draft in Annex P.
ARTICLE 6. AGREEMENT NOT TO COMPETE
6.1 NON-COMPETITION
The parties note that an agreement not to compete is specified in labor
contracts currently agreed to between some sellers and the buyer.
It is specified further that, in consideration of the present sale of shares,
a reciprocal stability clause is specified in the employment contracts of
Messrs. Samuel Triolet, Philippe Duby and Michel Cerdini.
11
<PAGE>
ARTICLE 7. MISCELLANEOUS PROVISIONS
7.1 Notification
All notification messages, complaints, notices to comply and other
communications related to the present contract must be sent by certified
letter with return receipt, or by fax confirmed by certified letter with
return receipt, addressed to:
CompleTel SAS
44, rue de Washington
75408 Paris Cedex 08
Fax: 01 53 53 83 84
Attn: Director, Legal Department
--if sent to the buyer,
or to:
Messrs. Samuel Triolet and Michel Cerdini, representing
the sellers choosing their domicile at:
Cabinet HSD Ernst & Young
Tour Cristal Parc
113, boulevard Stalingrad
69626 Villeurbanne Cedex
Fax: 04 72 44 18 20
Attn: Attorney Dominique Mussy
--if sent to the sellers,
or to:
SCP Dalmais, Escoffier, Heuze
Associated Court Bailiffs
41, rue Paul Chenavard
69382 Lyons Cedex 01
Attn: Attorney Jean-Marie Dalmais
--if sent to the receiver.
12
<PAGE>
The date of receipt of a notification or other communication will be the date
of receipt of the certified letter with return receipt.
7.2 ANNEXES AND INTRODUCTION
All Annexes and the Introduction are integral parts of the present agreement;
together with this agreement, they make a single, unique and indivisible
whole.
7.3 JOINT AND SEVERAL LIABILITY, INACCESSIBILITY
The sellers explicitly acknowledge joint and several liability for the
obligations contracted under the present agreement.
It is hereby expressly declared that the present guarantee is inaccessible
and may not be transferred to any other company whatsoever.
7.4 EXPENSES, REGISTRATION, FORMAL ADMINISTRATIVE PROCEDURES
The two parties to the present contract each agree to bear the expenses and
fees separately contracted by them, and those expenses and fees that may
follow or result from them (excluding those contracted by the other party).
As regards registration fees, the sellers certify that the shares that are
the subject of the present sale, were created as a means of remunerating
contributions made to the company's capital. In addition, they certify that
the present sale does not entail the dissolution of the company, nor do the
shares confer enjoyment of real property rights.
The buyer agrees to assume responsibility for registration fees.
Mr. Samuel Triolet, Manager of the company, is invested with all powers
needed to carry out the publication requirements mandated by law. Once the
present sale has been duly accepted and communicated to the company via
deposit of an original copy of the contract at the company's head office, the
Manager shall draw up minutes certifying the definitive character of the
modification of the bylaws.
7.5 APPLICABLE LAW, DISPUTES
The present agreement is governed by French law, which also governs its
interpretation.
All disputes that may arise regarding the validity, interpretation, execution
and/or failure to execute the present agreement, shall be submitted to the
Commercial Court of Paris and to that court alone.
13
<PAGE>
Done at Lyons,
March 24, 1999
In two copies
/s/ /s/
The Sellers The Buyer
Represented by: Represented by:
Mr. Samuel Triolet Mr. Jerome de Vitry
14
<PAGE>
EXHIBIT 12.1
COMPLETEL EUROPE N.V.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Stated in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
Period from
commencement
of operations
Six Months (January 8, 1998)
Ended June 30, Through
1999 December 31,
1998
------------------ -----------------
<S> <C> <C>
Earnings available for fixed charges:
Net loss before income taxes $(16,172) $(7,561)
Add: Fixed charges 4,225 10
---------- ------------
Adjusted Earnings (11,947) (7,551)
Fixed charges:
Interest on indebtness (4,051) ---
Amortization of debt issuance
costs (166) ---
Interest portion of rental and lease
expenses (1) (8) (10)
---------- ------------
(4,225) (10)
---------- ------------
Deficiency of earnings available to
cover fixed charges $ (16,172) $ (7,561)
---------- ------------
---------- ------------
</TABLE>
(1) The interest component of rental and lease expenses has been estimated by
taking the difference between the gross rent and lease expense and net present
value of rent and lease expense using the Company's cost of capital of 14%,
representing the coupon rate on the Company's outstanding senior discount notes.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Denver, Colorado,
August 26, 1999.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made part of this
registration statement.
Paris, France,
August 25, 1999.
Barbier Frinault & AssociEs
Arthur Andersen
/s/ Jean-Francois Ladurelle
---------------------------
Jean-Francois Ladurelle
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SUMMARY CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF COMPLETEL LLC CONTAINED IN THE REGISTRATION STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 JUN-30-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 3,744,000 87,116,000
<SECURITIES> 0 0
<RECEIVABLES> 537,000 5,323,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,495,000 93,644,000
<PP&E> 3,500,000 28,767,000
<DEPRECIATION> (59,000) (415,000)
<TOTAL-ASSETS> 10,042,000 129,718,000
<CURRENT-LIABILITIES> 5,272,000 14,871,000
<BONDS> 0 74,582,000
0 0
13,188,000 68,407,000
<COMMON> 737,000 2,087,000
<OTHER-SE> (9,155,000) (33,299,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,042,000 129,718,000
<SALES> 0 321,000
<TOTAL-REVENUES> 0 321,000
<CGS> 0 564,000
<TOTAL-COSTS> 8,103,000 13,621,000
<OTHER-EXPENSES> 0 266,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 4,217,000
<INCOME-PRETAX> (8,092,000) (15,482,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (8,092,000) (15,482,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,092,000) (15,482,000)
<EPS-BASIC> (1,940) (3,309)
<EPS-DILUTED> (1,940) (3,309)
</TABLE>
