<PAGE>
FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NUMBER 333-41126
333-41126-01
[LOGO OF COMPLETEL]
OFFER TO EXCHANGE ALL OUTSTANDING
14% SENIOR NOTES DUE 2010
FOR
14% SERIES B SENIOR NOTES DUE 2010
OF
COMPLETEL EUROPE N.V.
------------------
This exchange offer expires 12:00 p.m., New York City time
(5:00 p.m. London time) on August 24, 2000,
unless we extend the offer.
We intend to apply to list the notes
to be issued on the Luxembourg Stock Exchange.
------------------
You should carefully review the Risk Factors beginning on page 9 of this
prospectus.
------------------
The date of this prospectus is July 24, 2000
------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved nor disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
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Table of Contents
<TABLE>
<S> <C>
Where You Can Find More Information.................................................... i
Prospectus Summary..................................................................... 1
Organizational Chart of the CompleTel Group of Companies............................... 7
Selected Consolidated Financial Data for CompleTel Europe.............................. 8
Risk Factors........................................................................... 9
Disclosure Regarding Forward-Looking Statements........................................ 18
Use of Proceeds........................................................................ 19
Exchange Rate Data..................................................................... 19
The Exchange Offer..................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations.. 28
Business............................................................................... 36
Management............................................................................. 56
Security Ownership of Certain Beneficial Owners and Management......................... 66
Material Relationships and Related Transactions........................................ 68
Description of Material Indebtedness................................................... 70
Description of the Notes............................................................... 74
Registration Rights Agreement.......................................................... 109
Book-Entry; Delivery and Form.......................................................... 112
Material Tax Considerations............................................................ 113
Enforceability of Civil Liabilities Against Foreign Persons............................ 118
Information About CompleTel LLC........................................................ 119
Plan of Distribution................................................................... 121
Legal Matters.......................................................................... 122
Experts................................................................................ 122
Listing And General Information........................................................ 122
Glossary of Terms...................................................................... A-1
Index to Financial Statements.......................................................... F-1
</TABLE>
___________________
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 any time after the
date of this prospectus.
Where You Can Find More 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.
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934 and file reports and other information with the
Commission. You may read and copy any document we file with the SEC, at public
reference facilities of the Commission's principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549, U.S.A. and at the Commission's regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, U.S.A.
and at 7 World Trade Center, Suite 1300, New York, New York 10048, U.S.A. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
Commission's public reference facilities. We file our SEC materials
electronically with the SEC, so you can also review our filings by accessing the
site maintained by the SEC at http://www.sec.gov. This site contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Copies of reports, proxy
statements and other information may be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006, U.S.A. Copies of these documents will also be filed with the Stock Market
of Amsterdam Exchanges.
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Prospectus Summary
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. Before deciding to
tender the old notes for the new notes, 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.
Unless otherwise specified, financial and other information concerning
CompleTel Europe N.V. contained in this prospectus and share amounts give effect
to the 5-for-1 stock split that it effected in March 2000. Unless otherwise
specified, euro amounts are converted to dollars at a rate of (Euro) 1.00 per
$.9444, the euro noon buying rate in New York on June 28, 2000. As used in this
prospectus, "old notes" means the 14% Senior Notes due 2010 issued April 2000,
"new notes" means the 14% Series B Senior Notes due 2010 issued in exchange for
the old notes, and "notes" means both the old notes and the new notes. Unless
otherwise noted, all references in this prospectus to "shares" mean CompleTel
Europe's ordinary shares, "we," "our," and "us," refer to CompleTel Europe N.V.
and its subsidiaries, and "CompleTel Europe" refers to CompleTel Europe N.V.
only. CompleTel LLC is the ultimate parent of the CompleTel group of companies.
Who We Are
We are a rapidly growing facilities-based competitive local exchange
carrier (CLEC) operating primarily in France and Germany. We serve both the
retail business and wholesale segments of the telecommunications market,
targeting business end-users, other telecommunications carriers and
Internet-related providers. We offer a wide range of integrated, voice, data and
Internet services to our directly connected on-net customers, including local
and long-distance voice services, dedicated high-capacity and Internet-related
access and application services.
We construct and operate our own state-of-the-art fiber optic metropolitan
area networks (MANs), built around our targeted customer segments, which we
identify using extensive market analyses. We believe that the rapid increase in
demand for broadband data telecommunications services and an absence of
alternative local access providers have left our targeted customers largely
underserved and provide us with significant opportunities to grow our business.
Further, we believe that our on-net strategy, in contrast with a re-sale
strategy, enables us to deliver a higher level of quality, provide a broader
range of services, achieve higher revenue per customer, maximize our customer
loyalty and reduce interconnection costs.
We are currently operating MANs in 11 cities in France and Germany, and
plan to expand into another six cities in France and Germany during the first
half of 2001. As of May 31, 2000, we had deployed approximately 655 route
kilometers of our MANs and had signed up approximately 455 customers. As of May
31, 2000, we had approximately 544 employees.
To complement and accelerate the rollout of our existing and planned MANs,
we may deploy relatively new access technologies, including point-to-multipoint
wireless and digital subscriber line (DSL) technologies. We have applied for
wireless licenses in 11 regions in Germany. To the extent we are successful in
obtaining licenses in strategic areas, and are able to obtain, to the extent
necessary, any additional financing, we intend to deploy wireless local loop
networks.
Our vision is to become a leading alternative broadband provider of voice,
high-speed data and Internet protocol-based services in targeted local markets
across Western Europe. In order to achieve our vision, we are executing the
following strategy:
. Targeting attractive and addressable telecommunications markets;
. Deploying on-net customer-driven networks;
<PAGE>
. Offering high-capacity telecommunications services;
. Implementing an integrated Internet strategy;
. Pursuing underserved and growing customer segments;
. Building an experienced local management team;
. Leveraging experienced telecommunications industry investors; and;
. Exploiting our first-mover advantage.
On March 30, 2000, we completed the initial public offering of 31,280,000
of our ordinary shares.
CompleTel Europe's principal executive office is located at Kruisweg 609,
2132 NA Hoofddorp, The Netherlands, telephone number 31-20-666-1701. CompleTel
LLC's principal executive offices are located at 6300 S. Syracuse Way, Suite
355, Englewood, Colorado 80111, and its telephone number is (303) 741-4788.
The Exchange Offer
On April 13, 2000, CompleTel Europe issued (Euro) 200,000,000 14% Senior
Notes due 2010 to several initial purchasers. The initial purchasers then sold
the old notes in a private placement exempt from the registration requirements
of the Securities Act. Simultaneously with the private placement, we entered
into a registration rights agreement with the initial purchasers of the old
notes. Under the registration rights agreement, we agreed to deliver this
prospectus to you.
You may exchange your old notes for new notes, which have substantially
identical terms, except that the new notes will be freely transferable by the
holders except as otherwise provided in this prospectus. The exchange offer
satisfies your rights under the registration rights agreement. After the
exchange offer is completed, you will not be entitled to any exchange or
registration rights with respect to your old notes, except under limited
circumstances.
The exchange offer.............. We are offering to exchange (Euro) 200
million total principal amount of 14% Series
B Senior Notes due 2010, which have been
registered under the Securities Act, for your
old notes. The terms of the new notes and the
old notes are identical, except that the new
notes will not be subject to contractual
restrictions on transferability. To exchange
your old notes, you must properly tender them
and we must accept them. We will exchange all
old notes that you validly tender prior to
the expiration date and do not validly
withdraw. The exchange offer is not
conditioned on any minimum aggregate
principal amount of old notes being tendered
for exchange. We will issue the new notes to
you on or promptly after the expiration of
the exchange offer.
Expiration date................. The exchange offer will expire at 12:00 p.m.,
New York City time (5:00 p.m. London time),
on August 24, 2000 or at 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 12:00 p.m., New York City time (5:00
p.m. London time), on the expiration date.
Accrued interest................ Holders of old notes whose old notes are
accepted for exchange will be deemed to have
waived the right to receive any payment in
respect of interest on their old notes
accrued from April 13, 2000 to the date of
issuance of the new notes. The new notes will
accrue interest from April 13, 2000.
Consequently, holders who exchange their old
notes for new notes will receive the same
interest payment on October 15, 2000, the
first interest payment date, as they would
have received had they not participated in
the exchange.
2
<PAGE>
Resales of new notes.................. We believe that you may offer new notes
for resale without compliance with the
registration and prospectus delivery
requirements of the Securities Act,
under the conditions we have described
in the section entitled "The Exchange
Offer--Resale of the new notes."
Procedures for tendering old notes.... We issued the old notes as global
securities. When we issued the old
notes, we deposited them with the
custodian for Clearstream and
Euroclear. Security entitlements with
respect to the old notes are shown on
records maintained in book-entry form
by Clearstream, Euroclear or your
securities intermediary.
To tender outstanding old notes in the
exchange offer the registered holder,
Clearstream or Euroclear, must transfer
your outstanding old notes in
accordance with Clearstream's or
Euroclear's standard procedures for
such transfer. In lieu of delivering a
letter of transmittal to the exchange
agent, a computer-generated message, in
which the holder of the outstanding old
notes acknowledges and agrees to be
bound by the terms of the letter of
transmittal, must be transmitted by
Clearstream or Euroclear on behalf of a
holder and received by the exchange
agent before 12:00 p.m., New York City
time (5:00 p.m., London time), on the
expiration date.
Special procedures for beneficial
owners................................ If: . you beneficially own old notes;
. these notes are registered in
the name of a broker, dealer,
commercial bank, trust
company or other nominee; and
. you wish to tender your old
notes in the exchange offer;
please contact the registered holder as
soon as possible and instruct it to
tender the old notes on your behalf and
comply with the instructions set forth
elsewhere in this prospectus.
Exchange agent........................ The Chase Manhattan Bank
Income tax considerations............. We have received opinions of Stibbe
Simont Monahan Duhot P.C. regarding
material Dutch tax consequences and
Holme Roberts & Owen LLP regarding
material U.S. federal income tax
consequences to the effect that the
exchange of old notes for the new notes
should not be a taxable exchange for
the persons discussed in the section
entitled "Material Tax Considerations."
Those persons 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 the registration statement
of which this prospectus is a part.
Appraisal/dissenters' rights.......... You do not have any appraisal or
dissenters' rights under the laws of
the state of New York or the indenture
in connection with the exchange offer.
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
restrictions on transfer. If you do not
tender your old notes, you will not be
entitled to any further registration
rights under the registration rights
agreement except under limited
circumstances. However, your old notes
will remain outstanding and entitled to
the benefits of the indenture.
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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 disclosed or will disclose this
selling restriction in all offers,
offer advertisements, publications and
other documents in which an offer is
made or a forthcoming offer is
announced.
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 old notes you currently hold. The
indenture that currently governs your old notes will govern the new notes. The
terms of the new notes will be substantially identical as the old notes, except
that the new notes will be registered under the Securities Act instead of having
registration rights and, as a result, the new notes will not include a legend
restricting their transfer. You should read the "Description of the Notes"
section of this prospectus for a detailed description of the terms and
conditions of the new notes.
Issuer................................ CompleTel Europe N.V.
Notes offered......................... (Euro) 200,000,000 in aggregate
principal amount of 14% Series B Senior
Notes due 2010. The new notes will be
issued in a minimum denomination
of (Euro) 50,000 and in increments
of (Euro) 1,000 above (Euro) 50,000.
Maturity date......................... April 15, 2010
Interest rates and payment dates...... Cash interest will accrue at a rate of
14% per annum from April 13, 2000 or
from the most recent interest payment
date. Cash interest will be payable
every six months on April 15 and October
15 of each year, beginning on October
15, 2000.
Ranking............................... Except as provided under "Escrow and
security" and "Guaranty" below, the
notes are our senior unsecured
obligations. The notes will rank equally
with all of our existing and future
senior unsecured and unsubordinated
indebtedness. The notes will rank
effectively below all of our existing
and future secured debt and will rank
effectively below all of the liabilities
of our subsidiaries.
As of March 31, 2000, we had
approximately (Euro) 154.6 million of
indebtedness outstanding, (Euro) 68.4
million of which would rank effectively
senior to the notes in right of payment
and (Euro) 86.1 million of which would
rank equally with the notes. In
addition, we may have the capacity to
incur additional indebtedness ranking
effectively senior to the notes in right
of payment under our existing credit
facility agreement if the suspension
agreement is terminated or from other
sources.
Escrow and security................... We loaned (Euro) 78.0 million of the net
proceeds from the sale of the old notes
to CompleTel Escrow B.V., our special
purpose wholly-owned subsidiary.
CompleTel Escrow B.V. used the funds to
purchase a portfolio of euro-denominated
government securities in an amount
sufficient to pay the first six payments
of interest on the notes. The notes are
secured by a pledge of the portfolio of
securities. If we issue any additional
notes under the
4
<PAGE>
indenture governing the notes, we will
cause the pledge amount to be increased
such that the pledge account will
contain euro-denominated government
securities sufficient to pay interest on
all issued notes through the first six
payments of interest on the originally
issued notes.
Guaranty.............................. To comply with Dutch laws, our ultimate
parent, CompleTel LLC, has guaranteed
the notes on a senior unsecured basis.
The guaranty will be released in the
event we determine that under Dutch law
the guaranty is no longer required for
us to avoid being deemed a credit
institution. Because CompleTel LLC is a
holding company with no operations other
than the operations conducted by our
subsidiaries, it is unlikely that
CompleTel LLC would be able to satisfy
its obligations under the guaranty if we
are unable to satisfy our obligations on
the notes. We currently intend to
liquidate CompleTel LLC as soon as
possible subject to Dutch or Delaware
limitations on our ability to do so.
Sinking fund.......................... None
Optional redemption.................. On or after April 15, 2005, we have the
option to redeem all or a portion of the
notes at the redemption prices set forth
in the section "Description of the
Notes--Optional redemption."
Optional redemption upon certain
sales of equity...................... On or before April 15, 2003, we have the
option to redeem notes representing up
to 35% of the aggregate principal amount
of the notes issued (including the
principal amount of any additional notes
that we may cause to be issued under the
indenture) with the net proceeds of
certain public equity offerings, at a
redemption price equal to 114% of the
principal amount of the notes plus
accrued and unpaid interest to the
redemption date.
Additional amounts................... We generally will pay any additional
amounts necessary so that the amount
received by holders of the notes after
tax-related deductions or withholdings
will not be less than the amount that
the noteholders would have received in
the absence of such withholdings or
deductions.
Tax redemption....................... If we are obliged to pay additional
amounts as a result of certain tax-
related changes in the law, we may
redeem the notes, at our option, in
whole (but not in part) at a redemption
price equal to 100% of the principal
amount of the notes, plus accrued and
unpaid interest to the date of
redemption and any additional amounts.
Change of control.................... If we experience specific kinds of
changes of control, we must make an
offer to repurchase the notes at 101% of
their principal amount, plus any
additional amounts and any accrued and
unpaid interest owed on the notes to the
date of repurchase. We cannot assure you
that we will have sufficient funds
available to satisfy this obligation
under the notes.
Certain covenants.................... The indenture governing the notes, among
other things, limits our ability and the
ability of our subsidiaries to:
. incur additional indebtedness;
. pay dividends on, redeem or
repurchase our ordinary shares or
other classes of shares or make
payments on subordinated
indebtedness;
5
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. create dividend and other payment
restrictions affecting our
restricted subsidiaries;
. make investments and certain
other restricted payments;
. issue and sell shares of
restricted subsidiaries;
. issue guaranties and incur
indebtedness by our restricted
subsidiaries;
. engage in transactions with
shareholders and affiliates;
. create liens securing indebtedness;
. sell assets; and
. engage in mergers and
consolidations.
These covenants are subject to a number
of important exceptions and
qualifications that are described under
the heading "Description of the
Notes--Covenants."
Listing............................... The old notes are listed on the
Luxembourg Stock Exchange and we intend
to list the new notes on the Luxembourg
Stock Exchange upon the expiration of
the exchange offer. As long as the notes
are listed on the Luxembourg Stock
Exchange, any notices to holders of
notes will be published in one leading
newspaper in Luxembourg, which is
expected to be the Luxemburger Wort. For
additional information, see "Description
of the Notes" and "Listing and General
Information."
Currency of payment.................. The new notes will be issued in one
series denominated in euros. Holders of
the notes will receive principal,
interest and all other payments in
respect of such notes in euros.
Trustee, principal paying agent and
registrar............................ The Chase Manhattan Bank
Transfer and payment procedures...... Described in the section entitled "Book
Entry; Delivery and Form."
6
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Organizational Chart of the CompleTel Group of Companies
The following chart shows our corporate structure:
[CHART APPEARS HERE]
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Selected Consolidated Financial Data for CompleTel Europe
The following selected consolidated financial data for CompleTel Europe has
been derived from CompleTel Europe's audited and unaudited consolidated
financial statements included elsewhere in this prospectus which have been
prepared in accordance with accounting principles generally accepted in the
United States. The selected consolidated financial data set forth below is
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.
Our historical results are not necessarily indicative of our future
expected operating results. We have generated operating losses and negative cash
flow from our operating activities to date. As a result, prospective investors
have limited operating and financial data about us upon which to base an
evaluation of our performance and an investment in the shares.
<TABLE>
<CAPTION>
Three months
Year ended ended
December 31, 1999 March 31, 2000
----------------- --------------
(Audited) (Unaudited)
(in thousands, except per share amounts)
<S> <C> <C>
Statement of operations data:
Revenues................................................... (Euro) 2,861 (Euro) 2,972
Network costs.............................................. 2,307 3,011
Selling, general and administrative........................ 30,302 13,127
Management fees to affiliate............................... 6,195 2,117
Non-cash compensation charges.............................. 634 69,660
Depreciation and amortization.............................. 4,302 2,946
------------- -------------
Operating loss............................................. (40,879) (87,889)
Other income (expense)..................................... (8,911) (9,367)
------------- -------------
Net loss................................................... (Euro)(49,790) (Euro)(97,256)
============= =============
Basic and diluted loss per ordinary share.................. (Euro) (0.50) (Euro) (0.77)
============= =============
Weighted average number of ordinary shares outstanding..... 99,056,060 126,820,533
Ratio of earnings to fixed charges (1)..................... -- --
</TABLE>
<TABLE>
<CAPTION>
Three months
Year Ended December 31, ended
-----------------------
1999 1998 March 31, 2000
---- ---- --------------
(Audited) (Audited) (Unaudited)
(in thousands)
<S> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents................... (Euro) 57,115 (Euro) 1,472 (Euro) 521,643
Property and equipment, net................. (Euro) 91,946 (Euro) 2,888 (Euro) 123,871
Total assets................................ (Euro) 176,208 (Euro) 6,741 (Euro) 686,037
Long term debt.............................. (Euro) 79,596 (Euro) -- (Euro) 86,143
Total shareholder's equity (deficit)........ (Euro) 413,071 (Euro) (5,182) (Euro) 531,475
</TABLE>
____________
(1) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss from continuing operations before income tax expense, plus fixed
charges and amortization of capitalized interest less interest capitalized.
Fixed charges consist of (i) interest expensed and capitalized, (ii)
amortized premiums, discounts and capitalized expenses related to
indebtedness, and (iii) an estimate of the interest within rental expense.
The ratio of earnings to fixed charges was less than 1.0 to 1.0 for the
year ended December 31, 1999 and for the three months ended March 31, 2000.
Earnings were thus inadequate to cover fixed charges for the year ended
December 31, 1999 and for the three months ended March 31, 2000. The amount
of the coverage deficiency for the year ended December 31, 1999 and for the
three months ended March 31, 2000 totaled (Euro)50.1 million and (Euro)26.3
million, respectively.
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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. Certain terms used in
our business are explained in the "Glossary of Terms" at the end of the
prospectus.
We do not have a meaningful operating history that you can use to evaluate our
prospects
You have limited information on which to base a prediction on whether we
will be able to achieve our business objectives. We commenced operations in
January 1998 and only began commercial operations in the second quarter of 1999.
As of March 31, 2000, we had only (Euro)5.8 million of cumulative revenues and
most of our networks were still under construction. We have limited historical
operating and financial data and we do not believe that our historical results
are indicative of our future results of operations.
We have experienced substantial operating losses to date and we do not know if
or when our business will become a profitable enterprise
We have experienced substantial operating losses to date and we expect to
continue to experience operating losses and negative earnings for the
foreseeable future as we expand our current operations and enter new markets.
From the commencement of our operations in January 1998, through March 31, 2000,
we have incurred cumulative operating losses of (Euro)135.3 million and have
cumulative negative Adjusted EBITDA of (Euro)65.6 million. Our ability to
generate positive Adjusted EBITDA and operating profits in the future will
depend on a number of factors, including, but not limited to:
. our ability to attract and retain new customers with substantial
network traffic;
. our ability to construct network infrastructure in a timely and
efficient manner;
. our ability to attract and retain experienced, qualified personnel;
. the successful development of our Internet-related services and
Internet data centers (IDCs);
. our success in obtaining the wireless local loop licenses we have
applied for in Germany and our ability to deploy other complementary
access technologies;
. our ability to manage effectively intense price competition; and
. the successful operation of our operational support systems such as
billing, provisioning and network management.
We do not know whether we will be able to successfully address all or any
of these factors. Accordingly, we do not know if we will ultimately become a
profitable enterprise. Moreover, even if we become profitable in our existing
markets, our overall profitability may be negatively impacted as we expand our
operations in new markets and fund expenses incurred in those markets.
We have incurred significant debt, which could affect our operations and
liquidity and prevent us from fulfilling our obligations
We have significant indebtedness. The following table shows certain
important credit statistics as of March 31, 2000 and as adjusted to give effect
to the April 2000 offering of the old notes, the deposit of a portion of the net
proceeds in an escrow account to pay the first six semi-annual payments of
interest on the notes and our repurchase of a portion of our 14% senior discount
notes due 2009.
<TABLE>
<CAPTION>
March 31, 2000
------------------------------
Actual As Adjusted
------------ ----------------
(in thousands)
<S> <C> <C>
Total long-term debt.............................................. (Euro) 86.1 (Euro) 270.9
Shareholders' equity.............................................. 531.5 531.5
Total long-term debt as a percentage of total capitalization...... 13.9% 33.7%
</TABLE>
Our deficiency of earnings to fixed charges for the quarter ended March 31,
2000 was approximately (Euro)26.3 million.
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If we satisfy the leverage ratios set forth in the indentures governing the
notes and our 14% senior discount notes due 2009, respectively, the indentures
do not limit the amount of indebtedness that we may incur in the future. We
expect to incur additional indebtedness, some of which may be secured. In
particular, in the future, we may borrow amounts under an amended credit
facility, if such funds are available to us. We also may issue up to (Euro)100
million principal amount of additional notes under the indenture governing the
notes, if our other debt instruments and market conditions permit. In the event
of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding,
the holders of our secured indebtedness will be entitled to proceed against the
collateral that secures the indebtedness and this collateral will not be
available for satisfaction of any amounts owed under the notes. If we incur
additional debt our leverage risks could intensify.
If we are unable to generate sufficient cash flow or otherwise obtain funds
necessary to make the payments on our debt, or if we otherwise fail to comply
with the covenants in our debt arrangements, we will be in default under those
arrangements. Such default would permit our debt holders to accelerate the
maturity of our indebtedness and could cause defaults under our indebtedness,
including these notes. Our ability to repay or to refinance our obligations will
depend on our future financial and operating performance, which is subject to
prevailing economic, regulatory, and competitive conditions and to financial,
business and other factors, many of which are beyond our control. These factors
could include operating difficulties, increased operating costs, pricing
pressures, the response of competitors, regulatory developments, and delays in
implementing strategic projects.
Our holding company structure subordinates our noteholders' debt to the claims
of our subsidiaries' creditors
Except for the guaranty by CompleTel LLC and CompleTel Escrow B.V.'s pledge
of the portfolio of securities securing the first six payments of interest on
the notes, the notes will be solely our obligations. We are a holding company
with no material business operations, sources of income, or assets other than
interests in operating subsidiaries. As a holding company, we rely on dividends
and other payments from our subsidiaries to generate the funds necessary to meet
our obligations, including the payment of principal of and interest on the
notes. The ability of our subsidiaries to make payments to us will be subject
to, among other things, the availability of funds, the terms of our
subsidiaries' indebtedness and applicable corporate and other laws and
regulations, which may limit the ability of a subsidiary to pay dividends.
In the event of any insolvency, liquidation, reorganization or similar
proceeding of any of our subsidiaries, except for CompleTel Escrow B.V.'s pledge
of the portfolio of securities securing the first six payments of interest on
the notes, the creditors of each subsidiary would be entitled to payment in full
from that subsidiary's assets and earnings. Since the notes are not the
obligations of our subsidiaries (except as described in the preceding sentence),
our rights to the assets of any of our subsidiaries upon liquidation or
reorganization (and consequently the right of the holders of the notes to
participate in the distribution of proceeds from those assets) will be
effectively subordinated to the claims of our subsidiaries' creditors, including
trade creditors, secured creditors and unsecured creditors that hold
indebtedness or guaranties of such subsidiaries. As of March 31, 2000, our
subsidiaries had total liabilities of (Euro)56.8 million, excluding loans
payable to CompleTel Europe totaling (Euro)78.9 million. After payment of their
own creditors, our subsidiaries may not have any assets available for us as a
shareholder. Consequently, there may not be enough assets available to make
payments to you. Moreover, any additional indebtedness we incur may be secured
and the notes will be effectively subordinated to this secured indebtedness.
We may need significant additional capital to expand our business and increase
revenue and the failure to secure additional financing could restrict our growth
and profitability
We may need additional capital to fully implement our business plan. Our
principal capital expenditure requirements will involve the construction,
leasing and maintenance of our local loop telecommunications networks, the
purchase, installation and maintenance of network switches and switch
electronics, network operations, and the construction of our IDCs and of our
planned proprietary international data network (Tier One network). We have
applied for wireless local loop licenses in Germany and we may provide DSL and
other complementary services to an expanded base of customers, all or a portion
of which is likely to require additional financing. If we are unable to obtain
additional financing, we may be unable to develop wireless local loop services
or pursue new DSL services. As a result, we may modify some of our planned
expansion or
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expenditures. There can be no assurances that we will obtain the additional
financing we need to complete development of the additional services.
The actual amount and timing of our future capital requirements may differ
materially from our estimates and we may need additional financing if we:
. experience cost overruns;
. the demand and usage rate for our services varies from our
expectations;
. experience adverse regulatory, technological, or competitive
developments;
. launch new services, such as wireless and DSL technologies;
. experience adverse changes in interconnection charges;
. expand our partnering and acquisition activities;
. experience adverse changes in interest or currency exchange rates;
. experience changes in engineering design and technology; or
. experience delays in interconnections with historical operators and
other unforeseen delays.
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
the markets in our deployment plan.
Additionally, if we are awarded wireless local loop licenses for all 11
areas included in our license application in Germany, we may need additional
financing to construct and operate wireless local loop facilities. We anticipate
these activities will be fully funded if we are successful in renegotiating our
credit facility. We cannot assure you that we will be able to renegotiate the
credit facility on acceptable terms.
Our debt agreements impose significant limitations on how we conduct our
business and a default could significantly impact our ability to operate our
business
Our indentures impose significant operating and financial restrictions on
us. These restrictions may limit our ability to, among other things:
. borrow additional funds;
. pay dividends and make other distributions;
. make capital expenditures and other investments;
. create liens securing indebtedness;
. make acquisitions or consolidate, merge or dispose of our assets; and
. enter into transactions resulting in a change of control of our
business.
Also, if the credit facility suspension agreement is terminated and we are
able to amend and utilize the credit facility, we expect that the amended credit
facility will contain customary covenants for such indebtedness that would
require us, among other things, to achieve and maintain specified minimum
financial and operating results. Additionally, unless amended, we would not be
able to use a significant amount of the proceeds from our initial public
offering of our ordinary shares or from the old notes offering for projects
outside of France and Germany.
If we fail to comply with the covenants and restrictions in our indentures,
we could trigger defaults under such agreements even if we are able to pay our
debt.
A change in control may occur that would permit our noteholders to require us to
offer to repurchase the notes; financial or contractual reasons may prohibit a
repurchase of the notes, and our failure to repurchase the notes could trigger a
default under our indentures
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Under the terms of the respective indenture, we may be required to
repurchase all or a portion of the notes and of our 14% senior discount notes
due 2009 upon a change of control. However, our ability to repurchase such notes
upon a change of control is limited by our ability to obtain adequate funding.
Our failure to repurchase the notes and the 14% senior discount notes due 2009
would be an event of default under the respective indentures governing such
notes.
Upon a change of control, we also may be required immediately to repay or
refinance the outstanding principal and other amounts, if any, owed by us under
any other financing agreements in place at the time. We may not be able to repay
or refinance such amounts. In addition, even if we were able to refinance such
debt, such financing might be on unfavorable terms.
We cannot predict how the competitive environment in our existing and new
markets will develop in the future and whether we will be able to compete
successfully
We are deploying our MANs in recently liberalized markets and operating in
an evolving and increasingly competitive industry. In order to achieve
profitability, we must effectively compete against a growing number of market
entry and existing telecommunications providers. We expect to compete with
incumbent public telecommunications operators, and new entrants to our markets,
including cable communications companies, wireless communications companies,
electric and other utilities with rights-of-way or existing cabling that can be
used for telecommunications, railways, microwave carriers, telecommunications
resellers and large end-users that have private networks. We also believe that
the ongoing liberalization of our markets will attract other facilities-based
operators to our markets and intensify competition.
The telecommunications markets in France and Germany have historically been
dominated by France Telecom and Deutsche Telekom, respectively. These companies
have significant competitive advantages over us including:
. greater financial resources, market presence and network coverage;
. brand name recognition and customer loyalty;
. control over national and international transmission lines; and
. established relationships with local and national regulatory
authorities.
Other facilities-based operators and resellers in our markets may also have
some of the same competitive advantages over us, especially with respect to
financial resources, market presence and network coverage. As competition
develops, we believe prices will continue to decline. We will need to maintain
an acceptable cost structure, provide higher value services and generate
increasing amounts of telecommunications and data traffic. We cannot assure you
that we will be able to effectively compete.
European use of the Internet, electronic commerce, data transmission services,
multimedia and other bandwidth intensive applications may not increase as we
expect
Our business plan assumes that European use of the Internet, electronic
commerce, data transmission services, multimedia and other bandwidth-intensive
applications will increase substantially in the next few years. If the use of
data transmission services, multimedia and bandwidth-intensive applications in
Europe does not increase as we anticipate, demand for many of our value-added
products and services, including managed bandwidth services, Internet protocol
transit services and data and Web-hosting services, will be lower than we
currently anticipate. Reduced demand for our services may have a negative effect
on our pricing structure and our financial condition, including our ability to
make payments to you, as a holder of the Notes.
We may modify our network plan and we may have to reallocate funds
We continually evaluate our business plan and may decide to change our
network deployment if planned construction does not appear to offer optimal uses
of our resources. Our continuing evaluation of our business and network
deployment plans may lead us to change our plans and reallocate funds to
accommodate, among other things:
. evolving competitive and market conditions;
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. unexpected results of operations in our initial target markets;
. award of wireless local loop licenses or deployment of wireless and
DSL technologies;
. changes or inaccuracies in our research or assumptions;
. regulatory and technological developments; and
. changes in or discoveries of market conditions favoring expedited
deployment into other Western European metropolitan markets.
If we decide to reallocate any funds to deploy networks in markets or to
accommodate new services that are not included in our current business plan, we
may change deployment in one or more of our existing or planned markets and we
may need to obtain additional financing to complete our network deployment. We
may find that additional financing is not available or is not available on terms
we can reasonably accept. Our ability to pursue our business plan and complete
the deployment of our networks in France and Germany could be adversely affected
if we fail to obtain such additional financing.
If we do not effectively manage the rapid expansion of our business, our
financial condition may suffer
We are rapidly expanding our business and our operations are becoming more
complex. Our rapid expansion and the increased complexity of our business may
strain our management, operational, technical, 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;
. control costs;
. comply with regulatory requirements;
. maintain effective financial and quality controls; and
. significantly expand our internal management, information and
accounting systems.
Deployment of our MANs involves many challenges that could stop or slow our
growth
Impediments to the deployment of our MANs could prevent or significantly
delay the deployment of networks in one or more of our planned markets. These
impediments could also significantly increase our costs for deploying our
planned MANs. Our success will depend, among other things, upon our ability to:
. design and deploy additional network route kilometers and install
facilities;
. lease necessary facilities; and
. identify correctly and devote the resources necessary for the
development of a sufficient customer base.
Our success will depend on our ability to complete these tasks in a timely
manner, at anticipated costs and on acceptable terms and conditions. The
successful implementation of our business plan is subject to a variety of risks,
including:
. the availability of capital;
. attracting and retaining additional skilled, qualified personnel;
. operating and technical problems;
. adverse changes in the regulatory environment in our markets;
. obtaining necessary rights-of-way, licenses and permits;
. delays in the full implementation or modification of the European
Union Directives regarding telecommunications liberalization; and
. increased competition and pricing pressures in each of our markets.
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For example, we are awaiting necessary licenses for our planned deployment
in Amiens in France, and we may encounter difficulties obtaining rights-of-way
and building permits while we deploy our networks and we may face construction
delays caused by other factors outside of our control. We may also encounter
difficulties presented by the existence of differing technical standards among
the countries in which we deploy networks. As a result, there can be no
assurances that we will be able to timely deploy the additional route kilometers
included in our planned networks at our anticipated costs.
Development of our planned Internet backbone and IDCs involves additional
challenges that could stop or slow our growth and we will face significant
competition in the Internet-related services market
We are accelerating the roll-out of Internet-related services and plan to
deploy a Tier One network linking our IDCs in France, Germany and the United
Kingdom. The success of this strategy will depend upon our ability to:
. successfully compete for qualified personnel;
. build state-of-the-art facilities;
. successfully brand and market our Internet-related services; and
. effectively manage the evolving regulation of the Internet and data
and information privacy and security concerns.
A number of our competitors for Internet-related services are well-funded,
well-established providers that have an established customer base and name
recognition. We believe that, if the quality of the service is consistently
high, Internet services and data center customers will typically renew their
contracts because it is costly and technically burdensome to switch providers.
Also, while we believe that there has been and is currently strong demand for
data centers in the European market, in addition to the established providers,
there may be numerous new entrants that may compete with us in specific markets.
We cannot assure you that we will be able to secure sufficient market share and
effectively complete in this market.
We depend on effective billing, customer service and information systems and we
may have difficulties in expanding these systems
We have implemented an integrated management information system to
coordinate our key business processes. Our operations and potential for growth
depend on sophisticated back-office information and processing systems. We need
these systems 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 our growth and adversely affect our collection of
revenues. We cannot assure you that our systems will operate effectively and
seamlessly, or will perform as expected. We m ay experience system failure or
shutdown and may not be able to deliver services
Our success depends on our ability to deliver network service levels
consistent with or exceeding those of our competitors, including our ability to
deliver reliable, high-speed access to the Internet. Any of the following
factors could impair our ability to deliver network service levels:
. power loss;
. natural disasters;
. damage from human error and tampering;
. software defects;
. capacity limitations;
. telecommunications failures; and
. other factors that can cause interruptions in service or reduced
capacity for our customers.
We have designed our network to minimize the risk of such system failure
but we cannot assure you that we will not experience failures or shutdowns
relating to individual points of presence or even catastrophic failure of the
entire network. If we experience extended system failures, it could damage our
reputation and result in the loss of customers and have adverse consequences on
our results of operations and financial condition.
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We rely on third party equipment and service suppliers and a delay in obtaining
or inability to obtain necessary equipment and support services could delay or
impair the construction of our networks
If we cannot obtain the equipment needed for our planned networks and
services, or delivery of the equipment is delayed, or the price of the equipment
increases, the deployment of our networks could be disrupted or our costs could
increase. We depend upon Nortel Networks (Nortel), Siemens AG (Siemens) and
other third party suppliers to provide switching equipment, wireline and
wireless transmission facilities, and billing and other information management
and operations support systems, and to design, build and install our networks
and provide maintenance and repair services. Establishing a uniform equipment
supplier for our transmission system is a key element of our network design and
should ensure backup for these core components of our system. Failure by Nortel,
Siemens or our other third-party suppliers to provide equipment and services
necessary for our operations on a timely basis could have a material adverse
effect on our network operations, customer relations and results of operations
and financial condition.
If we do not continually adapt to technological change, we could lose customers
and market share
We could lose customers and market share, if we fail to obtain new
technology. 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
anticipate the demand for new technology or obtain access to new technology on a
timely basis or on satisfactory terms.
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 use underground conduit, use aerial pole space and building roof
access from various parties, including our competitors, governments and private
parties in order to build, expand, and operate our local networks. In addition,
in some of our target markets, we may need 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.
If we acquire or invest in other companies, we will face certain risks inherent
in such transactions
As part of our business strategy, we may engage in mergers or make
investments in, or enter into strategic alliances or partnering arrangements
with, other companies. Any such future transactions could involve risks. For
example, we may experience difficulties in identifying and assessing the value
of mergers and acquisitions and other investment opportunities, pursuing,
integrating and managing newly-acquired operations, and improving operating
efficiencies. In addition, any such transaction could divert our resources and
consume management time.
Our need to comply with extensive government regulation and licensing
requirements could increase our costs and slow our growth
We cannot assure you that we will be successful in obtaining, maintaining,
or renewing licenses and other authorizations required for services we provide
or plan to provide. In addition, we cannot assure you that the required licenses
and other authorizations will be issued or renewed on commercially viable terms.
The telecommunications industry is subject to a significant degree of
regulation in France, Germany, the United Kingdom and many new markets across
Europe in which we intend to operate. We need telecommunications licenses and
other equivalent authorizations to operate in each of these countries. Our
ability to deploy MANs and provide Internet-related services in the additional
six cities included in our business plan depends on our ability to obtain
additional licenses and other authorizations or permissions. We cannot assure
you that we will be able to obtain the required licenses and, if we are
unsuccessful, we will need to revise our network deployment strategy.
We must keep our existing licenses and other authorizations in force in
order to continue providing services. Moreover, we must keep our licenses in our
existing markets in force or we will be in default under our respective
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indenture governing the 14% senior discount notes due 2009, and the notes, and
we risk sanctions from the government authorities that grant our licenses. In
most cases, these licenses and other authorizations 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
Union regulations and technical standards regarding interconnection, secrecy,
neutrality, non-discrimination, security, environmental protection, limitations
on ownership, and public service.
The adoption or modification of laws or regulations relating to the Internet
could adversely affect our business
The adoption or modification of laws or regulations relating to the
Internet could adversely affect our business. The European Union has recently
enacted its own privacy regulations. The law of the Internet, however, remains
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws, such as those
governing intellectual property, privacy, libel and taxation, apply to the
Internet.
We may not be able to obtain licenses for wireless local loop transmission
systems we are planning and we may experience difficulties in implementing
wireless service
If we are unable to develop wireless transmissions systems, we may not be
able to enlarge our targeted markets or customers or our expenses in doing so
may increase; and providing our services through wireless transmission systems
presents technological difficulties.
We plan to include point-to-point wireless transmission systems in a
portion of our MANs. If we are unable to develop our point-to-point wireless
transmissions systems, we may not be able to serve targeted markets or
customers. To obtain point-to-point wireless frequencies in certain of our
selected markets, we must obtain a license or frequency rights from the
government. We may not be able to obtain the required licenses or frequencies.
Point-to-point wireless transmission systems require a direct line of sight
between two antennas constituting a link and are also subject to distance and
rain attenuation as well as line of sight limitations. Additionally, our ability
to integrate wireless transmission systems in our networks depends upon securing
rights to suitable location sites such as roofs. If we cannot obtain suitable
rights, we may be unable to use a wireless link, which could result in
additional expense or prevent us from using wireless to service a particular
customer or area.
In June 1999, we received from ART an experimental point-to-multipoint
authorization in Marseilles, France. We filed for a permanent license for 18
regions in France on January 31, 2000. On July 11, 2000, the ART announced that,
subject to confirmation by the Telecommunications Ministry, we were awarded
licenses in four of those regions: Auvergne, Corsica, Franche-Comte and Limousin
and as a result, our experimental authorization in Marseilles will expire. On
July 21, 2000, we informed the ART that we would not accept these licenses,
since they were not in strategic areas consistent with our business plan. On
June 20, 2000, we filed an application for wireless local loop licenses in 11
designated areas in Germany in a call-for-tender process conducted by the German
regulatory authority. We expect the German authorities to announce the license
awards in the third quarter of 2000. We have no assurances that we will obtain a
license or licenses for all of the frequencies necessary to establish and
operate local networks in the geographic areas in Germany in which we have
applied to operate. Even if we are awarded the licenses and decide to make use
of them, we may not be able to raise additional debt and/or equity financing to
construct wireless local loop facilities.
Our future growth and success largely depends on our ability to attract, retain
and motivate highly skilled, qualified and experienced managerial, sales,
marketing, operating, engineering and technical personnel
The loss of key personnel, or our inability to recruit sufficient qualified
personnel could materially adversely affect our business. We are managed by a
small number of key executive officers and employees with extensive experience
in the telecommunications industry and unique management abilities and technical
knowledge. We have secured key person life insurance for three 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 largely
depends on our ability to attract and retain skilled, qualified and experienced
managerial, sales, marketing, operating, engineering 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 may be liable for information disseminated through our network
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The law relating to the regulation and liability of Internet service
providers in relation to information carried or disseminated is still
developing.
The EU Commission has prepared a proposal for a directive on certain legal
aspects of electronic commerce, which, if adopted by the European Parliament and
Council, would require member states to make certain changes to national laws.
The proposed directive would apply to us and other service providers established
in the EU and aims to establish a consistent legal framework for electronic
commerce within the EU.
The proposed directive is still under review by member states and it is
impossible to predict whether it will eventually be adopted and, if so, in what
form. Decisions, laws, regulations and other activities regarding regulation and
content liability may adversely affect the development and profitability of
companies offering Internet access services, including us.
The imposition of potential liability upon Internet and Web-hosting service
providers for material carried on or disseminated through their systems could
require us to implement measures to reduce our liability exposure. Such measures
may require that we spend substantial resources or discontinue some product or
service offerings. Any of these actions could have a material adverse effect on
our business, operating results and financial condition.
Year 2000 issues may adversely affect our ability to operate our networks and
service our customers and adversely affect our business and results of
operations
We completed the initial conversion to year 2000 without significant
problems. However, until well into the year 2000, we will not be certain that
all of our computer systems will function adequately as a result of the
transition to year 2000. A failure of our customers or vendors, including other
telecommunications operators, to cause their software and systems to be year
2000 compliant could adversely affect 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. While we do not currently anticipate that we will experience
significant year 2000 conversion failures in the future based on our experience
to date, we cannot guaranty that our customers or vendors will not experience
year 2000 conversion problems that may have a material adverse effect on our
business, financial condition and results of operations.
We have applied for, but not yet received, assurance from the U.S. Securities
and Exchange Commission regarding our status under the Investment Company Act;
if we are subject to the Investment Company Act, it could adversely affect our
financing activities and financial results
Companies that are, or hold themselves out as being, engaged primarily in
the business of investing, reinvesting or trading in securities are subject to
regulation under the Investment Company Act of 1940. Similarly, companies that
hold more than a certain percentage of their assets in investment securities are
subject to the Investment Company Act. We believe that we are actively engaged
in the telecommunications business and are not an investment company. However,
because we currently have substantial liquid assets pending the deployment of
our capital in the pursuit of building our business, we may be considered an
investment company and required to register and become subject to regulation
under the Investment Company Act.
Investment Company Act regulation would be detrimental to our business
strategy. To avoid regulation under the Investment Company Act, and related
rules adopted by the U.S. Securities and Exchange Commission, we have had to
restructure our short-term investments. Generally, we invest in short-term fixed
income instruments denominated in euros or other Western European currencies.
These investments are designed to preserve principal, maintain liquidity to meet
daily cash needs and earn a competitive rate of return. However, as a result of
our initial public stock offering and the sale of the old notes, to avoid
Investment Company Act regulation, we are limited to holding a significant
amount of cash or U.S. government securities, which have a lesser rate of return
than corporate or other non-U.S. government securities. As a result, our
exposure to foreign currency exchange rate fluctuations has increased since our
revenue and expenses are largely denominated in the local currencies.
To avoid this result, we have applied to the U.S. Securities and Exchange
Commission for special exemptive relief declaring that, for a period of one year
from the date of the exemption, we are not an investment company. We have not
yet received this exemption, and it is possible that we will not ultimately
receive it.
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Foreign currency exchange rate fluctuations may adversely affect our financial
results
Our operations are not significantly exposed to changes in currency
exchange rates because our revenues, costs, assets and liabilities are, for the
most part, denominated in euros. However, the 14% senior discount notes due 2009
expose us to exchange rate fluctuations because the payment of principal and
interest on the notes will be made in dollars, and a substantial portion of our
future cash flows used to service these payments will be denominated in euros.
In addition, to avoid characterization as an investment company under the
Investment Company Act of 1940, until we are granted an exemption, we must
invest a substantial portion of our available cash in U.S. government treasury
bills with various short-term maturities. Accordingly, we have executed certain
forward currency contracts in order to hedge our risk against foreign currency
fluctuations between the U.S. dollar and the euro. While we intend to take steps
to minimize exchange rate risks, we find it impractical to protect against all
exchange rate risk exposure and, as a result, we will continue to experience
foreign currency gains and losses. We cannot assure you that our financial
results will not be materially adversely affected by variations in currency
exchange rates.
Our operating subsidiaries attempt to match costs, revenues, borrowings and
repayments in their local currencies. Nonetheless, they have paid for equipment
in currencies other than their own and may continue to do so in the future. Some
of our operating subsidiaries also have payables and receivables that are
denominated in currencies other than their local functional currencies, which
expose them to risk from foreign currency exchange rate fluctuations. Our
functional currency was the U.S. dollar through December 31, 1999. Now that our
principal economic environment includes France and Germany, which are both
members of the European Union, we have adopted the euro as our functional
currency effective January 1, 2000.
A liquid trading market for the notes may not develop
Although we have listed the old notes, and will apply to list the new
notes, on the Luxembourg Stock Exchange, a liquid trading market may not
develop. Currently, there is no established trading market for the old notes.
The liquidity of any market for the notes will depend upon the number of holders
of the notes, our performance, the market for similar securities, the interest
of securities dealers in making a market in the notes and other factors.
Although the initial purchasers of the old notes have informed us that they
intend to make a market in the notes, they have no obligation to do so and may
discontinue their market making activities at any time without notice.
Historically, there has been substantial volatility in the market for non-
investment grade debt, such as the notes. This volatility has increased in
recent months and the liquidity of non-investment grade securities has declined
significantly. We cannot assure you that the market, if any, for the notes will
not be subject to similar disruption. Any disruption in the market for this type
of security could have a material adverse effect on the holders of the notes.
Disclosure Regarding Forward-Looking Statements
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 strategies 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 network 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;
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. successfully and efficiently transfer new customers to our networks
and access new geographic markets;
. successfully develop IDCs and market our Internet-related services;
. identify, finance and complete suitable acquisitions and partnering
arrangements with other companies;
. secure additional financing necessary to carry out our plans and
expand our services;
. 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.
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.
The net proceeds from the sale of the old notes to the initial purchasers
were approximately (Euro)193.3 million. We used a portion of the proceeds to
purchase $27.0 ((Euro)28.6) million principal amount at maturity of the 14%
senior discount notes due 2009. Approximately (Euro)78.0 million of the proceeds
were invested in a portfolio of securities, pledged as security for the notes,
to be used to fund the first six interest payments. The remaining proceeds from
the old notes will be used to (i) fund the further deployment of our networks in
existing markets and an additional six cities in France and Germany, (ii) fund
the expansion of our Internet-related services, (iii) develop complementary
local access systems, (iv) fund net operating losses, and (v) for general and
corporate purposes.
Any one or more factors could lead management to determine that funds on
hand or funds from future financings should be redirected. We have described
this potential for reallocation more thoroughly in the section entitled "Risk
Factors-We may modify our network plan and we may have to reallocate funds."
Until we use the net proceeds from the old notes as described above, we
intend to invest the net proceeds in short-term investment-grade marketable
securities and, as required to avoid regulation under the Investment Company Act
of 1940, in U.S. government securities.
Exchange Rate Data
In this prospectus, references to "dollars," or "$" are to U.S. currency,
references to "euros" or "(Euro)" are to the single currency adopted by the 11
member states of the European Union participating in the European Union's
Economic and Monetary Union (see below). For the convenience of the reader, this
prospectus contains translations of certain euro amounts into dollars which
should not be construed as a representation that such euro amounts actually
represent such dollar amounts or could be, or could have been, converted into
dollars at the rates indicated or at any other rate.
We currently report all of our historical financial results in dollars as
our functional currency. We adopted the euro as our functional currency
effective January 1, 2000 because the principal economic environment in which we
earn revenue and incur expenses has become significantly tied to euro currency
environments, such as France and Germany.
The following table sets forth, for the periods and dates indicated,
certain information concerning the noon buying rate in New York City for cable
transfers in euros as certified for customs purposes by the Federal Reserve Bank
of New York (the "Euro Noon Buying Rate") for dollars expressed in dollar per
one euro as indicated:
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<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998
-------- ------
<S> <C> <C>
Exchange Rate:
Period end........................ $ 1.007 $ 1.181(1)
Average during period............. 1.065 -- (2)
High during period................ 1.181 -- (2)
Low during period................. 1.002 -- (2)
</TABLE>
____________
(1) Based on the exchange rate as of January 4, 1999 since the Euro Noon Buying
Rate was first quoted on this date.
(2) Exchange rates for the euro were not fixed until December 31, 1998.
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The Exchange Offer
Purpose of the exchange offer
On April 13, 2000, we issued (Euro)200 million 14% Senior Notes due 2010 in
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.
Simultaneous with the sale of the old notes, we entered into an exchange
and registration rights agreement with the initial purchasers of the old notes.
Under the registration rights agreement, we agreed to file a registration
statement regarding the exchange of the old notes for notes with terms identical
in all material respects. We also agreed to use our best efforts to cause the
registration statement to become effective under the Securities Act. We have
filed a copy of the exchange and registration rights agreement as an exhibit to
the registration statement of which this prospectus is a part.
Resale of the new notes
Based on no-action letters issued by the staff of the Securities Exchange
Commission to other issuers, 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.
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. These 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.
Terms of the exchange offer and 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
(Euro)1,000 principal amount at maturity in exchange for each (Euro)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
(Euro)1,000. The minimum denomination of any note is (Euro)50,000. As of the
date of this prospectus, an aggregate of (Euro)200 million in principal amount
of the old notes is outstanding. The form and terms of the new notes are
substantially identical to the form and terms of the old notes, except that the
exchange will be registered under the Securities Act, as a result the new notes
will not include legends restricting their transfer. The new notes will evidence
the same debt as the old notes and will be issued under the same indenture.
Holders of the old notes do not have any appraisal or dissenters' rights
under the indenture in connection with the exchange offer.
The expiration date of the exchange offer is 12:00 p.m. New York City time
(5:00 p.m. London time), on August 24, 2000, unless we extend the 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
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<PAGE>
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. We will communicate any
extension by means of a press release or other public announcement issued no
later than 9:00 a.m., New York City time (2:00 p.m. London 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 confirmation before the expiration date
of a book-entry transfer of the old notes into the exchange agent's
account in accordance with Clearstream's or Euroclear's standard
transfer procedures;
. the exchange agent must receive before the expiration date certificates
for the old notes along with the letter of transmittal; or
. the holder must comply with the guaranteed delivery procedures
described below.
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. Instead of delivery by mail, we recommend that
holders use an overnight hand-delivery service. 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
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<PAGE>
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 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.
Acceptance of old notes for exchange and 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 we 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 old notes that are not
exchanged 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 of old notes 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.
Interest
Cash interest will accrue from April 13, 2000 and will be payable in
respect of the new notes at the rate of 14% per annum, semi-annually in arrears
on each April 15 and October 15, beginning October 15, 2000.
Holders of the old notes whose old notes are accepted for exchange will be
deemed to have waived the right to receive any payment in respect of interest on
the old notes accrued from April 13, 2000 until the date of the issuance of the
new notes. The new notes will accrue interest from April 13, 2000. Consequently,
holders who exchange their old notes for new notes will receive the same
interest payment on October 15, 2000 (the first interest payment date with
respect to the old notes and the new notes) that they would have received had
they not accepted the exchange offer.
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<PAGE>
Book-entry transfer
The exchange agent will make a request to establish an account with respect
to the existing notes at each of Clearstream and Euroclear for purposes of this
exchange offer within two business days after the date of this prospectus
unless the exchange agent already has established accounts with Clearstream and
Euroclear suitable for this exchange offer. Any financial institution that is a
participant in the book-entry transfer facility system of Clearstream or
Euroclear may make a book-entry delivery of the existing notes by causing
Clearstream or Euroclear to transfer such existing notes into the exchange
agent's account at Clearstream or Euroclear, as the case may be, in accordance
with their respective procedures for transfers.
Although you may deliver your old notes through book-entry transfer into
the exchange agent's account at either Clearstream or Euroclear, you must
deliver the applicable letter of transmittal, or facsimile of the letter of
transmittal, properly completed and duly executed, with any required signature
guarantees, or an agent's message in lieu of a letter of transmittal, and any
other required documents to the exchange agent at its addresses set forth under
"Exchange Agent" prior to the expiration date, or you must comply with the
guaranteed delivery procedure set forth below.
Delivery of documents to Clearstream or Euroclear does not constitute
delivery to the exchange agent.
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 limitations will not permit
the 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 both of the following
conditions are met:
. the tender is made through an eligible guarantor institution; and
. 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 guaranty that within five
trading days on the Nasdaq National Market 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 Nasdaq National Market 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 12:00 p.m.
New York City time (5:00 p.m. London time) on 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 principal 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
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<PAGE>
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 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 above under "Procedures for tendering old notes" at any
time on or before the expiration date.
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<PAGE>
Exchange agent
The Chase Manhattan Bank 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:
Chase Manhattan Bank Chase Manhattan Bank
CMFS Debt Agency Operations CMFS Debt Agency Operations
1 Chaseside, Bournemouth, BH7 7DA 1 Chaseside, Bournemouth, BH7 7DA
United Kingdom United Kingdom
Attn: Derek Harling Attn: Derek Harling
By Hand:
Chase Manhattan Bank
CMFS Debt Agency Operations
1 Chaseside, Bournemouth, BH7 7DA
United Kingdom
Attn: Derek Harling
By Facsimile Transmission
(for Eligible Institutions only):
+ 44-120-234-1267
Attention: Derek Harling
Confirm by Telephone:
+ 44-120-234-7135
For Information Call:
+ 44-120-234-7135
Delivery of this instrument to an address other than as set forth above, or
transmission of instructions via facsimile other than as set forth above, will
not constitute a valid delivery
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 (Euro) 250,000.
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.
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<PAGE>
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 the old notes
Participation in the exchange offer is voluntary. Old notes that are not
exchanged for new notes will remain restricted securities. As a result, 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.
Under limited circumstances, 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 old notes.
Luxembourg exchange procedures
The old notes are listed on the Luxembourg Stock Exchange. As part of this
exchange offer:
. notice will be given to the Luxembourg Stock Exchange and published in
a newspaper with general circulation in Luxembourg announcing the
beginning of the exchange offer and, following completion of such
offer, the results of such offer;
. a Luxembourg exchange agent, through which all relevant documents with
respect to the exchange offer will be made available, will be
appointed; and
. the Luxembourg exchange agent will be able to perform all agency
functions to be performed by any exchange agent, including providing a
letter of transmittal and other documents to holders, and accepting
such documents on behalf of CompleTel Europe.
The new notes will be accepted for clearance through Clearstream and
Euroclear, as the case may be. Notice will be given to the Luxembourg Stock
Exchange and published in a Luxembourg newspaper of general circulation
(expected to be the Luxemburger Wort) announcing the relevant Common Codes and
International Securities Identification Numbers.
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Management's Discussion and Analysis
of Financial Condition and Results of Operations
You should read the following discussion and analysis along with the
"Selected Consolidated Financial Data for CompleTel Europe," "Information About
CompleTel LLC-Selected consolidated financial data for CompleTel LLC" and our
audited and unaudited consolidated financial statements of CompleTel Europe N.V.
and of CompleTel LLC and the related notes that begin on page F-1 of this
prospectus. The "Selected consolidated financial data for CompleTel Europe,"
"Information About CompleTel LLC-Selected Consolidated Financial Data for
CompleTel LLC" and the audited and unaudited, consolidated financial statements
have been prepared according to generally accepted accounting principles (GAAP)
in the United States. We review the financial position of CompleTel Europe N.V.
and its subsidiaries as if they had been formed and were a consolidated entity
since January 1998. CompleTel LLC's only material asset consists of its 100%
equity interest in CompleTel (N.A.) N.V., which owns 75.4% of the outstanding
capital stock of CompleTel Europe N.V. As a result, we have not included a
separate management discussion and analysis for CompleTel LLC.
We are a rapidly growing CLEC operating in France and Germany. We offer
traditional fixed wireline retail business telecommunication services to our
directly connected on-net customers and sell wholesale services to other
carriers. We also have established an Internet division to offer a full range of
Internet-related services through IDCs we are establishing in France, Germany
and the United Kingdom.
Effective January 1, 2000, we adopted the euro as our functional and
reporting currency. We made this change because the principal economic
environments in which we raise capital, earn revenue and incur expense (France
and Germany) have changed from the U.S. dollar to the euro.
Significant milestones
The euro amounts disclosed under "--Significant milestones" are based on
the applicable historical U.S. dollar-to-euro exchange rate unless otherwise
indicated.
. Between May 1998 and January 1999, Madison Dearborn Partners, Inc. and
LPL Investment Group Inc., our founders, other directors and other
individual investors, contributed a total of $65.8 ((Euro)56.6 at
January 1, 1999) million to CompleTel LLC for our initial financing.
. In December 1998, we were awarded licenses to operate
telecommunications facilities and provide services in selected regions
in France.
. In February 1999, we closed a unit offering in which we issued 14%
senior discount notes and CompleTel Holdings LLC issued Class B
interests representing a 7% ownership interest in our then outstanding
share capital. Net proceeds to us totaled $72.6 ((Euro)64.9) million.
. In March 1999, we were awarded licenses to operate telecommunications
facilities and provide services in selected regions in Germany.
. In March 1999, we acquired all of the outstanding capital stock of
Acces et Solutions Internet S.A.R.L., a Lyon-based Internet service
provider for $2.1 ((Euro)1.9) million in cash.
. In April 1999, we received a $90 ((Euro)90.0 at December 31, 1999)
million credit facility commitment from Paribas and Nortel.
. In June 1999, we launched commercial services in France.
. In June 1999, we acquired all of the outstanding capital stock of Web
International Networks Limited (now iPcenta), a London-based Internet
service provider for approximately $365,000 ((Euro)385,000) in cash
plus approximately $240,000 ((Euro)255,000) in contingent earnout
payments.
. In July 1999, we received an extension of the markets for our German
licenses.
. In October 1999, we received a commitment from Goldman Sachs
International and Paribas, as co-arrangers for syndicated bank
financing in the form of a (Euro)265 million senior secured credit
facility. The commitment terminated, superseded and replaced, without
penalty, our commitment from Paribas and Nortel.
. In November 1999, we launched commercial operations in Germany.
. In the fourth quarter of 1999, CompleTel LLC received additional
equity contributions from its initial private equity investors,
directors and management, and from a new private equity investor,
Meritage Investment Partners, totaling $42.1 ((Euro)41.7) million,
which CompleTel LLC immediately contributed to us and our operating
subsidiaries.
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<PAGE>
. In January 2000, we executed the (Euro)265 million senior secured
credit facility. We have made no draws under this facility and, in
April 2000, we entered into the suspension agreement, which is
discussed below under the caption "--Liquidity and capital resources."
. In March 2000, we completed our initial public offering of 31,280,000
of our ordinary shares for total gross proceeds of (Euro)547.4 million
from a euro offering and a dollar offering.
. In April 2000, we completed a (Euro)200 million senior notes offering.
Results of operations
We have generated operating losses and negative cash flow from our
operating activities to date. As a result of our operating history, prospective
investors have limited operating and financial data about us upon which to base
an evaluation of our performance.
Revenues
We generated our first revenues in the quarter ended June 30, 1999. For the
quarter ended March 31, 2000, and the year ended December 31, 1999, revenues
totaled (Euro)3.0 million and (Euro)2.9 million, respectively. No revenues were
generated in the quarter ended March 31, 1999 or in the year ended in December
31, 1998. Since January 1998, we have developed and refined our business plans,
procured regulatory and governmental authorizations for our 11 initial markets,
raised capital, hired management and other key personnel, designed, developed,
installed and launched commercial operations in our 11 initial markets and
implemented operation support systems, and negotiated equipment and facilities
agreements. We also have commenced development of our MANs in the additional six
cities included in our 17-city plan and deploying our IDCs.
Operating expenses
Our primary operating expenses consist of network costs, selling, general
and administrative expenses, including start-up costs, management fees to
affiliate, non-cash compensation charges, and depreciation and amortization
expenses.
Network costs
Network costs for the quarter ended March 31, 2000 totaled (Euro)3.0
million, compared to (Euro)0.1 million for the comparable period in 1999.
Network costs for the year ended December 31, 1999 totaled (Euro)2.3 million. We
did not incur network costs in the similar 1998 period. We expect these costs
will increase as we expand our networks and services. Our network costs include
costs such as interconnection costs, 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, and
switch site rent, operating and maintenance costs. We also lease dark fiber and
conduit to establish and augment our networks in certain markets.
For the quarter ended March 31, 2000, our direct operating margin, which
includes network costs directly associated with our revenues such as
interconnect costs, totaled (Euro)1.6 million, or 54 percent. For the same time
period our gross margin, which includes all network costs, was approximately
break-even.
Selling, general and administrative expenses
Our selling, general and administrative expenses include selling and
marketing costs, customer care, billing, corporate administration, salaries and
other personnel costs and legal fees. For the quarter ended March 31, 2000,
selling, general and administrative expenses totaled (Euro)13.1 million compared
to (Euro)3.5 million for the comparable period in 1999. For the year ended
December 31, 1999, selling, general and administrative expenses totaled
(Euro)30.3 million compared to (Euro)3.8 million for the comparable period in
1998. These increases were primarily due to the rapid growth of personnel costs
since commencement of operations.
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. We are supplementing our direct sales
force with commissioned indirect sales agents. To attract and retain a highly
qualified sales force, we offer our sales and customer-care personnel a highly
competitive compensation package. The number of employees increased from 109 as
of March 31, 1999 to 465 as of March 31, 2000, and from 36 as of December 31,
1998 to 374
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as of December 31, 1999. On March 31, 2000 and on December 31, 1999, we had a
sales force of 118 and 108, respectively (including managers and
administrators), compared to 18 on March 31, 1999 and one on December 31, 1998.
We expect the number of sales and marketing personnel to continue to grow and
our selling, general and administrative costs to increase as we develop and
expand our operations.
We incurred amortization of stock-based compensation expense of
approximately (Euro)1.6 million under our stock option plan for the three months
ended March 31, 2000. This amount is based on deferred compensation totaling
approximately (Euro)31.9 million.
We incurred additional stock-based compensation expense of approximately
(Euro)42.4 million upon completion of our IPO due to the resulting vesting of
certain CompleTel LLC performance vesting units held by certain of our employees
in connection with a qualified public offering. This compensation expense is
based on an assumed IPO price of (Euro)17.50 per share. In addition, based upon
our value as indicated in the IPO, we recorded compensation expense and deferred
compensation of approximately (Euro)24.0 million and (Euro)74.9 million,
respectively, for performance vesting units that did not vest as a result of the
IPO but that may vest upon a qualified sale by Madison Dearborn Partners or in
May 2005 based on a deemed vesting date. The additional deferred compensation is
being amortized to expense over the remaining vesting period to May 18, 2005
(the deemed vesting date if not prior due to a qualified sale by Madison
Dearborn Partners). The recorded amount of compensation expense and deferred
compensation for these awards will be adjusted at each reporting date to reflect
management's estimate of the number of such units that will ultimately vest and
the fair market value of those units as of the end of the reporting period based
on the then current market value of ordinary shares. For each (Euro)1 increase
in the market value per ordinary share, additional compensation expense and
deferred compensation totaling approximately (Euro)7.5 million will be recorded
with respect to non-vested performance vesting units.
Management fees to affiliate
CompleTel LLC and its wholly-owned subsidiary, CableTel Management, Inc.,
CompleTel Europe, and each of the entities between CompleTel Europe and our
operating subsidiaries, incur overhead costs and expenses associated with their
holding company operations. Our operating subsidiaries bear their proportionate
share of these costs and expenses. The operating subsidiaries pay CableTel
Management, Inc. 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, Inc. and CompleTel Europe incur in rendering services to
each of the companies. For the quarter ended March 31, 2000, we recorded
(Euro)2.1 million of related-party management fees compared to (Euro)0.9 for the
same period of 1999. For the year ended December 31, 1999, and the period from
commencement of operations to December 31, 1998, we recorded (Euro)6.2 million
and (Euro)2.6 million, respectively, of related-party management fees.
Depreciation and amortization
For the quarter ended March 31, 2000 and the year ended December 31, 1999,
we recorded depreciation and amortization expense of (Euro)2.9 million and
(Euro)4.3 million, respectively, compared to (Euro)0.1 million and (Euro)0.04
million for the similar periods ended March 31, 1999 and December 31, 1998,
respectively. This increase is due to increases in network and 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 incurred interest expense, net of (Euro)1.3 million of capitalized
interest, of (Euro)1.9 million during the quarter ended March 31, 2000. We
incurred interest expense, net of (Euro)1.3 million of capitalized interest,
of (Euro)7.9 million during the year ended December 31, 1999. Interest expense
for the quarter ended March 31, 1999 totaled (Euro)1.2 million. The interest
expense recorded reflects the accretion of the 14% senior discount notes due
2009 and the amortization of deferred financing costs. We capitalize a portion
of our interest costs as part of the construction cost of our networks, in
accordance with Statement of Financial Accounting Standards No. 34
"Capitalization of Interest Costs" ("SFAS 34"). Interest income totaled
(Euro)0.4 million for the quarter ended March 31, 2000, compared to (Euro)0.5
million for the similar period in 1999, and (Euro)2.4 million for the year ended
December 31, 1999, compared to (Euro)0 for the period from commencement of
operations (January 8, 1998) to December 31, 1998.
Until we are granted an exemption from regulation under the Investment
Company Act of 1940, to remain in compliance with its investment requirements,
we have invested approximately $418.0 ((Euro)442.6) million of our initial
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public offering proceeds in short-term maturities of U.S. treasury bills. We
have entered into forward currency contracts for the amount of these investments
to minimize our currency exposure.
Foreign exchange rates
We are not significantly exposed to changes in currency exchange rates
because our revenues, costs, assets and liabilities are, for the most part,
denominated in euros. However, the 14% senior discount notes due 2009 that we
issued in February 1999 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. While we intend to take
steps to minimize exchange rate risks, we cannot assure you that we will not be
materially adversely affected by variations in currency exchange rates. We
adopted the euro as our functional and reporting currency effective January 1,
2000.
As a result of exchange rate fluctuations between the date of pricing of
the initial public offering and the date of closing of the initial public
offering, when we purchased U.S. treasury bills to remain in compliance with the
Investment Company Act, we incurred an unrealized foreign exchange loss.
Net loss
Our net loss during the quarters ended March 31, 2000 and 1999, was
(Euro)97.3 million and (Euro)5.3 million, respectively, and for the year ended
December 31, 1999 and the period from commencement of operations (January 8,
1998) to December 31, 1998 was (Euro)49.8 million and (Euro)6.5 million,
respectively. These increases were primarily the result of non-cash compensation
charges and substantial start-up costs of the operating subsidiaries, primarily
our French subsidiary.
Adjusted EBITDA
Since the commencement of our operations, we have experienced significant
operating losses and negative Adjusted EBITDA, as set forth below. We expect to
continue to generate significant operating losses and negative Adjusted EBITDA
in each of our markets as we develop, construct and expand our business, until
we have established a sufficient revenue-generating customer base in each
market.
We expect to experience increasing consolidated 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. The following table summarizes our Adjusted EBITDA
calculation for the periods indicated (amounts in thousands of euros).
<TABLE>
<CAPTION>
Commencement
of Operations
(January 8,
Three Months Year Ended 1998) to
Ended March 31, December 31, December 31
---------------------------- --------------- ----------------
2000 1999 1999 1998
------------- ------------- --------------- ----------------
(unaudited) (unaudited) (audited) (audited)
<S> <C> <C> <C> <C>
Net Loss.................................... (Euro)(97,256) (Euro)(5,253) (Euro)(49,790) (Euro)(6,509)
Interest expense (net of interest income
and capitalized interest)............... 1,424 670 5,446 --
Income taxes................................ -- -- -- --
Depreciation and amortization............... 2,946 123 4,302 40
Non-cash compensation expense............... 69,660 31 634 164
Foreign exchange loss and other expense..... 7,943 -- 3,465 --
------------ ----------- ------------ -----------
Negative Adjusted EBITDA.................... (Euro)(15,283) (Euro)(4,429) (Euro)(35,943) (Euro)(6,305)
============ =========== ============ ===========
</TABLE>
In view of our highly leveraged capital structure, we consider Adjusted
EBITDA to be an important performance measure. Adjusted EBITDA consists of net
earnings (loss) before interest expense, interest income,
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<PAGE>
income taxes, non-cash compensation expense, depreciation and amortization and
other non-cash charges, including foreign currency exchange rate gains and
losses. Conceptually, Adjusted EBITDA measures the amount of income generated
each period that could be used to service debt, because it is independent of the
actual leverage employed by the business; but Adjusted EBITDA ignores funds
needed for capital expenditures, income taxes and expansion. Some investment
analysts track the relationship of Adjusted EBITDA to total debt as one measure
of financial strength. However, Adjusted EBITDA does not represent cash provided
or used by operating activities and you should not consider Adjusted EBITDA in
isolation or as a substitute for measures of performance prepared according to
generally accepted accounting principles (GAAP) in the United States.
You also should be aware that Adjusted EBITDA may differ significantly from
cash flows from operating activities as reflected in a statement of cash flows
prepared according to generally accepted accounting principles (GAAP) in the
United States. Cash from operating activities is net of interest and taxes paid
and is a more comprehensive determination of periodic income on a cash, rather
than accrual, basis and is exclusive of non-cash items of income and expenses
such as depreciation and amortization. In contrast, Adjusted EBITDA is derived
from accrual basis income and is not adjusted for changes in working capital.
Consequently, Adjusted 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 Adjusted EBITDA. Presentations of Adjusted EBITDA may
not be calculated consistently by different companies in the same or similar
businesses. As a result, our reported Adjusted EBITDA may not be comparable to
similarly titled measures used by other companies.
Statements of cash flows
We had cash and cash equivalents of (Euro)521.6 million as of March 31,
2000, an increase of (Euro)464.5 million from (Euro)57.1 million as of December
31, 1999, and we had cash and cash equivalents of (Euro)57.1 million as of
December 31, 1999, an increase of (Euro)55.6 million from (Euro)1.5 million as
of December 31, 1998. Details of the change in cash and cash equivalents are set
forth in the table below.
<TABLE>
<CAPTION>
Commencement
of Operations
(January 8,
Three Months Year Ended 1998) to
Ended March 31, December 31, December 31
---------------------------
2000 1999 1999 1998
------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities........ (Euro)(10,321) (Euro)(5,547) (Euro)(39,591) (Euro)4,794
Cash flows from investing activities........ (33,254) (76,271) (69,630) (3,742)
Cash flows from financing activities........ 504,198 115,514 155,610 556
Effect of exchange rates on cash............ 3,905 (2,217) ? (136)
------------ ------------ ------------ ------------
Net increase in cash and cash equivalents... 464,528 31,479 55,643 1,472
Cash and cash equivalents at beginning of 57,115 1,472
period................................. 1,472 --
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period.. (Euro)521,643 (Euro)32,951 (Euro)57,115 (Euro)1,472
============ ============ ============ ============
</TABLE>
Cash flows from operating activities
During the quarter ended March 31, 2000, we used (Euro)10.3 million in
operating activities, a (Euro)4.8 million decrease from the (Euro)5.5 million
used in operating activities for the similar period in 1999. During the year
ended December 31, 1999, we used (Euro)39.6 million in operating activities, a
(Euro)44.4 million decrease from the (Euro)4.8 million generated from operating
activities for the similar period in 1998. These decreases were primarily
related to the substantial organization and start-up costs incurred during the
development of our networks. Our development efforts increased significantly
since the first quarter of 1999.
Cash flows from investing activities
We used approximately (Euro)33.3 million of cash in investing activities
during the quarter ended March 31, 2000, compared to a use of (Euro)76.3 million
for the similar period in 1999. The increase was primarily due to investment of
our initial public offering proceeds during the first quarter of 2000.
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<PAGE>
We used approximately (Euro)69.6 million of cash in investing activities
during the year ended December 31, 1999, compared to a use of (Euro)3.7 million
for the similar period in 1998. The increase was due to increased capital
expenditures primarily related to our network development and office facilities
and equipment. Additionally, during the year ended December 31, 1999, we used
(Euro)1.9 million and (Euro)0.4 million in cash to acquire all of the
outstanding capital stock of Acces et Solutions Internet S.A.R.L. and Web
International Networks Limited, now iPcenta, respectively.
Cash flows from financing activities
We had approximately (Euro)504.2 million of cash flows from financing
activities during the quarter ended March 31, 2000, compared to (Euro)115.5
million for the similar period in 1999. The increase was due to the proceeds
from our initial public offering. Cash flows from financing activities during
the first quarter of 1999 resulted from proceeds from our offering 14% senior
discount notes due 2009 and equity contributions from our parent.
We had approximately (Euro)155.6 million of cash flows from financing
activities during the year ended December 31, 1999, compared to (Euro)0.6
million for the similar period in 1998. The increase resulted in part from
increased cash contributions from our parent, CompleTel LLC, which totaled
approximately (Euro)96.5 million for the year ended December 31, 1999, compared
to (Euro)1.3 million for the similar period in 1998. Additionally, in April
1999, we received from escrow the net proceeds from our unit offering totaling
approximately (Euro)70.1 million.
Liquidity and capital resources
The telecommunications business is capital intensive. Since January 1998,
and for the foreseeable future, we have needed and will continue to need large
amounts of capital to fund capital expenditures, working capital, debt service,
and operating losses. As of March 31, 2000 and December 31, 1999, we had
(Euro)521.6 million and (Euro)57.1 million, respectively, of cash and short-term
investments and net working capital of (Euro)476.5 million and (Euro)20.3
million, respectively.
In January 2000, we executed an agreement for a (Euro)265 million senior
secured credit facility with Goldman Sachs International and Paribas as
co-arrangers of the facility. As of March 31, 2000, we had no borrowings
outstanding under the facility. In April 2000, we entered into a suspension
agreement with the co-arrangers and other parties whereby we agreed not to
borrow funds under the credit facility in exchange for their agreement to
suspend the application of substantially all of the representations, covenants
and events of default. The suspension agreement is discussed in more detail
under the caption "Description of Material Indebtedness--(Euro)265 million
senior secured credit facility."
In April 2000, we completed the offering of (Euro)200 million 14% senior
notes due 2010. We used a portion of the proceeds to repurchase (Euro)27.6
million principal amount at maturity of the 14% senior discount notes due 2009.
We lent approximately (Euro)78.0 million of the net proceeds to a wholly-owned
subsidiary, which used the funds to invest in a portfolio of securities pledged
as security for the 14% senior notes due 2010. The proceeds of these pledged
securities will be used to made the first six interest payments on those notes.
The remaining proceeds from the note offering will be used to (i) fund the
further deployment of our networks in existing markets and an additional six
cities in France and Germany, (ii) fund the expansion of our Internet-related
services, (iii) develop complementary local access systems, (iv) fund net
operating losses and (v) for general and corporate purposes.
Capital expenditures
During the quarters ended March 31, 2000 and 1999, we made capital
expenditures of (Euro)33.3 million and (Euro)11.6 million, respectively. During
the year ended December 31, 1999, and the period from commencement of operations
(January 8, 1998) through December 31, 1998, we made capital expenditures
(excluding capitalized interest) of (Euro)97.1 million and (Euro)3.7 million,
respectively. We also used capital during these periods to fund our operating
losses.
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<PAGE>
Based on our current plan, we believe we will satisfy our aggregate capital
requirements to fund the deployment of our business plan through December 31,
2001, with the remaining funds we have already raised, the proceeds from our
initial public offering and the proceeds from our old notes offered April 2000.
Euro conversion
Effective January 1, 1999, the euro became the single legal currency of the
11 participating European Union member states, including The Netherlands, France
and Germany and the conversion rates of the currencies of the participating
member states were irrevocably fixed against the euro as of that date. Effective
January 1, 1999, the French franc, the German mark and the Netherlands guilder
ceased to be the legal currency. From January 1, 1999 until December 21, 2001,
the French franc, the German mark and the Netherlands guilder will continue to
be denominations of the euro and, as such, will be legal tender. The status of
the French franc, the German mark and the Netherlands guilder as denominations
of the euro will continue until, at the latest, June 30, 2002. On that date (or,
if these countries so determine, on some earlier date after January 1, 2002),
French francs, German marks and Netherlands guilders will be withdrawn from
circulation and will cease to be legal tender.
Euro notes and coins are not expected to be issued before January 1, 2002.
Prior to that date, cash payments will continue to be made in the local
currencies. From January 1, 2002 until the local currencies are withdrawn and
cease to be legal tender, cash payments may be made by means of euro notes and
coins or by way of French francs, German marks and Netherlands guilders as
appropriate. As of January 1, 1999, any obligation to pay an amount in the local
currencies by credit to a local bank account may, at the payer's option, be
discharged either in the local currency or in euros. With effect from January 1,
2002, all amounts denominated in French francs, German marks or Netherlands
guilders, to be paid other than by way of cash must be paid in euros.
We are not burdened with systems that must be redesigned to accommodate the
introduction of the euro as we have purchased and specified our business support
systems, including our billing systems, 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 to us that
their programs support dual currency operations.
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 may continue billings and collections
in the legal 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, which includes
Germany and France, there can be no assurance as to the relative strength of the
euro against other currencies.
Regulation and licensing matters
France, Germany and the United Kingdom, and any new markets across Europe
in which we intend to operate, subject the telecommunications industry to a
significant degree of regulation. We need telecommunications licenses and other
equivalent authorizations to operate in each of these countries. Our ability to
deploy MANs and provide Internet-related services in the additional six cities
included in our business plan depends on our ability to obtain an additional
licenses in France and other authorizations or permissions. There can be no
assurance that we will be able to obtain the required licenses, authorizations
and permits and, if we are unsuccessful, we will need to revise our network
deployment strategy.
We must keep our licenses in our existing markets in force or we may be in
default under the respective indentures governing our 14% senior discount notes
due 2009 and 14% senior notes due 2010 and under our credit facility, and we
risk sanctions from the government authorities that grant our licenses. In most
cases, these licenses and other authorizations are of fixed duration, and we
must comply with regulations and technical requirements in order to maintain
them. For example, in France, we must comply with French and European Union
regulations and technical standards regarding interconnection, secrecy,
neutrality, non-discrimination, security, environmental protection, limitations
on ownership, and public service.
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<PAGE>
We cannot assure you that we will be successful in obtaining, maintaining,
or renewing licenses and other authorizations required for the services we
provide or plan to provide. In addition, we cannot assure you that the required
licenses and other authorizations will be issued or renewed on commercially
viable terms.
New accounting standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") 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 was effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. During 1999, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
SFAS 133" (SFAS 137) which delayed the effective date of SFAS 133 until all
fiscal quarters of fiscal years beginning after June 15, 2000. As of March 31,
2000, we have 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 that have not yet been entered
into.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. We have
evaluated SAB 101 and believe that there is no effect on the revenue recognition
policies currently in place.
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<PAGE>
Business
Industry data used in this prospectus were derived from publicly available
industry trade journals, government reports, other publicly available sources
and third-party consultants. We have not independently verified these sources
but we believe they are reliable.
Facilities-based competitive local access provider
We are a rapidly-growing CLEC operating primarily in France and Germany.
Our vision is to become a leading alternative broadband provider of voice,
high-speed data and Internet protocol-based services in selected local markets
across Europe. We target business, government and institutional end-users, other
telecommunications carriers and Internet-related providers in metropolitan areas
with limited local access competition. Using our state-of-the-art, fiber optic,
MANs, we offer a wide range of voice, data and Internet-related services to our
directly connected, on-net, customers, including local and long-distance voice
services, dedicated high-capacity access and a suite of Internet-related access
and applications.
We believe that the rapid increase in demand for high-capacity data
telecommunications services and an absence of alternative local providers have
left our targeted customer segments largely underserved and provide us with
significant opportunities to grow our business. We are currently implementing
our business plan to deploy and operate our MANs in 17 cities in France and
Germany and provide Internet-related services in these cities and the United
Kingdom. As of June 7, 2000, we had commercially launched services in 11 cities:
Paris, Nice, Grenoble, Lyon, Marseilles, Toulouse, and Lille in France, and
Berlin, Essen, Munich and Nuremberg in Germany. We plan to deploy networks in an
additional six cities: Amiens, Nantes and Rouen in France, and Hamburg, Mannheim
and Stuttgart in Germany. We are also accelerating the expansion of our
Internet-related services. We had deployed approximately 655 route kilometers as
of May 31, 2000.
In addition to our local exchange carrier business, we have established an
Internet division. We are rapidly deploying IDCs on our fiber backbone MANs
supported by our Internet strategy of forming an Internet traffic aggregation
network, connecting France, Germany, the United Kingdom and the United States.
We intend to progressively provide a range of Internet services through our
IDCs, including: dedicated access, co-location and complex hosting, termination
service, server support, operating system support, packaged content and
application services.
In each of our target markets, we have focused on achieving an early market
position to secure a number of competitive advantages. We believe these
advantages include continuing to recruit and retain experienced personnel,
growing and developing a customer base, securing critical rights-of-way, and
promoting our name recognition.
We have assembled a strong management team that we believe has the
necessary management and telecommunications experience for us to achieve our
goals. Our senior management collectively have over 100 years of
telecommunications industry experience, which we combine with experienced
regional management teams familiar with the local communities and businesses
that we serve. Our national and local managers have broad telecommunications
industry experience with companies such as COLT Telecom Group plc (COLT),
Cegetel, Alcatel, Bosch Telecom, VIAG Interkom, Siemens, France Telecom and
Deutsche Telekom. In addition, we benefit from the extensive telecommunications
industry experience of our major equity investors, which include: funds
sponsored by Madison Dearborn Partners, a Chicago-based private equity firm,
experienced with investments in other telecommunications providers, such as
Focal Communications Corporation, Nextel Communication Inc. and Allegiance
Telecom, Inc.; LPL Investment Group, an investment firm controlled by Lawrence
F. DeGeorge; and funds sponsored by Meritage Investment Partners, a Denver-based
private equity firm that invests exclusively in telecommunications companies.
Two of our directors, James C. Allen and Royce Holland, provide us with
significant additional CLEC experience. Mr. Allen was a co-founder and the
former chief executive officer of Brooks Fiber Properties and currently serves
as a director of several telecommunications companies including MCI WorldCom.
Mr. Holland was a co-founder of both MFS Communications and Allegiance Telecom,
Inc. and continues to serve as a director and chief executive officer of
Allegiance.
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<PAGE>
Attractive and growing markets
We have selected the French and German telecommunications markets as we
believe they offer significant opportunities. These are the two largest
telecommunications markets in continental Europe according to Tarifica, as
measured by 1998 revenues.
Additionally, we believe the French and German markets are highly
attractive for the following reasons:
. Large addressable telecommunications markets. The French and German
fixed line and data telecommunications markets are the two largest in
continental Europe, with 34.7 million and 52.0 million telephone access
lines in 1999, respectively, according to Ovum.
. Expanding data and Internet markets. According to a report by CIT, an
independent research group, between 1999 and 2003, the value of the
business telecommunications markets in Germany and France is expected
to grow by 5.9% and 4.6% per annum, respectively. This growth is
expected to be driven by overall increases in call volumes, primarily
as a result of the growth in the use of Internet and data services and
improvements in the quality of services expected to result from
increased competition. According to Tarifica, the data services market
will grow by 16.3% and 7% in France and Germany, respectively, between
1999 and 2003. Internet access revenues in France and Germany are
expected to increase at annual rates of 33.1% and 32.9% between 1999
and 2003, respectively, according to Ovum.
. Attractive local loop competitive landscape. We believe that the
competitive environment in which we operate is favorable because most
alternative providers who have entered the French and German markets
are principally addressing the long-distance re-sale market, but not
the deployment of local access networks. In addition, the existing
alternative local access providers have concentrated primarily on
serving central financial districts in major cities. Our strategy is to
focus on areas where limited facilities-based competition exists, and
where there is a significant concentration of potential high-volume
telecommunications customers. We focus on business parks and other
areas of business concentration outside the financial centers of major
cities and broad deployment in medium-sized cities. As a result, we
expect to compete primarily with the incumbent carriers.
. Favorable regulatory environment. Under European Union regulations,
the French and German telecommunications markets were liberalized by
January 1, 1998. The regulatory agencies in France and Germany with the
support of the European Commission have shown a commitment to establish
a level playing field with the incumbent public telecommunications
operators, France Telecom and Deutsche Telekom, through the granting of
licenses to alternative operators like us; restricting the development
of regional price differentiation; and establishing lower
interconnection charges compared to many other European Union
countries. Each of these countries has also created a regulatory
environment that currently favors competitive local exchange operators
like us who invest in their own local infrastructure over non-
facilities-based carriers that re-sell services. Incumbent operators
are rebalancing tariffs and maintaining or raising local tariffs, while
decreasing their long-distance tariffs. We believe these pricing
actions will benefit local exchange carriers like us given our focus on
the local access segment.
On-net Customer-driven Network
Overview
Our market entry strategy is to focus on providing local access to an
underserved on-net customer base. We believe there are substantial long-term
benefits of our on-net strategy as compared to an off-net reseller strategy:
. substantial increased product offerings made possible by direct
connection;
. higher revenue per customer;
. lower interconnection costs and improved operating margins; and
. increased loyalty of customers and reduced churn.
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<PAGE>
Our integrated network architecture includes switches and data routers,
customer premise equipment and metropolitan area network fiber rings. Our
integrated network supports local and long-distance voice, high-speed packetized
data and services based on the Internet delivery platform. We believe our
networks offer greater capacity, higher reliability and lower operating costs
than those of the incumbent carriers in the areas we serve. The integrated
design of our networks significantly reduces our cost of providing a bundled
service offering.
To deliver high-quality, reliable telecommunications services, we employ a
state-of-the-art, uniform, high-capacity, protocol-transparent technology
platform. Our platform encompasses digital telephone and packet data switches,
Internet protocol and synchronous digital hierarchy (SDH) transmission
technology compliant with European telecommunications standards, with a
centralized network management and monitoring centers designed to readily
accommodate future technology upgrades.
Customers and route design
We have developed our network designs based on the needs and requirements
of our target customer segments using our knowledge of and experience in the
facilities-based competitive local exchange markets. We also draw on the
expertise of a broad range of independent third-party consultants.
We target high density business areas which currently experience limited
competition from other local carriers where customers purchase their
telecommunications services principally from the incumbent operators or from
resellers.
In order to identify specific target customers within identified service
areas, we complete a detailed geocoded analysis of demographic, competitive,
economic and telecommunications demand characteristics within each target city.
Ultimately, we generate a list of prioritized prospects in each target area and
a map of the target service area pinpointing the location of each potential
customer, and key demographics of those potential customers. We then plot a
route for the network, with the precise location of the route being driven to
ensure the highest possible density of customers as close as possible to each
route.
Network design principles
A key feature of our network design is its adaptability to changes in
service offerings, network standards, and new technology and protocols. Our
network design enables us to provide high-capacity transmission services to our
customers while providing substantial potential for expansion in a
cost-effective manner. Our networks are able to efficiently support a wide mix
of telecommunications traffic and protocols, including telephony, data, digital
videoconferencing, virtual private networks (VPNs), private lines, and Internet.
Our network is based on the following principles:
. Scalability. We can expand both transmission capacity and switching
capacity rapidly and cost-effectively as traffic volume and capacity
demands increase. We install duct systems typically with six ducts.
Each duct is capable of holding more than three hundred fibers. Our
current deployment uses one duct. The remaining ducts can accommodate
additional capacity for our use, or can be sold to or swapped with
other telecommunication service providers. As we install our duct
system, we also install the access duct to the points of entry of
buildings immediately adjacent to the network route to expedite adding
new customers.
. Revenue-driven deployment schedule. Using our disciplined geomarketing
design process, we design and deploy our networks to maximize potential
revenue generation while minimizing our build-out costs.
. Reliability. Our networks provide redundancy at multiple levels. The
ring structure is designed to provide dual direction routing capability
that allows the connection to be completed in the event of network
failure. Additionally, our external carrier interconnects have
alternative routing capability which should assure access to
alternative carriers. We have chosen vendors that we believe provide
reliable and quality equipment, such as Nortel, Siemens, Ciena
Corporation (Ciena) and Cisco Systems Inc. (Cisco).
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. A mix of local access technologies. We employ different technologies as
we believe it allows us to (1) meet customers' changing communication
requirements; (2) provide investment-justified rapid expansion of the
network coverage; and (3) respond to a wide range of integration
requirements among different customer segments. The link between the
network and the customer is typically fiber, but may also be copper or
wireless transmission. We are employing multiple technologies including
asynchronous transfer mode (ATM), Ethernet, frame-relay, SDH, wave
division multiplexing, packet data or Internet protocol routing. On a
case by case basis, we extend the reach and efficiency of our core
network rings through alternative methods, such as leased fiber or
point-to-point wireless.
. Protocol transparent and future proof. We are installing transmission
equipment that should allow us to converge circuit-switched and data
networks, and extend the value of our circuit switches into the future.
As these networks effectively merge, traffic can move more economically
over data networks, resulting in simplified network management. We are
continually reviewing our designs to ensure flexibility and rapid
evolution, as we believe that over time voice, data, video, Internet,
intranets and extranets will interconnect with our seamless network
platform.
Network infrastructure
. Metropolitan area networks. The core of our network is the fiber loops
that we build in selected areas. MANs comprise single or several fiber
optic rings that allow customers direct connection within a city or
metropolitan area to our network. We construct MANs that have route
diversity and a self-healing architecture, allowing for traffic to be
re-routed in case of a network outage, which should allow us to provide
the highest levels of reliability.
. Construction and installation. The local access networks consist of
fiber deployed in newly constructed ducts and existing ducts. The time
necessary to construct a new fiber optic network varies, depending upon
factors such as the size of the fiber ring to be installed, whether the
construction is underground or aerial, city specific rights-of-way
process, whether the conduit is in place or requires construction, and
the initial number of buildings targeted for connection to the fiber
ring. We install our fiber optic cables in conduits that we own or that
we lease from third parties. In certain isolated instances, however, to
achieve maximum speed to market, we utilize a "smart-build" strategy
and lease fiber trunking capacity from third parties. We also may lease
conduit or pole space from utilities, railroads, carriers, provincial
highway authorities, local governments and transit authorities. These
arrangements are generally for multi-year terms and have renewal
options.
We use a five-step deployment process for each MAN:
- We determine the preliminary route of the MAN by completing a
detailed analysis of demographic, competitive, economic and
telecommunications demand characterization of each target city.
- Our local management and sales teams then conduct a walk-by
inspection of the proposed route.
- We submit requests for rights-of-ways and construction permission
to the appropriate municipal authorities.
- Upon approval, we select a local civil construction firm which
completes the construction.
- Nortel, acting as our turnkey network assembler, completes the
installation of SDH and data transmission equipment, and
preassembles customer premise equipment.
. Points of presence (POPs) and distribution nodes. POPs are secured
interconnection points with other carriers, typically with a minimum of
two interconnect POPs per market. We purchase or lease sites, and
construct POPs in each market at the location of other carriers, public
Internet peering locations and local telehouses. Distribution nodes are
located in leased or purchased facilities to house electronic equipment
which provide the ability to add and remove voice and data traffic from
the fiber backbone destined to a customer or an interconnection point.
These nodes are secured, environmentally-controlled, and continuously
monitored stand-alone facilities.
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. Switch and IDCs. We construct switching centers in most of our
markets. Our switching centers are environmentally controlled, secure
sites, featuring back-up AC/DC power, emergency back-up battery and
power generator, heating, ventilation and air-conditioning systems,
redundant communication facilities, fire suppression and direct
connection to our high-speed fiber optic city MAN backbone. Our
switching centers are continuously monitored by our network operation
centers. The purchased or leased facilities are typically sized between
600 square meters and 4,000 square meters. Specific accommodations are
made to provide for the provision of co-location and hosting services.
Co-location services provide our customers with access and the space to
install their own equipment in our POPs. Our co-location centers offer
customers a secure location, controlled environment, monitoring and
immediate access to high-speed connections to the Internet and our
voice switching and data networking equipment. We are deploying IDCs in
each of our 17 markets in France and Germany, and we are deploying an
IDC in London, to support our Internet strategy. Our IDC plan leverages
our carrier-class switch center facilities and should provide
significant cost advantages. Leveraging our switching center assets
will also facilitate the rapid deployment of our IDCs.
. Network operation centers. We have established two network operating
centers, in Paris, France, and Munich, Germany, that allow centralized
and integrated management of all the equipment deployed in our MANs
throughout Europe. These centers continuously monitor performance of
all the various pieces of transmission and switching equipment, the
operating systems, the performance of customer transmission paths and
circuits and customer premises equipment in each of the MANs. The
center in France is located at Nanterre. The center in Germany is
located in our southern German regional management center in
Haar/Munich.
. SDH and Internet protocol technology. We provide our data, Internet
connectivity and voice services over our MANs. Our MANs use European
standards-based synchronous digital hierarchy (SDH) transmission
technology and Internet protocol to transport information along our
fiber optic backbone. Our SDH networks are based on self-healing
concentric rings, a technology that routes traffic through an
alternative path in the event there is a point of failure. This design
results in a highly reliable network which is less susceptible to
disruptions in the event of breakage at one point. Our data services
architecture is based on the Internet protocol, which is the framework
for the evolving network standard routing protocol of choice for packet
data networking.
. Interconnection and service agreements. We enter into interconnection
or service agreements with a range of other operators for transmission
of traffic outside of the reach of our local loops. We have entered
into principal national interconnection agreements with France Telecom
and Deutsche Telekom, the incumbent operators in France and Germany,
respectively. We also have entered into agreements with other
significant national and international carriers, such as MCI WorldCom,
Inc. (MCI WorldCom), Telecom Development, Siris and RSLCom. We are in
the process of developing additional physical interconnections with the
incumbent public operators, at both their tandem switching centers and
the end office/serving wire centers in each of our markets. As part of
our plan to deploy a Tier One network, connecting France, Germany, the
United Kingdom and the United States, we are also interconnecting our
networks with Internet backbone operators and public Internet peering
locations.
. Access agreements and rights of way. Our MANs are primarily constructed
by digging trenches along rights-of-way by obtaining rights to use the
property from local authorities. Where necessary or economically
preferable to digging trenches, we also secure other rights-of-way
agreements with highway commissions, utilities, political subdivision,
subway operators and others. Securing rights-of-way is critical in
achieving speed to market objectives because each successive request by
a new entrant generally has a reduced probability of being granted.
We have established and plan to continue to establish relationships with
electric and other utility companies in our target markets to obtain
rights-of-way access. We intend to use these relationships to maximize the
penetration and speed of entry and reduce the cost of deploying our network in
our target markets. In Paris, France, we have received approval from the city
authorities to lay our fiber in the underground sewer system. This agreement
enables us to lay our fiber in a cost-effective manner because it entails
minimal excavation of city streets as the system's conduits connect to nearly
all buildings in Paris.
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We must secure the rights-of-way from local authorities as we construct our
networks over property in the public domain. Certain cities, such as Lyon,
Marseilles and Paris in France, and Munich in Germany, have adopted framework
agreements that govern access to the public domain roadways and non-roadways
such as sewers, subways, tramways, and waterways. We have signed these
agreements and have secured the rights-of-way, as necessary, to deploy our
network over and under city property, and use city streets, poles and bridges to
connect our network. In certain situations, the conduits we use to access
buildings already benefit from existing rights-of-way.
. Building entry license agreements. Before providing services to
customers, we must obtain permission from the property owner. We have
adopted a collaborative approach with property developers and owners.
Generally, they are willing to provide access to their buildings since
we are providing enhanced services to the building, which should
increase its value. Our agreements typically contain a provision for
access by our network to a specified point inside the building, with a
renewable right of access regarding inside wiring to the premises of
our clients and allow us access on a non-exclusive basis.
. Technology supplier relationships. In 1999, we entered into an
agreement with Nortel to supply us with equipment, including SDH, voice
and data switching, data routers and customer premise equipment,
engineering services, network operations center management, inventory
management, equipment installation and first level maintenance during
the initial start up phase of each market. We selected Nortel to
provide the core components of our MANs to ensure compatibility across
all of our networks. In Germany, we also purchase voice switching
equipment from Siemens.
Wireless local loop and DSL access technologies
Although we intend to provide our services over our own fiber optic network
in each of our targeted markets, we may use point-to-point wireless technology
on a case-by-case basis to complete fiber rings and DSL or other technologies to
provide services to those customers who we may not be able to serve on net. This
complementary strategy provides us with rapid access to buildings and allows us
to gain market penetration and take advantage of market opportunities before we
have completely constructed our network or to extend the reach of the fiber
networks.
In addition, we have applied for licenses to provide point-to-multipoint
wireless services to supplement our fiber-based network. These licenses for high
frequency wireless facilities can be used to provide services that we will use
to serve outlying customers to whom it is not economical or technologically
feasible to provide fiber cable, to infill our existing network and to serve
other areas where customer density or other constraints make installing a fiber
network less attractive or economical than providing wireless services. On June
20, 2000, we filed an application for wireless local loop licenses in 11
designated areas in Germany in a call-for-tender process conducted by the German
regulatory authority. We expect the German authorities to announce the license
awards in July of 2000. We do not know the extent of competition for these
licenses, and their award will be based on certain objective criteria set forth
in the call for tender and, in part, discretionary on the part of the regulatory
authority. We may not receive any licenses or licenses for all of the
frequencies and locations for which we applied. If we are unable to supplement
our network with wireless facilities, we may be unable to serve some areas and
customers that will be served by those receiving the licenses.
In certain cases where existing copper facilities within a customer's
premises or a campus business park environment can be used, we also may deploy
DSL transmission technology over leased facilities to extend the reach of our
local networks. As allowed by regulations, we intend to provide DSL services to
an expanded base of customers. DSL technology offers enhanced performance for
small and medium-sized businesses currently accessing the Internet with standard
modems or integrated services digital network connections that are too small to
economically connect to our fiber optic network and it is designed to provide
greater speed, reliability and flexibility than standard modem or ISDN
connections over copper lines.
The ART has established a working group to review options to unbundling the
local loop and is permitting us, along with a number of other members of the
working group, to commence DSL services on an experimental basis in designated
areas in France and in Paris. The experimental project is expected to be
conducted in two phases. Under the first phase, we expect to begin providing DSL
services on an experimental basis in a district in Paris in
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July 2000 and are finalizing installation plans with France Telecom. This
experimental permit extends through December 31, 2000, and we anticipate our
costs of this DSL program will total approximately (Euro)250,000. We have also
applied to provide DSL services on an experimental basis in two additional
districts in Paris when the second phase is announced by the ART.
High-capacity telecommunications and Internet services
We offer a wide range of products and services, individually and in
bundles.
Basic voice services
Through our direct connections to customers, our basic fixed wireline voice
services cover all outbound calls, including local, national, international and
fixed-to-mobile services. We bundle resold long-distance with our local
services, and create bundled packages including Internet access. In isolated
cases, we may provide indirectly connected voice services available to off-net
customers, to allow them to access our long-distance services using a prefix
code. Our basic voice services also include calling features, such as call
forwarding, call waiting, speed dialing and call line identification. While the
growth rate basic voice services is lower than other telecommunications
segments, they currently represent the largest segment of telecommunications
services in France and Germany.
Enhanced voice service portfolio
We plan to provide:
. Virtual private network. VPN utilizes the facilities of a public
network but operates as a closed user group, to provide customers with
multiple locations the convenience of a private network with the scope
and scale of a public network.
. Unified messaging. Unified messaging allows customers to access
fax-mail, voice-mail and e-mail from any location, including the
Internet.
. Personal numbering services. Personal numbering services provide
customers with flexibility in directing the location of incoming calls.
Customers will receive a number from our number series and calls to
this number will be directed by our network to a pre-programmed mobile
phone, fixed line or international number.
. Teleconferencing. Teleconferencing allows three or more parties to be
connected and hold a telephone discussion. We may also provide visual
presentation, recording and subconferencing.
Data services
Our MANs allow customers to utilize our high-capacity technology to deliver
their data traffic to end-users and carriers at substantially lower costs and
higher reliability than the incumbent operators.
. Dedicated access leased lines. Our local dedicated access and private
line services are available for data connections over our own MANs at
transmission speeds from 64 kbps to beyond multiples of 2 gigabytes per
second on lines ranging from ISDN lines to STM-16 circuits. We will
offer LAN to LAN services and will also consider specific requests for
building private or closed-user group networks from private and
government authorities.
. Internet protocol services. We expect to provide a variety of Internet,
intranet, and extranet services utilizing Internet protocol (IP). We
also plan to include a range of flexible high-capacity Internet
protocol-based services, which will allow customers with uneven data
transmissions capacity needs to pay for transmission on an as-used
basis. In such cases, our customers will be charged only for the excess
capacity used beyond their monthly flat-rate capacity. We plan to
interconnect our IP services with a variety of peering and transit
relationships, including aggregating Internet traffic in a Tier One
network level backbone between France, Germany, the United Kingdom and
the United States.
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. Asynchronous transfer mode (ATM) services. ATM is a recently
commercialized technology which allows customers with requirements to
move large amounts of data between locations quickly and reliably. We
expect to introduce ATM services for multi-site customers, LAN to LAN
interconnection, and high-speed Internet access for Internet service
providers.
. DSL. We are developing plans to provide digital subscriber line
services, as regulations allow. DSL technology sends high-speed digital
signals over a customer's existing copper telephone wires through
special modems installed in the customer's premises and the telephone
network. We plan to provide DSL to new targeted market segments,
generally businesses with less than 35 employees and heavy-user
residences.
Internet services
In addition to pursuing the retail and carrier markets, we are developing
Internet-related services. We have acquired two Internet service providers to
further our Internet strategy. In March 1999, our French operating company
acquired all of the outstanding stock of Acces et Solutions Internet S.A.R.L.,
an Internet service provider based in Lyon. Our operating company in the United
Kingdom acquired all of the outstanding stock of iPcenta (formerly known as Web
International Networks Limited), an Internet service provider based in London,
in June 1999. We intend to leverage our facilities and operating presence in our
markets across France and Germany to facilitate the rapid roll-out of
Internet-related services. To accelerate the launch of these services, we have
established a separate dedicated Internet division.
To implement our Internet strategy, we have accelerated the upgrading of
our switch centers in France and Germany to create IDCs, including large centers
in Paris and Munich (SuperPOPs), and smaller centers in the regional switch
centers (MetroPOPs). We also intend to install and operate an IDC in London. We
provide space in our switch centers for other carriers and Internet-related
providers to locate their equipment. We intend to provide carrier-class quality
reliability, powering and security. We intend to progressively provide a range
of Internet services through these IDCs under our iPcenta brand, including:
. Dedicated access. We offer dedicated Internet access at a variety of
speeds.
. Co-location and complex hosting. We offer secure space for customers to
locate their Internet equipment, and plan on offering on our own
computer servers, a package of services to provide customers with
turnkey Internet solutions.
. Termination service. We plan on offering Internet service providers
co-locating in our facility a share of any termination revenue paid by
other carriers for incoming calls.
. Server support. We plan on providing services to support on ongoing
maintenance and management of customer's servers.
. Operating system support and other professional services. We plan on
providing value-added services to support customers in the provision of
their operating software and other technical professional services.
. Packaged content. We intend to aggregate packages of bundled content to
enable our customers to efficiently access valuable web sites and
web-based information.
. Application services. We plan to provide a host of applications, on a
shared basis, for our customers to access certain applications,
designed for targeted segments.
We believe there is significant customer demand among Internet service
providers, Internet protocol-based carriers and corporate customers for these
services in all of our targeted cities. We intend to roll-out these services in
geographic and vertical phases. We currently plan to have Cisco Systems(TM),
Microsoft(TM) and UNIX accredited staff on site at these IDCs, 24 hours a day,
seven days a week. Our staff will be available to customers on a call-up basis
as a function of service level agreements.
Customer Segments
We target three principal customer segments with a variety of existing and
planned services. We provide high-quality communications solutions for our
customers, based upon their internal and external communications needs, who are:
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. Small-and medium-sized business, government and institutional
end-users. Businesses with an average of 35 employees up to 1,000
employees, local governmental entities and institutions such as
hospitals and educational establishments.
. Internet-related providers. Major Internet service providers and other
Internet-related companies.
. Other telecommunications carriers. Long-distance and international
carriers and resellers.
Our products and services include:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Customer Segment Products and Services
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Business, government and Voice--local and long-distance: Inbound
Institutional end-users Outbound
Internet access: Single vendor router
Multi vendor router*
Dedicated circuit: Intra-city
Inter-city*
Internet services: Low-end complex hosting
e-commerce portal
Domain name registration
Consulting
OS and server support*
Application support*
MAN: Case by case
LAN to LAN*
--------------------------------------------------------------------------------------------------------------------
Carriers Dedicated circuits
High-end complex hosting and co-location
Call termination*
--------------------------------------------------------------------------------------------------------------------
Internet-related providers Inbound call termination: Basic
Improved*
Dedicated circuits
High-end complex hosting and co-location
OS and server support*
Applications support*
--------------------------------------------------------------------------------------------------------------------
</TABLE>
* Development stage
We believe that telecommunications users broadly will benefit from the
suite of services we offer, which is an alternative, high-quality and
facilities-based source for a comprehensive range of telecommunications
services. We believe there is a market demand for vendor diversity as businesses
seek competitive pricing, flexible and responsive service, greater reliability
and security and, generally, greater bargaining power.
We have chosen to focus on business end-users, Internet-related providers,
and carriers given our belief that these segments:
. represent the most profitable portion of the telecommunications market
based on their higher usage volumes, high-growth, lack of competitive
alternatives and more sophisticated requirements;
. are capital-efficient to serve, given their concentration within any
particular target area; and
. generally are more receptive to exploring high-quality alternatives to
the incumbent carriers.
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Business end-users
Small- and medium-sized businesses are of particular focus to us, given our
belief that these companies are less likely to currently benefit, via their
existing suppliers, from the price competition and product and service
responsiveness that we offer them. We believe such competition is currently
focused in the long-distance rather than the local market and for the benefit of
multi-national companies rather than small- and medium-sized enterprises.
Additionally, we believe that, given the limited number of operators vying for
share in the local sector, margins in these sectors will be higher. Further,
small- and medium-sized businesses have a particular focus on local services, as
local calling constitutes a greater percentage of traffic than of
multi-nationals customers.
According to Ovum, small- and medium-sized enterprises employed 3.9 million
fixed lines in France and 5.8 million in Germany in 1999, respectively,
constituting 45% of all business lines in both countries. Small-and medium-sized
businesses currently lag behind large corporations in adopting data and
Internet-related technologies. Ovum expects small- and medium-sized enterprises
to grow by 55.3% and 57.7% in France and Germany, respectively, between 1999 and
2003.
Government end-users and other public institutions
We have identified local government authorities and other public
institutions as important potential customers in view of their need to obtain
advanced technology in linking up all of their different geographic sites at
competitive prices. Moreover, local municipalities, government agencies and
other public institutions such as hospitals, have a high degree of local calls
and depend heavily on local networks to provide their services.
Carriers
As countries in Europe have begun to liberalize their telecommunications
markets, there has been steep growth in the number of pan-European international
carriers. Generally, these carriers focus on building international and
intercity facilities, while leasing wholesale local circuits from local
providers. Historically, in the United States, carrier demand for local access
was the prime driver for the development of alternative local carriers. We
provide carriers with dedicated circuits and co-location services on a wholesale
basis.
In addition, we believe we will be able to terminate French and German
in-bound international calls for foreign telecommunications service providers
through our interconnections with these carriers. We are also currently in
negotiations with operators to terminate their regional and local call traffic
into Germany and France.
Internet-related providers
We believe that the dramatic increase in Internet usage will result in the
commensurate growth in Internet-related companies, in access, content provision,
e-commerce, advertising, and numerous other segments. These customers have
specific sets of needs that we believe we will be able to satisfy. We are
developing suites of services to support their requirements, primarily in
high-capacity access and value-added services.
Sales, marketing and distribution
Customer acquisition strategy
We believe that one of our competitive advantages is based on professional
direct sales and customer care programs. As a result, to address the retail
business end-user segment, our sales force is structured principally on a
city-by-city basis.
We believe that experienced, local sales personnel provide us with:
. useful knowledge of local dynamics and the target customer base;
. 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;
. insight that will allow us to tailor our product and service offerings
to specific local customer needs; and
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. enhanced commitment to each market which may facilitate more rapid
access to rights-of-way for network construction and direct targeting
of customer-specific needs.
We are concentrating our sales and marketing effort on larger customers.
Once we secure these customers' business, we plan to direct our sales and
marketing activities to focus on capturing smaller customers. As networks are
deployed in additional cities, we plan to expand our focus on national and
pan-European customers. We have developed national sales and service functions
in both France and Germany, which operate alongside the local sales and service
functions and which currently sell to the carrier and Internet provider customer
segments.
Marketing communications
We believe that a key to effectively implementing our business plan is to
create an "umbrella" pan-European identity under the CompleTel trade name. While
we believe that name recognition is important to our success and that our brand
awareness is becoming an increasingly important tool, we do not use mass-media
to develop brand awareness due to significant cost inefficiencies. Consistent
with our focused on-net strategy, we use a targeted marketing approach for
on-net prospects, within 500 meters of our network backbone, primarily driven by
telemarketing and direct mail activities. We supplement these targeted
communications with periodic press communications and event marketing.
Pricing
We use our pricing structure to differentiate ourselves from the incumbent
operators and to attract customers. We generally price our services to our
customers in our current markets at a discount to the incumbent operator,
offering combined services discounts to motivate customers to buy a portfolio of
services, designed to maximize global usage and revenue per customer. The
wholesale rates charged to other carriers and Internet-related providers are
generally set at the market price or slightly below the market price of the
leading facilities-based carriers but we do not anticipate offering a major
discount compared to any alternative carrier. On a promotional basis, we may
provide discounted installation to facilitate customer migration from the
incumbent carriers.
Customer service
Our goal is to maintain an advantage over our competitors in our target
markets by providing superior customer service and care. We believe that
providing a high level of customer service is a key element to establishing
customer loyalty and attracting new customers. We have dedicated customer
service representatives who initiate contact with our customers on a routine
basis to ensure customer satisfaction.
We also believe that technology plays an important role in customer
satisfaction. Advanced technological equipment is crucial to enabling the
provision of high quality service to our customers. We have installed
sophisticated status-monitoring and diagnostic equipment at our network
operations centers allowing us to identify and remedy network problems before
they affect customers.
Our customer care function includes:
. on-line customer care personnel available 24 hours a day, seven days a
week;
. an integrated data base management system that can immediately access
all of a customer's data and allow us to quickly respond to customer
inquiries;
. an integrated billing system capable of being customized for all of our
services;
. the availability of on-line service ordering, order status viewing,
billing inquiries and other services to allow customers to manage their
services;
. access to technical support to resolve problems;
. escalation processes to deal with customer concerns;
. personal relationships with customers based on local and dedicated
customer care staff; and
. a local designated sales account executive to grow and support the
customer relationship.
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We offer high-quality, responsive, personalized and customizable services.
To our business end-user customers, our customer care is provided on a local
basis rather than a national basis to develop customer relationships at the city
level and develop responsibility and accountability at the local level. Our
local structure is supported by our centralized operations centers in France and
Germany, including service provisioning, network supervision and after-hours
customer care.
Management information and billing systems
All management information systems are centralized in our European Data
Center (EDC) located in Paris, France. We believe the importance of implementing
a scalable and highly flexible platform of applications with track-records in
the European and/or U.S. competitive local exchange market is an important
criteria in selecting and integrating a comprehensive management information
system. Using consulting firms specializing in information technology and
telecommunications, we have assembled, integrated and implemented a system to
smoothly and effectively coordinate our key business processes:
. prospecting, lead-generation and customer acquisition;
. order flow and service provisioning;
. network planning and design;
. customer care, billing and collection;
. account management;
. network management and maintenance; and
. business financial systems.
The core of our management information system is anchored in applications
supplied by Kenan (a subsidiary of Lucent Technologies), TCSI, Oracle, Nortel
and Siemens. All of the applications are operated from our computing center in
the European Data Center with localized interfaces, local language and business
processes, for each market and country. We also have incorporated a data
warehouse within our European Data Center to allow our sales force to monitor
customer line usage on a daily basis and detect changes in customer behavior and
usage, which allows us to be proactive and identify better product offerings for
particular customers.
Competition
Overview
The ongoing liberalization of the European telecommunications market has
coincided with technological innovation to create a fast changing and
increasingly competitive market, characterized by still-dominant incumbent
telecommunications operators as well as a growing number of new market entrants.
We expect that we will need to effectively compete against an increasing number
of telecommunications service providers and Internet operators in our targeted
markets.
The European Union is actively stimulating competition among
telecommunications providers. European member states are required to end
restrictions on the entry of new telecommunications operators and adopt
standardized regulations intended to promote competition. The ongoing
liberalization of the European Union telecommunications market has caused and,
we believe, will continue to cause more local exchange carriers, including
pan-European carriers, to enter the market. Under the new regulatory structure,
existing public telecommunications operators now compete in local exchange
services markets outside of their home countries, either alone or through
existing joint ventures, subject to restrictions on market concentration and
anti-competitive mergers and acquisitions.
We compete with both incumbent public telecommunications operators, like
France Telecom and Deutsche Telekom, and other local exchange carriers in our
markets. Based on their historically exclusive market positions, incumbent
public telecommunications operators generally have several competitive
advantages over new competitors, including:
. expansive financial, technical, management, marketing and other key
human resources;
. established relationships with local and national regulatory
authorities;
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. ubiquitous local and long-distance distribution facilities;
. existing rights-of-way;
. control of or access to the majority of end-users; and
. control over local telecommunications connectivity.
We compete primarily on the basis of:
. price;
. customer service;
. network quality, coverage and reliability;
. accurate and detailed billing; and
. variety of services.
Incumbent carriers
We expect that our principal competitors will be the incumbent public
telecommunications operators in our markets. 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, our target customers in most of these markets are not
accustomed to obtaining services from competitors to the incumbent public
telecommunications operators and may be reluctant initially to use emerging
telecommunications providers.
Each of our targeted markets presents a different competitive landscape. In
France, France Telecom has invested heavily in upgrading its network and
receives relatively high approval ratings from its customers. In Germany, 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.
Alternative providers
We also compete with a range of operators of fiber networks. In France,
these operators include MCI WorldCom, COLT and Cegetel, a consortium of Vivendi
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 competitive high-volume areas in and
around Paris, such as the business district of La Defense. In Germany, we face
competition from a number of companies, including national carriers such as
COLT, VIAG Telekom and ARCOR, along with city utility carriers. Additionally, we
face competition from numerous resellers of long-distance and in isolated areas,
competition from cable television operators.
In addition to these companies, we anticipate that we will compete with a
range of other operators of IDCs. Our competitors in this market included well
established companies with significant financial and marketing resources and
large customer bases and greater name recognition, as well as a number of
smaller companies.
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 although the fundamental principles on which these are based
derive from European directives that aim to achieve harmonization across member
states. The interpretation and enforcement of such laws and regulations vary 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 U.S.
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.
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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. Other than
the United Kingdom, there is little history in Western Europe to provide
guidance to competitive entrants concerning the independence of newly-created
regulatory bodies to demonstrate how vigorously or efficiently such bodies will
adopt and enforce regulations or rules. It is encouraging that in May 2000, the
ART imposed a fine of 2 million French francs on France Telecom for violating
its license conditions (cahier des charges) by not making certain tariff
information available in its local offices (the first regulatory fine against
France Telecom since the French Telecommunications Act entered into force).
While regulators in some European countries have been increasing their
enforcement of pro-competitive policies, in some cases, such as the
international outbound call market in the United Kingdom and in Germany,
regulators have relaxed regulatory requirements previously imposed on the
incumbent operators. It is uncertain if and when European regulators will render
similar rulings not only for the outbound international calls sector, but also
for the national long-distance market. Lifting carrier obligations before solid
competition has developed in a market sector could potentially harm the
competitors. In addition, competition at the local level in Germany, France and
the United Kingdom is still underdeveloped. Of these three countries, only
Germany currently provides for access to the local loop, but in practice, many
technical and regulatory issues remain unresolved. Thus, regulatory, judicial,
legislative or political considerations may prevent us from offering our
services to residents of Western European countries on a cost-effective basis
and in a timely fashion, which may adversely affect our business.
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. Other countries
are applying for membership as more of Europe adopts the trend to
liberalization. The European Union member states are required to implement
Directives issued by the European Commission and the European Council by passing
national legislation in accordance with national requirements. 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 to enforce the Directives, including initiating
proceedings before the European Court of Justice. 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. One of the European Union's objectives
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 through its own processes. 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. Further, 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 although as mentioned above the European Union has
already shown that it will take steps to enforce the process. Each Member State
is required to make the minimum changes necessary to comply with the European
Union Directives, but the actual method or form of implementation of European
Union directives varies from country to country. The European Commission has
already initiated legal action against several Member States for not
implementing the directive on full voice telephony competition adequately. It is
also challenging the way in which France funds its universal service
obligations, with a particular emphasis on the burden it might place on new
carriers.
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 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:
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. 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 business unit.
Member 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 unnecessary delay,
resulting in lengthy litigation and other delaying tactics. Carrier
pre-selection is required in the fixed market, 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 requires number portability in the fixed and mobile
markets, enabling subscribers, while remaining at a specific location, to retain
their telephone number despite switching network operators. Number portability
for all subscribers on public fixed networks was required by January 1, 2000.
Carrier pre-selection was required for public fixed networks by January 1, 2000,
by operators with significant market power. Member States may also decide to
apply this requirement to other operators, as has been the case in the United
Kingdom.
In April 2000, the European Commission adopted a Communication setting out
of the results of its public consultation on the 1999 Communications Review
initiated in November 1999. The Communication on the 1999 Communications Review
proposes that the future regulatory framework cover all communications
infrastructure and associated services. It sets out the objectives and
principles that would underlie the new framework. Finally, it makes a number of
policy proposals in eight areas: licensing and authorizations; access and
interconnection; management of radio spectrum; universal service; user and
consumer rights; numbering, naming and addressing specific competition issues;
and institutional issues. The Communication also proposes to codify the
requirement for unbundling of the local loop through Community legislation,
which Member States would have to implement, and to replace large parts of the
current licensing regimes by a system of "general authorizations." On this
basis, the European Commission published the following seven legislative
proposals (the "New Regulatory Framework") on July 12, 2000, and, assuming that
they are approved by the relevant European bodies, they are expected to enter
into force by the end of this year:
. a Regulation on unbundled access to the local loop;
. a Directive on a common regulatory framework for electronic
communications networks and services;
. a Directive on universal service and users' rights relating to
electronic communications networks and services;
. a Directive on access to, and interconnection of, electronic
communications networks and associated facilities;
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. a Directive concerning the processing of personal data and the
protection of privacy in the electronic communications sector;
. a Directive on the authorization of electronic communications networks
and services; and
. a Decision on a regulatory framework for radio spectrum policy in the
European Community.
The principal goals that the Commission intends to reach with the
regulatory package are to:
. encourage local competition by Unbundled Local Loop access;
. introduce flexible mechanisms to allow it to evolve with future
technology and market changes;
. roll back regulation when markets become competitive;
. to facilitate market entry through simplified rules (by reducing the
number of applicable legislative measures from 28 to 8);
. ensure a harmonized application by way of closer co-ordination
mechanisms at European level,
. adapt the regulation to increasing competition by limiting most of
market power-based regulation to dominant operators;
. maintain the universal service obligations in order to avoid exclusion
from the Information Society; and
. safeguard the protection of the right to privacy on the Internet.
The regulatory regime concerning Internet access services in Europe is
currently under development. Most recently, the European Union adopted the final
version of its E-Commerce Directive, which will establish rules and guidelines
regarding e-commerce applicable throughout all of the Member States.
France
In July 1996, France enacted legislation amending the French Code des
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 to the public on fixed wireline. Such voice telephony was fully
liberalized "including carrier pre-selection" on January 1, 1998. French law
allows market participants to build and operate public voice telecommunications
networks or offer services following receipt of the required license.
Interconnection is available as a matter of right to all licensed operators.
Licenses are granted by the Secretaire d'Etat a l'Industrie, the "Minister
of Telecommunications," in charge of telecommunications upon recommendation of
ART, an independent regulatory authority. ART has broad rule-making and
adjudicatory powers and is administratively independent from the
Telecommunications Ministry. Among other things, ART has the power to approve
interconnection rates of operators deemed dominant in the market place,
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.
On December 13, 1998, the Minister of Telecommunications, pursuant to ART's
recommendation, awarded our French operating subsidiary a fixed wireline license
and a service license for network deployment in four regions and six cities and
the provision of services in four regions and six departments in France that we
intend to serve. The term of these licenses is 15 years from December 13, 1998.
Under French law, these licenses entitle us, among other things, to obtain
rights-of-way to establish network infrastructure along public roads, to obtain
easements on private property and to obtain certain rights on public domain
property other than roads. We have not yet obtained a license for our planned
development in Amiens.
After making point-to-multipoint authorizations available only on an
experimental basis, ART proposed to the Telecommunications Ministry to grant a
limited number of permanent point-to-multipoint licenses in a decision dated
October 6, 1999. The Telecommunications Ministry consequently published a tender
notice on November 30, 1999. We filed for such license on January 31, 2000
covering 18 regions in France. In July 2000, the ART announced that, subject to
confirmation of the Telecommunications Ministry, we were granted wireless
licenses in four regions and, as a result our experimental licenses will expire.
On July 21, 2000, we informed the ART that we would not accept these licenses,
since they were not in strategic areas consistent with our business plan.
On December 18, 1998, we entered into an interconnection agreement with
France Telecom. France is one of the European Union Member states that
differentiates between interconnection for public telecommunications
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network operators and for voice telephony service providers. The published
interconnection tariffs of France Telecom, which are approved annually by ART,
provide substantially more favorable interconnection terms for public
telecommunications network operators than for voice telephony service providers
that use third-party operators' transmission facilities.
As a public network operator and service provider in France and pursuant to
our license, we must provide, among other things, 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 ART. In addition, we are
required to spend 5% of our net capital investments and property equipment
expenditures in the preceding fiscal year to support research and development in
France.
In 1999, the ART conducted a public consultation pertaining to five
possible options for the unbundling of the local loop (access to the copper
wires, access to a permanent virtual circuit, access to capacity, resale of
local traffic and resale of subscriptions). As a result, the issue of the
unbundling of the local loop is on the verge of being settled in France. On July
10, 2000, the Prime Minister of France announced that the French government will
publish a decree relating to unbundling of the local loop to be effective by
January 2001.
Concerning DSL access to existing copper wires, the ART created a working
group at the beginning of 2000 to establish technical and financial conditions
for experimental DSL access. At the end of May 2000, the ART stated that
technical and commercial experimental access to the copper wires could be
launched as early as the beginning of July with a view to commercial DSL
implementation by the end of 2000. We are planning to participate in the
experimental phases for DSL technology.
Concerning access to a permanent virtual circuit, following a decision by
the French Competition Council, in April 2000 France Telecom submitted two
offers technically and economically equivalent to such access for the provision
of high-speed Internet, one to be implemented immediately and another to be
implemented in October 2000 after a three-month experimental phase.
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 (Reg TP), has been
installed.
Under the German regulatory scheme, Reg TP 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, covering all telecommunications services for the
public which are not covered by the mobile radio license or satellite license
(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.
In March of 1999, our German operating subsidiary, CompleTel GmbH, was
granted class 3 and class 4 licenses for three markets in Germany, including our
initial target market, which were subsequently amended as of July 1999, as of
January 2000 and as of July 2000, to include among others, our additional
markets, including Hamburg, Mannheim and Stuttgart The licenses are of unlimited
duration. On June 20, 2000, we filed an application for wireless local loop
licenses in 11 designated areas in Germany in a call-for-tender process
conducted by Reg TP. We expect the German authorities to announce the license
awards in the third quarter of 2000.
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We entered into an interconnect agreement with Deutsche Telekom in May
1999, which was amended in December 1999 and again in January 2000. 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 Reg TP
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, Reg TP 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 Reg TP who may order interconnection at specific rates. To date,
interconnection has been the source of a major dispute between Deutsche Telekom
and its competitors. Several complaints currently pending before Reg TP and
German courts concern the content of the standard interconnection offer of
Deutsche Telekom. Although Reg TP 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 Reg TP 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.
United Kingdom
The Telecommunications Act of 1984 provides a licensing and regulatory
framework for the telecommunications activities in the United Kingdom. The
Secretary of State for Trade and Industry at the Department of Trade and
Industry (DTI), 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.
Individual licenses are granted for the construction and operation of
public networks, and class (or general) licenses are granted for systems
comprising equipment of no more than 20 sets of premises, linked with leased
lines, self-provided non-public networks, or limited public networks. On January
11, 1999, the DTI granted our operating subsidiary in the United Kingdom,
CompleTel UK Limited, an individual license to operate fixed public
telecommunications systems of any kind in the United Kingdom (a PTO license).
The PTO license will also license the operation of international facilities. We
currently do not plan to operate under the PTO license but we have been advised
that this does not constitute ground, which by itself, would result in
revocation of the PTO license. To provide international services in the United
Kingdom, we have also obtained an International Simple Voice Resale License. We
also plan to provide some services under the Telecommunications Services
License, a class license that allows us to provide a number of services other
than those requiring individual licenses (for example, services which do not
require us to dig up roads or other land, or to use a radio emergency spectrum).
These 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 non-discriminatory access to our system. Licenses may also limit
the type of services that may be operated over the license system and the way in
which these can be provided in order to facilitate the open competitive
environment. In essence, service must be provided in a non-discriminatory manner
without abuse of a dominant position or engaging in anti-competitive practices
or practices which might distort competition in a market.
The focus of deregulation in the United Kingdom has been to encourage new
entrants to build competitive networks. Until recently, only network providers
had the right to require interconnection with British Telecommunications plc
("BT") 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 on favorable terms from BT and other operators designated as
having market power in a defined market. CompleTel UK Limited has provisionally
been granted favorable interconnection terms, but this right will lapse and a
further application for favorable terms will be required if it does not commence
operations under its PTO license in the first half of 2000. All interconnecting
operators within the designated categories are required to offer interconnection
to similarly situated operators and providers. At present, competitors to BT
generally cannot obtain unbundled access to the local loops, but this is subject
to review and
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consultation which is likely to result in mandatory unbundling by BT. In this
way, network providers have historically 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 BT network. The
telecommunications regulator, Oftel, oversees competition in the
telecommunications market. 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 for a nominal charge. Also, carrier preselection over BT's network will
be required for national or international calls by late 2000, and for all local,
national and international calls as of 2001.
Employees
As of May 31, 2000, we had approximately 544 employees. We believe that our
future success will depend on our ability to attract and retain highly skilled,
qualified and experienced employees. Our French employees will be covered by a
collective bargaining agreement governing the telecommunications industry when
such agreement is approved by the appropriate government regulators, which is
expected by the end of September 2000. In Germany and in the United Kingdom, our
employees are not subject to any mandatory collective bargaining agreements. We
believe that we enjoy good relationships with our employees.
Properties
Our European headquarters are located in Paris, France. We also have sales
offices in each of our markets. Our sales offices, switch and IDC sites, as well
as our operations and service centers, are located in leased facilities. We are
in the process of purchasing our facilities in Toulouse, France.
Our material properties currently under lease include our switch sites, as
follows:
Location Size (sq. meters) Lease Expiration Date
-------- ----------------- ---------------------
France:
Grenoble 637 July 2011
Marseilles 1,789 February 2011
Nanterre/Paris 2,638 November 2010
Lille 684 May 2011
Lyon 734 October 2010
Nice 625 November 2011
Toulouse 640 Own facilities
Germany:
Essen 3,028 September 2004
Berlin 2,795 November 2009
Munich 3,958 July 2004
Nuremberg 1,800 December 2004
We believe that our leased 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.
Insurance coverage
We have comprehensive construction, property, product and professional
liability insurance, covering risks relating to the construction and operation
of our network sites as is customary for similar telecommunications companies.
We also have key man insurance on several members of our senior management team
and are in the process of obtaining loss of revenue insurance. The main
exclusions of the policies are war and willful acts.
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Trademarks and trade names
We have registered "CompleTel" as a trademark in France, Germany, the
United Kingdom and selected other Western European jurisdictions. In Germany, an
opposition was filed against our use of "CompleTel." On April 25, 2000, we
signed a settlement and co-existence agreement which terminated this opposition
procedure. We also have initiated the process to register a new trademark
consisting of "CompleTel" with a logo design in France, the United Kingdom and
other Western European jurisdictions. We have currently decided to brand our IDC
activity with the iPcenta name and trademark and have filed for trademark
registrations in the European Union.
General corporate information
CompleTel Europe was incorporated on December 14, 1998 as a Netherlands
public company with limited liability ("naamloze vennootschap") and our
registered office is located at Drentestraat 24, 1083 HK, Amsterdam, The
Netherlands. We are registered with the Trade Register of the Amsterdam Chamber
of Commerce under number 34108119 and have our corporate seat at Amsterdam, The
Netherlands.
CompleTel LLC was organized on January 8, 1998 as a Delaware limited
liability company with its registered office located at 1209 Orange Street,
Wilmington, Delaware 19801.
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Management
CompleTel Europe was incorporated as a European holding company in December
1998 and appointed ING Trust (Nederland) B.V. (ING Trust) as the sole managing
director. CompleTel Europe and CompleTel LLC were parties to the management
agreement with ING Trust, under which ING Trust acted as our sole manager and
managed in the manner directed by the board of directors of CompleTel LLC. On
January 14, 2000, James E. Dovey, Paul J. Finnegan and Lawrence F. DeGeorge were
appointed as additional members to our Board of Management. Upon the closing of
the initial public offering of our ordinary shares, we terminated the management
agreement with ING Trust and Messrs. Dovey, Finnegan and DeGeorge resigned as
members of our Board of Management and were appointed as members of our
Supervisory Board. At that time we also appointed additional members to our
Supervisory Board and three new members to the Board of Management.
Supervisory Board and Board of Management
Our general affairs and business and the Board of Management are supervised
by a Supervisory Board. The Supervisory Board provides advice to the Board of
Management. The Supervisory Board may decide that certain resolutions of the
Board of Management will be subject to its approval. In fulfilling their duties,
all members of the Supervisory Board must serve our best interests.
Our articles of association provide for at least three supervisory
directors to serve on the Supervisory Board. Under Dutch law, members of the
Supervisory Board cannot serve as members of our Board of Management, nor may a
person serve as a member of the Supervisory Board after the annual general
meeting of shareholders during the fiscal year of such person's 72nd birthday.
The members of the Supervisory Board are appointed by the general meeting
of shareholders from a non-binding nomination, drawn up by the Supervisory
Board. After the offering, CompleTel LLC will continue to control a majority of
our outstanding shares and will be able to control the appointment of the
Supervisory Board.
Decisions of the Supervisory Board generally require the approval of a
majority of the votes cast. Members of the Supervisory Board may be suspended or
dismissed by the general meeting of shareholders at any time. A resolution of
the general meeting of shareholders to suspend or dismiss members of the
Supervisory Board not pursuant to a proposal thereto by the Supervisory Board
requires a majority of two-thirds of the votes cast, representing more than half
of the issued capital. A resolution of the general meeting of shareholders to
suspend or dismiss members of the Supervisory Board pursuant to a proposal
thereto by the Supervisory Board requires an absolute majority of the votes
cast. A suspension may not last longer than three months in total, even after
having been extended one or more times. In case no decision on a termination of
the suspension or dismissal has been made following such time, the suspension
will end.
Management and policy making for us and our subsidiaries is entrusted to
the Board of Management under the supervision of the Supervisory Board. The
Board of Management will have no more than three members and the Supervisory
Board will designate a member as Chief Executive Officer and a member as
President, although one person could have both designations. The members of the
Board of Management shall be appointed by the general meeting of shareholders
from a binding nomination, drawn up by the Supervisory Board, of at least two
nominees for each vacancy to be filled. If the Supervisory Board fails to make
use of its right to draw up a binding nomination or fails to do so in a timely
manner, the general meeting of shareholders shall be free to make the
appointment. The general meeting of shareholders may at all times override the
binding nature of the Supervisory Board's nomination by adopting a resolution to
this effect with two-thirds of the votes cast representing more than half of the
issued capital.
The general legal authority to represent CompleTel Europe is vested in the
Board of Management and in the chief executive officer acting together with one
other member of the Board of Management. Certain resolutions by the Board of
Management determined from time to time by the Supervisory Board will require
the approval of the Supervisory Board.
The general meeting of shareholders may suspend and dismiss the members of
the Board of Management. The Supervisory Board may also suspend the members of
the Board of Management. Other than upon a proposal thereto by the Supervisory
Board, the general meeting of shareholders may only suspend or dismiss members
of the Board of Management with a majority of two-thirds of the votes cast
representing more than half of the issued
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capital. Upon a proposal thereto by the Supervisory Board, the general meeting
of shareholders may suspend or dismiss members of the Board of Management with
an absolute majority of the votes cast. Even after having been extended, a
suspension shall not last for more than three months. If no decision has been
reached after that time on the lifting of the suspension or the removal from
office, the suspension shall cease to exist. The remuneration and other
conditions of employment of each member of the Board of Management will be
determined by the Supervisory Board.
The following tables identify the current members of the Supervisory Board
and Board of Management. For purposes of this prospectus (i) "directors"
includes the individuals who are members of our Supervisory Board, and (ii)
"executive officers" includes individuals who are officers and members of the
Board of Management, and (iii) "employees" includes employees of CompleTel
Europe operating subsidiaries, and employees of CableTel Management, Inc.
("Management Company") who are seconded to CompleTel Europe subsidiaries
pursuant to certain agreements with the Management Company.
The following tables show the composition of and position held by each
member of our Supervisory Board and Board of Management:
Supervisory Board of CompleTel Europe
Our Supervisory Board consists of seven members, including the following
persons:
Name Age Position(s)
---- --- -----------
James E. Dovey 56 Supervisory Director and Chairman
James C. Allen 53 Supervisory Director
Lawrence F. DeGeorge 55 Supervisory Director
Paul J. Finnegan 47 Supervisory Director
Royce J. Holland 51 Supervisory Director
James H. Kirby 32 Supervisory Director
James N. Perry, Jr. 39 Supervisory Director
Board of Management
Our Board of Management consists of three members, including the following
individuals:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
William H. Pearson 44 Managing Director, President and Chief Executive Officer
Hansjorg Rieder 58 Managing Director, Managing Director of CompleTel GmbH
Martin Rushe 31 Managing Director, President of CompleTel UK Limited
</TABLE>
Other significant employees
The following list includes our officers and officers and employees of our
subsidiaries and affiliates who are involved in our business affairs and
operations.
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
Richard N. Clevenger 53 Chief Technology Officer
David E. Lacey 53 Chief Financial Officer
John M. Hugo 39 Corporate Controller and Chief Accounting Officer
Anna Lascar 51 Vice President Legal Affairs and General Counsel
John T. Puhl 50 Chief Information Officer
Jerome de Vitry 39 President of CompleTel S.A.S.
</TABLE>
James E. Dovey was elected a Managing Director of CompleTel Europe in
January 2000 and resigned that position and was elected to the Supervisory Board
as its chairman in March 2000, upon the consummation of the initial public
offering of our ordinary shares. Mr. Dovey, one of the co-founders of CompleTel
LLC, has over 30
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years' experience in the telecommunications industry. He has served as the Chief
Executive Officer from inception through December 1999 and as Chief Executive
Officer of CompleTel LLC from January 1998 through December 1999 and as chairman
of its board since January 2000. 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 United States 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 United States for providing converged cable and telephony
services prior to co-founding CompleTel LLC in January 1998.
James C. Allen was elected to the Supervisory Board in March 2000, upon the
consummation of the initial public offering of our ordinary shares. He also has
served as a Director of CompleTel LLC since 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 an investment director
and member of Meritage Investment Partners LLC, a Denver-based private equity
firm that invests exclusively in telecommunication companies. Mr. Allen also
presently serves on the boards of directors of MCI WorldCom Inc., a publicly
traded U.S. and international telecommunications company, Verio Inc., a publicly
traded Internet and Web hosting company, and Open Access Broadband Networks,
Inc., a privately held company. Mr. Allen also serves on the board of directors
of David Lipscomb University in Nashville, Tennessee.
Lawrence F. DeGeorge was elected as a Managing Director in January 2000 and
resigned that position and was elected to the Supervisory Board in March 2000,
upon the consummation of the initial public offering of our ordinary shares. He
also has served as a Director of CompleTel LLC since January 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 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 Advanced Display Technologies which is a publicly traded
company.
Paul J. Finnegan was elected as a Managing Director in January 2000 and
resigned that position and was elected to the Supervisory Board in March 2000,
upon the consummation of the initial public offering of our ordinary shares. He
also has served as a Director of CompleTel LLC since May 1998. Mr. Finnegan is a
Managing Director of Madison Dearborn Partners, Inc., a private investment firm
where he specializes in investing in companies in the communications industry.
Prior to co-founding Madison Dearborn Partners in 1993, Mr. Finnegan was an
investment officer at First Chicago Venture Capital for 11 years. He presently
serves on the boards of directors of Allegiance Telecom, Inc. and Focal
Communications Corporation, each of which is publicly traded, and of several
private companies, @link Networks Inc., Enews.com, GigaRed, LLC, Iplan Networks,
Madison River Communication, LLC, and Reiman Holding Company, LLC. He is a
member of the board of trustees of The Skyline Fund, a small-cap mutual fund.
Royce J. Holland was elected to the Supervisory Board in March 2000, upon
the consummation of the initial public offering of our ordinary shares. He also
has served as a Director of CompleTel LLC since August 1998. Mr. Holland 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., Choice One Communications, Metasolve and CSG Systems,
which are publicly traded, and Open Port Technology and Pangea, both privately
held companies.
James H. Kirby was elected to the Supervisory Board in March 2000, upon the
consummation of the initial public offering of our ordinary shares. He also has
served as a Director of CompleTel LLC since May 1998. Mr.
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Kirby is a Managing Director of Madison Dearborn Partners, Inc., a private
investment firm where he specializes in investing in companies in the
communications industry. Prior to joining Madison Dearborn Partners in 1996, Mr.
Kirby worked in investment banking and private equity investing at Lazard Freres
& Co. LLC and The Beacon Group LLC. He presently serves on the boards of
directors of several private companies including Iplan Networks, GigaRed LLC,
Madison River Communication, LLC, New Radio Tower GmbH, OnCue Ltd., and PaeTec
Communications.
James N. Perry, Jr. was elected to the Supervisory Board in March 2000,
upon the consummation of the initial public offering of our ordinary shares. He
also has served as a Director of CompleTel LLC since May 1998. Mr. Perry is a
Managing Director of Madison Dearborn Partners, Inc., a private investment firm
where he specializes in investing in companies in the communications industry.
Prior to co-founding Madison Dearborn Partners in 1993, Mr. Perry was an
investment officer at First Chicago Venture Capital for eight years. He
presently serves on the boards of directors of Allegiance Telecom, Inc., Focal
Communications Corporation, VoiceStream Wireless and Clearnet Communications,
each of which is publicly traded.
William H. Pearson was elected as the Managing Director, President and
Chief Executive Officer of CompleTel Europe in March 2000, upon the consummation
of the initial public offering of our ordinary shares. Mr. Pearson, one of the
co-founders of CompleTel LLC, has served as President of European Operations of
CompleTel LLC since its inception and as its Chief Executive Officer since
January 2000. 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.
Hansjorg Rieder was appointed as a Managing Director of CompleTel Europe in
March 2000, upon the consummation of the initial public offering of our ordinary
shares. He was appointed Managing Director of CompleTel GmbH in April 1999.
Prior to joining CompleTel GmbH in January 1999, 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 was appointed as a Managing Director of CompleTel Europe in
March 2000, upon the consummation of the initial public offering of our ordinary
shares. He has been with us since June 1999 and was appointed President of
CompleTel UK Limited, in January 2000. Prior to joining CompleTel UK Limited,
Mr. Rushe was Managing Director of Web International Networks Limited from April
1995 until its acquisition by CompleTel and is currently the President. Prior to
that, Mr. Rushe was a scientist with European Space Agency.
Richard N. Clevenger was appointed our Chief Technology Officer March 2000,
upon the consummation of the initial public offering of our ordinary shares. Mr.
Clevenger, one of the co-founders of CompleTel LLC, has served as Senior Vice
President and Chief Technology Officer of CompleTel LLC since its inception in
January 1998, and as its 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 (iii) 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
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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 was appointed as our Chief Financial Officer in March 2000,
upon the consummation of the initial public offering of our ordinary shares. He
joined CompleTel LLC in December 1998 and was appointed Chief Financial Officer
and Treasurer of CompleTel LLC at that time. Prior to joining CompleTel LLC, Mr.
Lacey served in a variety of positions for Storage Technology Corporation
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.
Anna Lascar was appointed as our Vice President of Legal Affairs and
General Counsel in March 2000, upon the consummation of the initial public
offering of our ordinary shares and has served as Directeur Juridique (legal
counsel) for CompleTel SAS since July 1998. Prior to joining us, Ms. Lascar was
Special Counsel in the Paris office of the law firm of Willkie Farr & Gallagher
from 1994 to 1998. From 1984 through 1993, Ms. Lascar was a partner in the law
firm of Salans Hertzfeld & Heilbronn in Paris.
John M. Hugo was appointed our Corporate Controller and Chief Accounting
Officer in March 2000, upon the consummation of the initial public offering of
our ordinary shares. Mr. Hugo joined CompleTel LLC as its Corporate Controller
in April 1999. Prior to joining CompleTel LLC, 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.
John T. Puhl has been CompleTel LLC's Chief Information Officer since
September 1998. He was appointed our Chief Information Officer in March 2000,
upon the consummation of the initial public offering of our ordinary shares.
Prior to joining CompleTel LLC, 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 de Vitry joined us in February 1999 and since March 1999 has served
as the President of CompleTel S.A.S. Prior to joining CompleTel S.A.S., Mr. de
Vitry 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. de Vitry was Vice President Marketing, and Research and
Development for Alcatel Radio Transmissions Systems.
Committees of the Supervisory Board
We have established three Supervisory Board committees, including:
. an audit committee;
. a compensation committee; and
. an executive committee.
The audit committee. The members of the audit committee include Messrs.
Allen, DeGeorge and Holland. The audit committee is responsible for making
recommendations to the Board of Management regarding the selection of
independent auditors, reviewing the results and scope of the audit and other
services provided by our independent accountants and reviewing and evaluating
our audit and control functions.
The compensation committee. The members of the compensation committee
include Messrs. Allen, DeGeorge, Finnegan and Holland. The compensation
committee is responsible for reviewing, and as it deems appropriate,
recommending to the Supervisory Board with respect to members of the Board of
Management, and to the Board of Management with respect to other managerial
employees, policies, practices and procedures relating to compensation and the
establishment and administration of employee benefit plans. The compensation
committee is responsible for making recommendations to the Board of Management
in relation to any employee stock option, stock purchase or other rights plans,
and advises and consults with our officers as may be requested regarding
managerial personnel policies.
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The executive committee. The members of the executive committee include
Messrs. Dovey, Finnegan and DeGeorge. The executive committee is authorized to
take certain actions on behalf of the Supervisory Board, but such actions must
be approved unanimously by the members of the executive committee or they will
be referred to the full Supervisory Board.
Compensation of members of the Supervisory Board
We reimburse the members of the Supervisory Board for their reasonable
out-of-pocket expenses incurred in connection with attending board or committee
meetings for CompleTel Europe or any of its subsidiaries. Additionally, we
maintain directors' and officers' indemnity insurance coverage. Except Mr.
Dovey, who is compensated as an employee of CableTel Management, Inc., the
members receive no other compensation for services provided as a member of the
Supervisory Board, as a member of the board of any of our subsidiaries, or as a
member of any board committee.
Executive compensation
The following table sets forth in summary form all compensation paid during
the years ended December 31, 1999 and December 31, 1998, to the Chief Executive
Officer and each Executive Officer of CompleTel LLC whose annual salary and
bonus exceeded $100,000 during 1999:
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Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
--------------------
Other Annual
Name and Principal Position Fiscal Year Salary ($) Bonus ($) Compensation
--------------------------- ----------- ---------- --------- ------------
($)(1)
------
<S> <C> <C> <C> <C>
James E. Dovey.......................................... 1999 $183,750 $183,750 $ --
Chairman of the Board and Chief Executive Officer(2) 1998 175,000 95,000 --
William H. Pearson...................................... 1999 $183,750 $183,750 $ 78,576
Managing Director and Chief Executive Officer(3) 1998 175,000 96,250 45,407
Richard N. Clevenger.................................... 1999 $157,500 $157,500 $ 33,768
Chief Technology Officer(4) 1998 150,000 82,500 32,987
David E. Lacey.......................................... 1999 $170,000 $ 85,000 $ --
Chief Financial Officer(5) 1998 7,083 -- --
</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.
(2) Mr. Dovey resigned as Chief Executive Officer effective December 31, 1999.
He currently holds the positions of Chairman of the Board of CompleTel LLC
and Chairman of the Supervisory Board of CompleTel Europe.
(3) Mr. Pearson was appointed to these positions in March 2000. Prior to then,
he was President of European Operations. He also was appointed President
and Chief Executive Officer of CompleTel LLC effective January 1, 2000.
(4) Mr. Clevenger currently holds this position with CompleTel LLC and with
CompleTel Europe.
(5) Mr. Lacey joined us in December 1998. He currently holds this position with
CompleTel LLC and with CompleTel Europe.
Employment agreements
In May 1998, CompleTel LLC's wholly-owned subsidiary, CableTel Management,
Inc., entered into employment agreements with each of Messrs. Pearson and
Clevenger. Mr. Pearson's employment agreement was subsequently amended effective
as of January 1, 2000. The employment agreements for Messrs. Pearson and
Clevenger include the following terms:
Salary. During the course of their employment, Mr. Pearson is 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 CableTel
Management, Inc.'s board. In 1999, they were increased to $183,750 and $157,500,
respectively.
Bonus. At the end of each calendar year, each of Messrs. Pearson and
Clevenger will be entitled to receive an incentive bonus of up to 55% of his
annual salary if they achieve certain performance benchmarks set by CableTel
Management, Inc.'s board during the year. For 1999, CableTel Management, Inc.'s
board augmented the bonus awards for each of these individuals.
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Tax equalization. As expatriates, Messrs. Pearson and Clevenger are 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 United
States.
Severance. Messrs. Pearson and Clevenger will receive severance benefits if
their employment is terminated due to death, disability, or nonperformance in an
amount equal to their base salary and benefits for nine months. Each is entitled
to receive severance benefits 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 Mr. Lacey, Chief Financial Officer, which also subsequently
amended effective as of January 1, 2000 and includes the following terms, among
others:
Salary. During the course of his employment, Mr. Lacey is to receive an
annual base salary of $175,000, which salary may be adjusted upward by CableTel
Management, Inc.'s 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 certain performance benchmarks during the year set by CableTel
Management Inc.'s board.
Severance. Mr. Lacey will receive severance benefits in an amount equal to
his base salary and benefits for three months in the event his employment is
terminated due to his death, disability, or nonperformance, or terminated
without cause, or terminated within six months after a change of control. If his
employment is terminated for cause or he resigns, he will not be entitled to
severance benefits.
Compensation committee interlocks and insider participation
The members of the compensation committee for CompleTel Europe include
Messrs. Allen, DeGeorge, Finnegan and Holland. All of these individuals also
serve on the board of CompleTel LLC. Mr. Dovey, Chairman of the Supervisory
Board, and Mr. Pearson, a Managing Director and President and Chief Executive
Officer, are both currently members of CompleTel LLC's board.
Stock option plan
The CompleTel Europe N.V. 2000 Stock Option Plan (option plan) was adopted
on December 10, 1999, and subsequently amended as of February 18, 2000. The
option plan provides for the grant of options to purchase shares to our
employees and employees of our affiliated companies. Affiliated companies are
those companies (1) in which we directly or indirectly own a majority of its
stock or other capital interest, (2) a company that, directly or indirectly,
owns a majority of our stock or other capital interest, or (3) a company in
which CompleTel LLC, directly or indirectly, owns 100% of the stock or other
capital interest.
A maximum of 18,919,960 options have been authorized under the option plan.
The number of shares is subject to adjustment on account of stock splits,
repayment of capital on the shares, the issue of shares in our capital out of
the retained earnings or the capital surplus account, or recapitalization,
spinoff or other dilutive change in our capital structure. Options granted to
employees who reside in France will be adjusted in accordance with the
requirements of French law. Shares that are issued or issuable upon exercise of
options reduce the maximum number of shares available for grant under the option
plan. Shares that were subject to expired or terminated and unexercised options
are available for grants under the option plan.
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Participation
Options may be granted to our employees and employees of our affiliated
companies who have an employment agreement with us or an affiliated company. In
December 1999, we granted options covering 2,035,230 shares with an option price
of $2.60 ((Euro)2.75) per share to 348 employees of affiliated companies. In
February 2000, we granted options to purchase 383,740 shares at an option price
of $2.60 ((Euro)2.75) per share to 70 employees. On March 27, 2000, we granted
options to 17 employees to purchase 175,000 shares at an option price of $17.09
((Euro)18.10) per share, which was the price to the public in our initial public
offering. Subsequently, we have granted and will continue to grant options to
employees on a periodic basis at market prices.
Administration
The option plan is currently administered by our Board of Management. The
Board of Management has the discretion to determine the employees to whom
options may be granted under the option plan and the manner in which such
options will vest. Options may be granted by the Board of Management to
employees in such numbers and at such times during the term of the option plan
as the Board of Management shall determine. The Board of Management has the
discretion to grant options with terms and conditions that are different from
the terms and conditions specified in the option plan and the appendices to the
option plan as the Board of Management determines to be necessary or appropriate
to comply with the laws of the country in which the grantee resides or is
employed, or for any other reason.
Option price
The option price must be at least equal to the fair market value of the
shares on the date the option is granted. If our shares are not listed on a
stock exchange, the plan administrator will determine fair market value
according to the procedures that it determines or, if applicable, according to
the procedure required by the law of the country in which the grantees work or
reside. The option price for the options granted in December 1999 and February
2000 was determined by the Board of Management by taking into account the
concurrent sale of a minority interest in CompleTel Europe and other factors in
accordance with the method prescribed by our sole shareholder prior to the
initial public offering of our shares.
Vesting
At the time an option is granted, the Board of Management may determine the
vesting or other restrictions on exercise. The options granted to date are
generally subject to vesting as follows:
. options granted to employees resident in France vest in an increment of
60% of the shares subject to the option on the third anniversary of the
date of grant and in two increments of 20% on the fourth and fifth
anniversaries of the date of grant; and
. options granted to employees resident in the United Kingdom, Germany,
and the United States vest in annual increments of 25% of the shares
subject to the option, commencing on the first anniversary of the date
of grant.
Exercise and transferability of options
An option may be exercised only by the employee to whom it was granted, or
if the employee has died or become permanently disabled, the option may be
exercised by the administrator of the employee's estate or the employee's heirs.
The option may not be assigned or pledged in any manner. An employee may
exercise the option in full or in part by giving us written notice stating the
number of shares to be purchased.
The option plan provides that, within seven days after the exercise of an
option, we will transfer the shares purchased to the employee, provided that the
employee has made arrangements satisfactory to us for the satisfaction of all
withholding requirements.
Options are not transferable other than by will or the laws of descent and
distribution.
Sale of shares
Shares acquired through exercise of an option may not be sold or otherwise
disposed of for six months. However, shares acquired pursuant to the exercise of
options granted to employees resident in France may not be
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sold for a period of five years after granted. Shares acquired pursuant to the
exercise of options granted to employees resident in Germany may not be sold for
a period of twelve months after the date the shares are acquired.
Term of options; termination of employment
The period during which the option may be exercised, the option term, which
may not be longer than 10 years, is determined when the option is granted.
Options granted to date have a 10 year option term.
If the employee terminates employment on account of retirement, early
retirement, permanent disability or death, unexercised options held by that
employee will expire one year after the date of termination or, if earlier, at
the end of the option term. However, in the case of death, the option held by
that employee will expire no earlier than six months after the date of death.
The options held by that employee may be exercised only to the extent vested,
exercisable and unconditional on the date of termination or the date of death.
If the employee is dismissed for cause, outstanding options held by that
employee expire immediately. If an employee terminates employment for any other
reason, options held by that employee expire 30 days after termination or, if
earlier, at the end of the option term. Options are exercisable only to the
extent vested, exercisable and unconditional on the date of employment
termination. Our Board of Management has the discretion to provide for different
termination provisions at the time an option is granted.
Merger
If there is a change in ownership of 50 percent or more of the shares or if
we are merged in a transaction in which our shares are surrendered in exchange
for another company's shares, we may make provision for such disposition or
adjustment of the options as our Board of Management determines, in its sole
discretion, to be fair and equitable. If there is a merger in which we are not
the survivor, our Board of Management may require that the options be exchanged
for options under the surviving company's option plan, provided that the new
options are equivalent in value to the surrendered options, or our Board of
Management may provide for such other adjustment to the options that the board,
in its sole discretion, deems equitable. If there is a merger or a change in
control, our Board of Management has the discretion to provide that the options
become fully vested at the time or times determined by our Board of Management.
If an option holder's employment terminates after a change in control other than
for cause, the option will expire one year after the date of employment
termination or, if earlier, at the end of the option term.
Amendment and termination
Our Board of Management may amend or terminate the option plan in any
respect at any time, but no amendment can impair any option previously granted
without the consent of the affected employee.
Other equity incentives
Executive management and selected key employees were given the opportunity
to purchase common ownership interests in our indirect parent, CompleTel LLC, at
fair market value. These interests are not transferable and are subject to both
time vesting tied to the executive's continued employment with CompleTel LLC or
its subsidiaries and performance vesting tied to the private equity investors'
return on investment restrictions. Holders of these interests will be entitled
to receive a pro rata number of CompleTel Europe shares when and if CompleTel
LLC is liquidated or these interests are redeemed. CompleTel LLC intends to
redeem all vested interests as soon as possible, subject to Delaware and Dutch
legal restrictions.
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Security Ownership of Certain Beneficial Owners and Management
CompleTel LLC (indirectly through its wholly-owned subsidiary, CompleTel
(N.A.) N.V.) owns 75.4% of our outstanding capital stock. The remaining 24.6% is
held by our public shareholders. CompleTel LLC's power to vote and dispose of
its equity interests in CompleTel (N.A.) N.V. is exercised by CompleTel LLC's
board of managers, which is elected by the holders of CompleTel LLC's common
interests. CompleTel (N.A.) N.V.'s power to vote and dispose of our outstanding
capital stock is exercised by CompleTel (N.A.) N.V.'s sole managing director,
which is appointed by CompleTel LLC as the owner of all of the voting interests
in CompleTel (N.A.) N.V. Thus, the holders of common interests in CompleTel LLC
could be deemed to be beneficial owners of the capital stock of CompleTel Europe
owned by CompleTel (N.A.) N.V. We intend to distribute the CompleTel Europe
shares in respect of the CompleTel LLC interests as soon as practicable.
The following table sets forth information regarding the beneficial
ownership of our equity securities as of June 30, 2000 by:
. each of the directors and the named executive officers;
. all directors and executive officers as a group; and
. each owner of more than 5% of our equity securities ("5% Owners").
<TABLE>
<CAPTION>
CompleTel Europe N.V.
-----------------------------
Percentage
Shares Owned of Shares
------------ ----------
Name of Beneficial Owner
------------------------
<S> <C> <C>
Directors and Named Executive Officers:
James E. Dovey(1) 6,283,852 4.0%
William H. Pearson(2) 6,307,661 4.0
Richard N. Clevenger(3) 5,390,532 3.4
David E. Lacey 1,081,654 0.7
James C. Allen(4) 794,992 0.5
Royce J. Holland(5) 794,992 0.5
Lawrence F. DeGeorge(6)(8) 26,045,255 16.6
Paul J. Finnegan -- *
James H. Kirby -- *
James N. Perry, Jr. -- *
All directors and executive officers as a group (15 persons) 47,810,753 30.4
5% Owners:
Madison Dearborn Partners(7) 62,194,299 39.5
DeGeorge Telecom Holdings Limited Partnership(8) 26,045,255 16.6
</TABLE>
--------------
* Less than 0.5%
(1) These shares are held indirectly by Mr. Dovey, Dovey Company LLC and Dovey
Family Partners LLLP through their ownership interests in CompleTel LLC.
Mr. Dovey has sole voting power for each of these entities.
(2) These shares are held indirectly by Mr. Pearson, Haj LLC and Haj Pearson
LLC, through their ownership interests in CompleTel LLC. Mr. Pearson has
sole voting power for each of these entities.
(3) These shares are held indirectly by Mr. Clevenger, Clevenger Family LLLP
and Clevenger Company LLC, through their ownership interests in CompleTel
LLC. Mr. Clevenger has sole voting power for each of these entities.
(4) These shares are held indirectly by Mr. Allen through his ownership
interests in CompleTel LLC.
(5) These shares are held indirectly by Mr. Holland through his ownership
interests in CompleTel LLC.
(6) Mr. DeGeorge is the Chairman and Chief Executive Officer of LPL Investment
Group, Inc., which controls DeGeorge Telecom Holdings Limited Partnership.
(7) 61,024,024 of these shares are held indirectly by Madison Dearborn Capital
Partners II, L.P. through its ownership interests in CompleTel LLC. The
remaining 1,170,275 shares were purchased in the initial public offering of
our ordinary shares and are held directly. Messrs. Finnegan and Perry are
managing directors of
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Madison Dearborn Partners, Inc., the general partner of the general partner
of Madison Dearborn Capital Partners II, L.P. The address of Madison
Dearborn Partners is Three First National Plaza, Chicago, Illinois 60602.
(8) 25,226,062 of these shares are held by DeGeorge Telecom Holdings Limited
Partnership through its ownership interests in CompleTel LLC and CompleTel
Holdings LLC. The remaining 819,193 shares are held directly by LPL Telecom
Europe, L.P., an affiliate of DeGeorge Telecom Holdings Limited
Partnership, and were purchased in the initial public offering of our
ordinary shares. Mr. DeGeorge has sole voting and investment power over the
units owned by DeGeorge Telecom Holdings Limited Partnership. The address
of DeGeorge Telecom Holdings Limited Partnership is 639 Isbell Road, Suite
390, Reno, Nevada 89509.
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Material Relationships and Related Transactions
January 1999 equity contribution
In January 1999, in connection with a corporate restructuring, CompleTel
LLC contributed approximately $58 ((Euro)61.4) million of equity, in cash and
receivables, and in exchange, CompleTel Europe issued 73,537,325 shares. Of the
$58.0 million contributed by CompleTel LLC, approximately $6.2 ((Euro)6.5)
million was a receivable, and $51.8 ((Euro)54.9) million was cash. In connection
with that transaction, Madison Dearborn Partners and DeGeorge Holdings, each a
beneficial owner of more than 5% of outstanding shares of CompleTel Europe,
purchased additional CompleTel LLC preferred interest for $2.51 million and
$1.06 million, respectively, representing 2,847,053 and 1,202,341 CompleTel
Europe shares; and Mr. Dovey, who is a Supervisory Director of CompleTel Europe,
Mr. Pearson, who is a Managing Director and Chief Executive Officer of CompleTel
Europe, and several of our executive officers, Messrs. Clevenger and Lacey,
purchased additional CompleTel LLC preferred interests for an aggregate of
$57,000, representing 64,654 shares of CompleTel Europe.
February 1999 units offering
In February 1999, CompleTel Europe and CompleTel Holdings LLC issued
147,500 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
interests of CompleTel Holdings, in an offering under Rule 144A of the
Securities Act. Mr. DeGeorge, one of the Supervisory Directors of CompleTel
Europe, purchased 400 units in the offering on the same terms as the other
purchasers.
In connection with the issuance of the class B interests of CompleTel
Europe, CompleTel Holdings LLC and CompleTel (N.A.) N.V. entered into a
subscription agreement pursuant to which CompleTel (N.A.) N.V. purchased shares
representing 7.0% of the issued share capital of CompleTel Europe on a fully
diluted basis and issued a corresponding percentage of its equity interests to
CompleTel Holdings LLC for the capital accounts of the holders of class B
interests of CompleTel Holdings LLC. As a result of the November 1999
transaction, described below, the corresponding percentage of class B interests
was reduced from 7.0% to 5.85%. In April 2000, CompleTel Holdings LLC initiated
dissolution and a pro rata portion of CompleTel Europe shares held by CompleTel
(N.A.) N.V. are being distributed to the class B interest holders in a
redemption and liquidation.
Pursuant to the subscription agreement, we have agreed that all future
transactions between the us and our officers, directors, principal shareholders
or their respective affiliates, will be on terms no less favorable to us than
can be obtained from unrelated third parties.
November 1999 equity contribution
In November 1999, CompleTel Holdings issued additional class A interests to
CompleTel LLC, the holder of all of the outstanding CompleTel Holdings LLC class
A interests, in exchange for an additional equity contribution by CompleTel LLC
of approximately $42.14 ((Euro)44.62) million. Madison Dearborn Partners and
DeGeorge Holdings, each a beneficial owner of more than 5% of our outstanding
shares, purchased CompleTel LLC preferred interests for $20.21 million and $8.34
million, respectively, representing 9,882,914 and 4,111,779 shares of CompleTel
Europe respectively. Additionally, Messrs. Dovey, Allen and Holland, each of
whom is a Supervisory Director of CompleTel Europe, purchased CompleTel LLC
preferred interests for $0.48 million, $0.23 million and $0.23 million,
respectively, representing 238,200, 111,160 and 111,160 shares, respectively, of
CompleTel Europe; and Mr. Pearson, who is a Managing Director and Chief
Executive Officer of CompleTel Europe, and Messrs. Clevenger and Lacey, each of
whom is an executive officer, purchased CompleTel LLC preferred interests for
$0.20 million, $0.17 million and $0.20 million respectively, representing
98,683, 83,937 and 98,683 shares, respectively, of CompleTel Europe.
Employee loans
In January 2000, iPcenta Limited, a wholly-owned indirect subsidiary of
CompleTel Europe, loaned Martin Rushe, a Managing Director of CompleTel Europe
and the President of CompleTel UK Limited, the principal amount of $206,500
((Euro)220,000) to purchase common units of CompleTel LLC. The principal amount,
together with accumulated interest at the rate of 7% compounded semi-annually,
is due and payable on the earlier of January 15, 2003, 30 days after a
termination for cause, or 90 days after any termination of employment. The
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common units are subject to vesting and forfeiture provisions and will, if
vested, entitle Mr. Rushe to receive a pro rata number of CompleTel Europe
shares when and if CompleTel LLC is liquidated. iPcenta has agreed to forgive a
pro rata portion of the principal and interest on the note as the common units
vest or upon forfeiture.
A limited number of our employees have obtained interest bearing loans in
an approximate aggregate principal amount of (Euro)2,000,000 from a commercial
bank to purchase our ordinary shares. These include loans to Hansjorg Rieder and
Martin Rushe, who each serve as Managing Directors of CompleTel Europe, in the
principal amounts of (Euro)567,000 and (Euro)309,000, respectively. The loans
are for a term of 18 months and will be secured by a pledge of the shares
purchased by such individuals. In addition, CompleTel Europe has agreed to
guaranty the employee and officer loans in the approximate total amount of
(Euro)2 million and has agreed to assume the interest cost payments on the
loans.
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Description of Material Indebtedness
14% Senior Discount Notes
The notes
CompleTel Europe issued $147.5 (EURO156.2) million aggregate principal
amount at maturity of 14% senior discount notes due February 15, 2009 pursuant
to an indenture between CompleTel Europe, CompleTel LLC, CompleTel ECC B.V. and
U.S. Bank Trust National Association. The notes were issued in units, with each
unit consisting of $1,000 principal amount at maturity of the notes and 10 non-
voting class B membership interests of CompleTel Holdings LLC. CompleTel Europe
will use a portion of the net proceeds from this offering to repurchase $27.0
(EURO28.6) million principal amount at maturity of its 14% senior discount notes
due 2009.
Interest
No interest will be payable on the notes before August 15, 2004. From the
issue date through February 15, 2004, the notes will accrete from an initial
accreted value of $508.54 to $1,000 per $1,000 principal amount at maturity.
From and after February 15, 2004, interest on the notes will accrue at the rate
of 14% per annum and be payable semiannually on February 15 and August 15 of
each year, beginning on August 15, 2004.
Security; parent guaranty
Except for the parent guaranty described below, the notes are unsecured
obligations of CompleTel Europe, ranking equally in right of payment with all
existing and future unsecured and unsubordinated obligations of CompleTel Europe
and will rank senior in right of payment to any existing and future debt
expressly subordinated to the notes.
To comply with Netherlands law, the notes are guaranteed on a senior
unsecured basis by CompleTel LLC, our ultimate parent. Because CompleTel LLC is
a holding company with no operations other than the operations conducted by our
subsidiaries, it is unlikely CompleTel LLC would be able to satisfy its
obligations under the guaranty if we fail to satisfy our obligations on the
notes.
Exchange offer
On November 12, 1999, we consummated a public exchange offer pursuant to
which we offered to exchange all the notes issued in the notes offering for
substantially identical notes registered under the Securities Act. As a result
of the consummation of the exchange offer, we became subject to the information
reporting requirements of the U.S. Securities Exchange Act of 1934.
Redemption
We may elect to redeem the notes at any time on or after February 15, 2004,
in whole or in part, at 107% of their principal amount at maturity, plus accrued
interest, declining to 100% of their principal amount at maturity, plus accrued
interest, on and after February 15, 2007. In addition, at any time on or before
February 15, 2002, we may elect to redeem up to one-third of the aggregate
principal amount at maturity of the notes with the proceeds of one or more
public equity offerings, at a redemption price equal to 114% of the accreted
value of the notes being redeemed, plus accrued interest, if any, provided that
at least $93,334,000 aggregate principal amount at maturity of the notes remains
outstanding immediately after the redemption.
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Covenants and events of default
The indenture contains restrictive covenants, including among others,
limitations on our ability and the ability of our restricted subsidiaries to:
. borrow additional money;
. pay dividends and make other distributions;
. prepay subordinated indebtedness;
. repurchase capital stock;
. make investments;
. engage in transactions with affiliates;
. create liens;
. sell assets and engage in mergers and consolidations; and
. enter into sale and leaseback transactions.
If we fail to comply with these covenants we will default under the indenture.
Euro 265 million senior secured credit facility
On January 6, 2000 we executed a EURO265 million senior secured credit
facility. The borrowers are CompleTel ECC B.V., our principal French operating
company, CompleTel S.A.S. and CompleTel Services S.A.S., and our German
operating company, CompleTel GmbH. Currently there is no amount drawn under our
credit facility.
In April 2000, we entered into a suspension agreement with the lenders
under our credit facility which provides that we will not borrow funds under our
credit facility until the credit facility is amended and that, in turn, during
this period, the lenders will suspend the application of various provisions
including substantially all of the representations, covenants and events of
default in our credit facility. During the suspension period, certain other
provisions of our credit facility will remain in effect including, without
limitation, our obligation to maintain the security interests of the lenders and
pay, among other things, commitment fees to the lenders. The suspension
agreement will be in effect until the earlier of (a) January 11, 2001, (b) the
date we cancel our credit facility, or (c) the date an amendment to our credit
facility is in effect. In the event that an amendment to our credit facility
cannot be agreed upon within six months, or, if extended by us, nine months,
after the effective date of the suspension agreement, the suspension agreement
and the credit facility will be terminated. After giving effect to our April
notes offering, without this suspension of the covenants, we would not be able
to borrow under our credit facility without obtaining a waiver from the lenders.
We intend to negotiate an amendment to the credit facility prior to the
expiration of the suspension agreement which will include modifications to the
covenants and will permit us to borrow under such amended credit facility.
However, we do not know if we will be successful in obtaining such amendment on
terms that are satisfactory to us, if at all.
The following is a description of our credit facility, as in effect on the
date hereof, without giving effect to the suspension agreement.
Availability tests
The facility consists of a term loan facility in the amount of EURO105
million, available to be drawn up to December 31, 2000 and repayable beginning
2003, and a revolving loan facility in the amount of EURO160 million, available
to be drawn from May 31, 2000, to December 31, 2002. After December 31, 2002,
outstanding advances up to EURO141 million under the revolving loan facility
will first be converted into a term loan, and other outstanding advances will
become part of a EURO19 million working capital facility. The facility matures
on December 31, 2006.
The availability of the term loan facility is subject to a number of
conditions, including:
. the delivery of a business plan satisfactory to the arrangers;
. injecting the euro equivalent of approximately $181 million of net
proceeds from a combination of existing and new equity contributions,
subordinated shareholder loans, and the proceeds of the high yield
notes, into our French and German subsidiaries and having spent the
euro equivalent of at least $175 million, consistent with an approved
business plan, on French and German network deployment in the target
markets;
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. the creation of the security interests; and
. the satisfaction of the business plan in all material respects,
including full satisfaction of revenue, Adjusted EBITDA and MAN
deployment targets.
The amount outstanding under the facility cannot exceed certain limits that
increase with time such that the entire EURO165 million may not be advanced
prior to June 30, 2002. The availability of credit under the facility is subject
to other conditions, including requirements that our subsidiaries have
commercially launched networks in designated cities in France and Germany and
that we satisfy a debt-to-capital test.
The availability of credit under the revolving credit facility is
contingent on satisfaction of a number of conditions, including:
. we have fully utilized the term loan facility;
. we have satisfied the conditions for drawing on the term loan
facility;
. we have commercially launched our network in 11 cities in France and
Germany;
. we meet a revenue test; and
. depending on the period, we satisfy a debt-to-capital, debt-to-
revenue, or senior-debt leverage ratio.
Interest rates
The facility bears interest at a variable rate commencing at EURIBOR plus
margin and mandatory costs. The applicable margin will be a maximum of 3.75% for
the term loan facility and 3.00% for the revolving loan facility, each subject
to downward adjustment based on senior debt leverage ratio tests.
Security; guaranty
Whether or not the agreement with our lenders to suspend certain covenants
is in effect, the facility is guaranteed by our subsidiaries and is secured by,
among other things, pledges of all of our subsidiaries, as well as a number of
the guarantors' present and future material assets and revenues, and by a pledge
of the stock of each of the borrowers, as well as most of the guarantors.
Covenants
We and our subsidiaries are subject to various restrictive covenants under
the facility, including among others, limitations on:
. incurring additional indebtedness;
. creating encumbrances;
. making loans and guaranties;
. disposing assets;
. make acquisitions or effect merger and consolidated transactions; and
. making investments.
The facility also places limits on our use of proceeds from the initial public
offering of our ordinary shares, further equity investments and high yield debt
issuances. Such proceeds must be held as cash equivalent investments or used to
develop our telecommunications business in France or Germany.
Prepayments
We may prepay advances under the term loan facility and revolving loan
facility upon giving prior notice to the banks, subject to a minimum prepayment
amount of EURO5 million. Upon a change of control, we are obligated to repay
the term loans and revolving loans. Commencing with the year ended December 31,
2001, we are required to apply 50% of our excess cash flow, calculated annually
in accordance with the terms of the facility, and apply amounts received upon
certain disposals of assets and the proceeds of insurance claims that are not
payable to a third party, if we do not reinvest the funds, toward the prepayment
of the facility.
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Events of default
The facility can be terminated, and repayment will be required upon the
occurrence of an event of default, including, but not limited to, the following:
. we fail to pay principal, interest or any other amount payable when
due;
. we have made incorrect representations or warranties in connection
with the facility;
. we breach a covenant under the facility;
. we undergo certain insolvency and bankruptcy proceedings, or any other
similar proceeding;
. we default under material court or arbitration judgment;
. we trigger a cross-default in payment of other indebtedness;
. the obligations under the security documents are unenforceable;
. we and our subsidiaries cease to carry on our telecommunications
business;
. we amend or breach material contracts or licenses under certain
conditions;
. any of the borrowers or guarantors cease to be a wholly-owned
subsidiary of CompleTel Europe; and
. any event or circumstance occurs that would constitute a material
adverse change in our financial condition or business, or our ability
to perform our payment and other material obligations under the
facility.
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Description of the Notes
The new notes, like the old notes, will be issued under the indenture,
dated as of April 13, 2000, between CompleTel Europe, as issuer, and The Chase
Manhattan Bank, as trustee (the "Trustee"). References in this "Description of
the Notes" to CompleTel Europe refer to CompleTel Europe N.V. with its statutory
seat in Amsterdam, The Netherlands, and not to its subsidiaries unless
specifically stated otherwise.
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 your 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 "Where You Can
Find More Information," for information on how to obtain a copy.
General
Under the indenture, the notes:
. will be unsubordinated and, except for the pledged securities and
pledge account described below under "Interest Escrow and Security,"
unsecured obligations of CompleTel Europe;
. will be limited to (EURO)300,000,000 aggregate principal amount,
(EURO)200 million aggregate principal amount of which will be issued
in this offering; and
. will mature on April 15, 2010, at par.
CompleTel Europe may issue up to (EURO)100 million additional principal
amount of notes, at its discretion under the indenture, subject to the covenants
described under "Covenants--Limitation on Indebtedness" and covenants under
CompleTel Europe's other debt instruments. Unless otherwise specified, all
references in this "Description of the Notes" to the "notes" shall refer to the
notes issued in this offering and any additional notes offered under the
indenture, up to (EURO)100 million principal amount.
Interest on the notes will accrue at a rate of 14% per annum from the issue
date or from the most recent interest payment date to which interest has been
paid or provided for, and will be payable semiannually to holders at the close
of business on the April 1 or October 1 immediately preceding the interest
payment date on April 15 and October 15 of each year, commencing October 15,
2000. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
If by the date that is 180 days after the issue date, CompleTel Europe has
not consummated a registered exchange offer for the notes or caused a shelf
registration statement with respect to resales of the notes to be declared
effective, additional interest (the "Special Interest") (in addition to the
stated interest on the notes) will accrue on the principal amount of the
applicable notes at the rate described under "Registration Rights Agreement" and
will be payable in cash semiannually on April 15 and October 15 of each year,
commencing with the first such date following the applicable Registration
Default, until the consummation of a registered exchange offer or the
effectiveness of a shelf registration statement. See "Registration Rights
Agreement."
CompleTel Europe will make all payments (including principal, premium, if
any, and interest) on the notes, and will accept the notes for exchange and
transfer, at its office or through an agent in New York, New York, and London,
England, that it will maintain for these purposes. Initially the agent will be
the corporate trust offices of the Trustee and, so long as the notes are listed
on the Luxembourg Stock Exchange, the paying agent in Luxembourg will be
maintained for payments in respect of the notes. CompleTel Europe will make all
payments of principal and interest in same day funds to the Trustee.
If money for the payment of principal, premium, if any, or interest remains
unclaimed for two years, the trustee and the principal paying agent will pay the
money back to CompleTel Europe at its request. After that, holders entitled to
the money must look to CompleTel Europe for payment, unless an abandoned
property law designates
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another person, and all liability of the trustee and such principal paying agent
with respect to such money shall cease.
The notes will be issued only in fully registered form, without coupons, in
minimum denominations of (EURO)50,000 principal amount. Any notes issued in
denominations in excess of (EURO)50,000 will be issued in increments of
(EURO)1,000 principal amount. See "Book-Entry; Delivery and Form." 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.
Additional amounts
All payments made by CompleTel Europe and any Subsidiary Guarantor under or
with respect to the notes (including payments in respect of Special Interest, if
any) will be made free and clear of, and without withholding or deduction for or
on account of, any present or future tax, duty, levy, impost, assessment or
other government charge (including penalties, interest or other liabilities
related thereto) imposed or levied 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 any
such Subsidiary Guarantor, as the case may be, is required to withhold or deduct
Taxes by law or by the interpretation or administration thereof. If CompleTel
Europe or any such Subsidiary Guarantor, as the case may be, is required to
withhold or deduct any amount for or on account of Taxes, from any payment made
under or with respect to the notes, CompleTel Europe or any such Subsidiary
Guarantor, as the case may be, will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each holder of
notes (including Additional Amounts) after such withholding or deduction will
not be less than the amount the holder would have received if such Taxes had not
been withheld or deducted; provided that the foregoing obligation to pay
Additional Amounts does not apply to:
(a) any Taxes that would not have been so imposed but for the existence of
any present or former connection between the relevant holder (or between a
fiduciary, settlor, beneficiary, member or shareholder of, or possessor of power
over, the relevant holder, if the relevant holder is an estate, nominee, trust
or corporation) 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 or fulfillment of any
certification, identification or other reporting requirements referred to in
clause (d) below);
(b) any estate, inheritance, gift, sales, transfer, personal property tax
or similar tax, assessment or governmental charge;
(c) any Taxes payable otherwise than by deduction or withholding from
payments of principal of (or premium, if any, on) or interest on such note; or
(d) any Taxes that would not have been imposed but for the failure of the
holders to satisfy any certification, identification or any other reporting
requirement whether imposed by statute, treaty, regulation or administrative
practice, provided that the Company has delivered a request to the holders to
comply with such requirement at least 30 days prior to the date such compliance
is required.
Nor will Additional Amounts be paid:
(1) 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, whichever is later (except to the extent that the holder
would have been entitled to Additional Amounts had the note been presented
on the last day of such 30 day period), or
(2) 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.
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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 any Subsidiary Guarantor'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. The foregoing provisions
shall survive any termination or discharge of the indenture and shall apply
mutatis mutandis to any jurisdiction in which any successor person to CompleTel
Europe is organized or any political subdivision or taxing authority or agency
thereof or therein. CompleTel Europe or any Subsidiary Guarantor, as the case
may be, will also make such withholding or deduction and remit the full amount
deducted or withheld to the relevant authority in accordance with applicable
law. CompleTel Europe or any Subsidiary Guarantor, as the case may be, 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,
CompleTel Escrow B.V. or any Subsidiary Guarantor, as the case may be.
At least 30 days prior to each date on which any payment under or with
respect to the notes is due and payable, unless such obligation to pay
Additional Amounts arises after the 30th day prior to such date, in which case
it shall be promptly paid thereafter, if CompleTel Europe or any Subsidiary
Guarantor, as the case may be, will be obligated to pay Additional Amounts with
respect to such payment, CompleTel Europe or any Subsidiary Guarantor, as the
case may be, will deliver to the Trustee and the Paying Agent an Officers'
Certificate stating the fact that such Additional Amounts will be payable and
the amounts so payable and will set forth such other information necessary to
enable the Trustee and the Paying Agent to pay such Additional Amounts to
holders of notes on the payment date. Each Officers' Certificate shall be relied
upon by the Trustee until receipt of a subsequent Officers' Certificate
addressing such matters.
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.
CompleTel LLC guaranty
To avoid CompleTel Europe from being a credit institution within the
meaning of the Dutch 1992 Act on the Supervision of the Credit System ("Wet
toezicht kredietinwezen 1992"), CompleTel LLC will irrevocably and
unconditionally guaranty, on a senior unsecured basis, the full and prompt
performance of all of CompleTel Europe's obligations under the indenture and the
notes, including the payment of principal, premium, if any, interest, Special
Interest, if any, and Additional Amounts, if any, on the notes and any other
sums that may become due under or in connection with the notes.
The indenture will 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 Guaranty. In addition, if CompleTel Europe shall
determine based upon the written advice of legal counsel that it does not
require the Guaranty to avoid being a credit institution within the meaning of
the Dutch 1992 Act on the Supervision of the Credit System, CompleTel LLC will
be released from all of its obligations under its Guaranty following notice to
the Trustee.
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, in the event that CompleTel
Europe is unable to satisfy its obligations under the indenture and the notes or
in the event of any bankruptcy, insolvency or reorganization affecting CompleTel
Europe, it is unlikely that CompleTel LLC will have sufficient funds available
to satisfy its obligations under the Guaranty. We intend to liquidate CompleTel
LLC as soon as possible subject to Dutch or Delaware limitations on our ability
to do so.
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Interest escrow and security
Immediately following the closing of the offering, CompleTel Europe, will
lend (EURO)78.0 million of the net proceeds of this offering to CompleTel Escrow
B.V., a special purpose subsidiary. CompleTel Escrow B.V. will use the funds
lent to it by CompleTel Europe to purchase securities and pledge them to the
Trustee for the benefit of the holders of the notes offered hereby. The
scheduled interest and principal payments on such pledged securities are equal
to or exceed the amount needed to pay the first six scheduled interest payments
(excluding Additional Amounts and Special Interest due on the notes offered
hereby, if any).
The pledged securities consist of six groups of euro-denominated Government
Securities, one for each of the first six scheduled interest payments on the
notes offered hereby. Each group consists of euro-denominated Government
Securities maturing on, or as nearly as possible prior to, the date of the
corresponding scheduled interest payment in an aggregate amount sufficient to
provide for payment in full of such scheduled interest payment (excluding
Additional Amounts and Special Interest, if any).
Each group of pledged securities or the account in which they are held will
be pledged to the Trustee to secure the interest payments for the benefit of the
holders of the notes pursuant to the pledge agreement between CompleTel Europe
N.V., CompleTel Escrow B.V., The Chase Manhattan Bank, as Trustee and The Chase
Manhattan Bank, as Escrow Agent dated as of the closing date of this offering
(the "Pledge Agreement"). The pledged securities will be held in the name of the
Trustee or in CompleTel Escrow B.V.'s name in the pledge account (as described
in the Pledge Agreement). Pursuant to the Pledge Agreement, immediately prior to
an interest payment date on the notes, the Trustee will release from the pledge
account amounts sufficient to make the scheduled interest payment.
The notes will be secured by the pledged securities and the related pledge
account in accordance with the Pledge Agreement.
If CompleTel Europe makes the first six scheduled interest payments on the
notes in a timely manner, then the pledge accounts and all of the remaining
pledged securities will be released and thereafter the notes will be unsecured.
If CompleTel Europe issues any additional notes under the indenture
governing the notes offered hereby, it will cause the pledge amount to be
increased such that the pledge account will contain euro-denominated Government
Securities sufficient to pay interest on all issued notes through the first six
payments of interest on the originally issued notes.
Optional redemption
The notes will be redeemable, at CompleTel Europe's option, in whole or in
part, at any time or from time to time, on or after April 15, 2005 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each holder's last address as it appears in the security
register, at the redemption prices (expressed in percentages of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of holders on the relevant 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 on
April 15 of the years set forth below:
Redemption
Price
Year Percentage
---- ----------
2005................................................. 107.000%
2006................................................. 104.667%
2007................................................. 102.333%
2008 and thereafter.................................. 100.000%
In addition, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each holder's last address as it appears in the
security register, at any time on or prior to April 15, 2003, CompleTel Europe
may redeem up to 35% of the principal amount of the notes originally issued with
the proceeds of one or more Public Equity Offerings following which there is a
Public Market, at CompleTel Europe's option, at any time or from time
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to time in part, at a redemption price (expressed as a percentage of principal
amount) of 114.00% plus accrued and unpaid interest, if any, to the redemption
date; provided that (1) at least 65% of all issued notes (including any
additional notes issued under the indenture) remains outstanding after each such
redemption and (2) CompleTel Europe shall mail the notice of redemption required
by this paragraph within 60 days of the receipt of the Public Equity Offering
proceeds to be so applied.
In the case of any partial redemption, selection of the notes for
redemption will be made by the Trustee in compliance with the requirements of
the Luxembourg Stock Exchange (so long as the notes are so listed) and 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 or the
Luxembourg Stock Exchange, pro rata, or by lot; provided that any partial
redemption pursuant to the preceding paragraph shall only be selected pro rata
as among the applicable holders; provided further that notes issued in a
denomination in excess of (EURO)50,000 by increments of (EURO)1,000 shall be
redeemed in part only provided that the principal amount of any such notes left
outstanding will not be less than (EURO)50,000. If any note is to be redeemed in
part only, the notice of redemption relating to such note shall state the
portion of the principal amount thereof to be redeemed. A new note in principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon cancellation of the original note. CompleTel Europe will
cause a copy of each notice of redemption to be published in a daily newspaper
with general circulation in Luxembourg (which is expected to be the Luxemburger
Wort), so long as the notes are listed on the Luxembourg Stock Exchange. Such
new notes, if any, if issued in definitive form, may be obtained at the office
of any trustee or paying agent.
Redemption for changes in withholding taxes
If as a result of any change in, or amendment to, any laws or regulations
or official interpretations or applications thereof which is announced and
becomes effective after the issue date, in making any payment due or to become
due under the notes or the indenture, CompleTel Europe or any Subsidiary
Guarantor is or would be required on the next succeeding interest payment date
to pay any Additional Amounts and the payment of such Additional Amounts cannot
be avoided by the use of any reasonable measures available to CompleTel Europe
or any Subsidiary Guarantor (which shall not include any adverse modification of
the terms of the indenture or the notes), the notes may be redeemed at the
option of CompleTel Europe, in whole but not in part, upon not less than 30 nor
more than 60 days' notice given as provided in the indenture, at any time prior
to the second succeeding interest payment date following such change or
amendment at a Redemption Price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the redemption date;
provided CompleTel Europe or such Subsidiary Guarantor will also pay to holders
of the notes on the redemption date any Additional Amounts which are then
payable. As long as the notes are listed on the Luxembourg Stock Exchange, a
notice with respect to the above shall be published in a daily newspaper with
general circulation in Luxembourg (which is expected to be the Luxemburger
Wort).
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Sinking fund
There will be no sinking fund payments for the notes.
Ranking
Except for the pledged securities and the pledge account described above
under "Interest escrow and security" which secure the Indebtedness, the
Indebtedness evidenced by the notes will rank pari passu in right of payment
with all existing and future unsecured unsubordinated indebtedness of CompleTel
Europe and senior in right of payment to all Subordinated Indebtedness.
Covenants
Limitation on Indebtedness
CompleTel Europe will not, and will not permit any of the Restricted
Subsidiaries to, Incur any Indebtedness (other than Indebtedness existing on the
Prior Issue Date; provided 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 or equal to 6.0 to 1.0.
Notwithstanding the foregoing, CompleTel Europe and any Restricted
Subsidiary (except as specified below) may Incur each and all of 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;
provided 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; provided
that such agreements are designed to provide protection against
fluctuations in foreign currency exchange rates or interest rates and 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
(C) arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any 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;
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(4) Indebtedness represented by
(A) Guarantees of the notes, and
(B) Guarantees by any Restricted Subsidiary of Indebtedness of
CompleTel Europe otherwise permitted under this covenant, provided any
Guaranty permitted by this clause (B) is permitted by and made in
accordance with the "Limitation on Issuance of Guarantees by Restricted
Subsidiaries and Incurrence of Certain Indebtedness by Restricted
Subsidiaries" covenant described below;
(5) Indebtedness of CompleTel Europe (provided that any such Indebtedness
constituting Debt Securities does not mature as to principal or become
mandatorily redeemable prior to the Stated Maturity of the notes) or
Indebtedness (other than Debt Securities) of any Restricted Subsidiary Incurred
to finance the cost (including the cost of design, development, acquisition,
construction, installation, improvement, transportation or integration) to
acquire 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 and to the
extent of the fair market value of the acquisition of the Capital Stock of a
Restricted Subsidiary that owns all or part of such equipment, inventory or
assets from a person other than CompleTel Europe or any Restricted Subsidiary)
by CompleTel Europe or a Restricted Subsidiary after the Prior Issue Date for
application or use in a Telecommunications Business and any costs for initial
services provided in connection with the foregoing or to provide, as applicable,
for the initial operation of such equipment or assets in an aggregate principal
amount not to exceed (Euro)250 million (or, to the extent non euro-denominated,
the Euro Equivalent thereof) 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 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 Restricted Subsidiaries
incurred under one or more Senior Credit Facilities in an aggregate principal
amount not to exceed (Euro)300 million) (or, to the extent non euro-denominated,
the Euro Equivalent thereof) 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 (Euro)30 million (or, to the extent non euro-denominated, the Euro
Equivalent thereof).
Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that CompleTel Europe or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness, due solely to 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.
The issuance of the notes shall be deemed to be an Incurrence of
Indebtedness on the issue date and is subject to compliance with this
"Limitation on Indebtedness" covenant.
Limitation on Restricted Payments
CompleTel Europe will not, and will not permit any Restricted Subsidiary
to, directly or indirectly,
(1) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (x) dividends or distributions payable
solely on its Capital Stock (other than Disqualified Stock, (y) pro rata
dividends, distributions or other payments on Common Stock of Restricted
Subsidiaries held by persons other than CompleTel Europe or any of the
Restricted Subsidiaries and (z) dividends, distributions or other payments to
CompleTel Europe or any Restricted Subsidiary);
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(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 (other than a
purchase, redemption, retirement or other acquisition that is a Permitted
Investment in a Restricted Subsidiary);
(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
(such payments or any other actions described in clauses (1) through (4) above
being collectively "Restricted Payments") if, at the time of, and after giving
effect to, the proposed Restricted Payment:
(A) a Default shall have occurred and be continuing,
(B) CompleTel Europe could not Incur at least (Euro)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 Prior Issue Date shall exceed the sum of:
(1) 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 Prior 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; plus
(2) the aggregate Net Cash Proceeds received by CompleTel Europe
after the Prior Issue Date 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 indenture of Indebtedness of
CompleTel Europe for cash subsequent to the Prior Issue Date upon the
conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of CompleTel Europe; plus
(3) 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
(4) 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 prohibit:
(1) 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;
(2) 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
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unpaid interest, with the amount of the proceeds of, or in exchange for,
Indebtedness Incurred under clause (2) of the second paragraph of the
"Limitation on Indebtedness" covenant;
(3) 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 of a capital contribution or a substantially concurrent offering
of, Capital Stock (other than Disqualified Stock) of CompleTel Europe;
(4) 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;
(5) 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;
(6) 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 (6)
does not then exceed the sum of (a) (Euro)25 million (or, to the extent non
euro-denominated, the Euro Equivalent thereof) plus (b) the amount then
available for the making of Restricted Payments pursuant to clause (C) of the
preceding paragraph; or
(7) (A) 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, Cable Tel
Management, Inc., CompleTel Europe or a Wholly Owned 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; and (B) payments of amounts required
for any repurchase, redemption or other acquisition or retirement for value of
any Capital Stock owned by any supervisory board member, management board
member, officer, director, or employee of CompleTel Europe or any Restricted
Subsidiary upon the death, disability, retirement or termination of employment
from CompleTel Europe or such Restricted Subsidiary, provided that in the case
of (A) and (B) the aggregate dividends or distributions and price paid for such
repurchase, redemption, retirement or acquisition of Capital Stock will not
exceed (Euro)6 million (or, to the extent non euro-denominated, the Euro
Equivalent thereof) in any calendar year 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 (2) thereof) and the
proceeds from any capital contribution or any issuance of Capital Stock referred
to in clauses (3) and (4) 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:
(1) existing on the issue date in the indenture or any other
agreement in effect on the issue date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that CompleTel Europe
reasonably determines the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in
any material respect to the holders than those encumbrances or restrictions
that are then in effect and that are being extended, refinanced, renewed or
replaced;
(2) existing under or by reason of applicable law;
(3) 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;
(4) in the case of clause (4) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant,
(A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or
assets of CompleTel Europe or any Restricted Subsidiary not otherwise
prohibited by the indenture, or
(C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that CompleTel Europe reasonably
determines 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;
(5) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or
(6) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if:
(A) 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
(B) 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 shall 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 or from entering into any agreement that contains customary net
worth, leverage, invested capital and other financial covenants, customary
covenants regarding the merger of or sale of all or any substantial part of the
assets of CompleTel Europe or any Restricted Subsidiary, customary restrictions
on transactions with Affiliates, and customary subordination provisions
governing Indebtedness owed to CompleTel Europe or any 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,
provided that CompleTel Europe or a Restricted Subsidiary applies an amount
equal to the Net Cash Proceeds, if any, of any such sale in accordance with
clause (A), (B) or (C) of the "Limitation on Asset Sales" covenant
described below.
Limitation on Issuances of Guarantees 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 clauses (2), (5) or (8) of the second
paragraph of the "Limitation on Indebtedness" covenant ("Guaranteed
Indebtedness"), unless:
(A) (i) such Restricted Subsidiary simultaneously executes and
delivers a supplemental indenture providing for a Guaranty of payment
of the notes by such Restricted Subsidiary and (2) such Restricted
Subsidiary waives, and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against CompleTel Europe or any other
Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; or
(B) (i) such Guaranteed Indebtedness constitutes Indebtedness of
CompleTel Europe for which money is borrowed and set aside at the time
of the Incurrence of such Indebtedness in order to prefund the payment
of interest on such Indebtedness and is on-lend from CompleTel Europe
to the applicable Restricted Subsidiary, (2) the applicable Restricted
Subsidiary has no assets (other than assets of a de minimis nature)
other than the on-lend funds referred to in clause (1) above (or
Government Securities purchased with such funds), and (3) the on-lend
funds referred to in clause (1) above (or Government Securities
purchased with such funds) secure the performance of CompleTel
Europe's obligations with respect to such Guaranteed Indebtedness;
provided that this paragraph shall not be applicable to any Guaranty of any
Restricted Subsidiary that existed at the time such person became a Restricted
Subsidiary and was not Incurred in connection with, or in contemplation of, such
person becoming a Restricted Subsidiary. If a Restricted Subsidiary shall issue
a Guaranty with respect to the notes pursuant to clause (A)(1) above, which
Guaranteed Indebtedness is:
(A) not Subordinated Indebtedness, then the Guaranty of such
Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee, or
(B) 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
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any person not a Restricted Subsidiary, of all of CompleTel Europe's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Subsidiary Guarantor (which sale, exchange or transfer is not
prohibited by the indenture); provided that 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 applicable 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 such 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.
The foregoing limitation does not limit and shall not apply to:
(1) transactions:
(A) approved by a majority of the disinterested members of the
Board of Directors as being on fair and reasonable terms no less
favorable to CompleTel Europe or such Restricted Subsidiary than could
be obtained 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 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
Restricted Subsidiaries or solely between 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 transaction not prohibited by the "Limitation on Restricted
Payments" covenant;
(6) issuances of Capital Stock (other than Disqualified Stock) of
CompleTel Europe;
(7) the payment of fees and expenses pursuant to the Management
Services Agreement; and
(8) any transaction or series of related transactions between
CompleTel Europe or a Restricted Subsidiary and any Affiliate thereof in an
aggregate amount not to exceed (Euro)500,000 (or, to the extent notes euro-
denominated, the Euro Equivalent thereof) and regarding which an Officer's
Certificate is delivered to the Trustee stating that the transaction is
fair and reasonable to CompleTel Europe or any such Restricted Subsidiary
and no less favorable to CompleTel Europe or such Restricted Subsidiary
than could be obtained in a comparable arm's-length transaction with a
person that is not such a holder or Affiliate.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (2) through (5)
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of this paragraph, the aggregate amount of which exceeds (Euro)11 million (or,
to the extent not euro-denominated, the Euro Equivalent thereof) 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, which secure
either:
(1) Subordinated Indebtedness of CompleTel Europe or any Restricted
Subsidiary, unless the notes are secured by a Lien 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; provided that any Lien which is granted to secure
the notes under this covenant shall 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 which exclusively consist of Liens on:
(1) Government Securities purchased at the time such Debt Securities
are sold with the proceeds therefrom; or
(2) 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:
(1) within 12 months after the date Net Cash Proceeds are so
received,
(A) apply an amount equal to 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
(B) apply an amount equal to 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
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(C) invest the amount not so applied pursuant to clauses (A) or
(B) (or enter into a definitive agreement committing to so invest
within 12 months after the date of such agreement), in Replacement
Assets, in other assets and property that CompleTel Europe determines
will be used or useful as part of a Telecommunications Business of
CompleTel Europe or any Restricted Subsidiary; and
(2) apply (no later than the end of the 12-month period referred to
in clause (1)) such Net Cash Proceeds (to the extent not applied pursuant
to clause (1)) 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 such 12-month period as set forth in clause (1)
of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds" provided that, in the case of an Asset
Sale by a Restricted Subsidiary of CompleTel Europe that is not a Wholly Owned
Subsidiary, only CompleTel Europe's and its Restricted Subsidiaries' pro rata
portion of such Net Cash Proceeds shall constitute Net Cash Proceeds subject to
the provisions of this "Limitation on Asset Sales" covenant.
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 (Euro)16.5 million (or, to
the extent non euro-denominated, the Euro Equivalent thereof), 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 principal amount of notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount 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 or Credit Institution
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" (as that
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act")), 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 which is or would become available
under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act will be
disregarded.
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 become (A) a credit institution ("kredietinstelling")
pursuant to the Dutch 1992 Act on the Supervision of the Credit System ("Wet
toezicht kredietwezen 1992") or (B) an investment institution
("beleggingsinstelling") pursuant to the Dutch Act on the Supervision of
Investment Institutions ("Wet toezicht belleggingsinstellingen").
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 principal
amount thereof on the relevant Payment Date, plus accrued interest (if any) to
the Payment Date.
There can be no assurance that CompleTel Europe will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of notes) required by the foregoing covenant (as well as
may be contained in other securities of CompleTel Europe which might be
outstanding at the time). If CompleTel Europe is required to repurchase the
notes, the indenture will require 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.
Commission reports and reports to holders
For so long as the Commission shall accept such reports and whether or not
CompleTel Europe is then required to file reports with the Commission, CompleTel
Europe shall 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 shall supply the applicable Trustee and each
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applicable holder or shall supply to the applicable Trustee for forwarding to
each such applicable holder, without cost to such holder, copies of such reports
and other information. In addition, at all times prior to the Registration, upon
the request of any holder or any prospective purchaser of the notes designated
by a holder, CompleTel Europe shall supply to such holder or such prospective
purchaser the information required under Rule 144A under the Securities Act.
Events of default
The following events will be defined as "Events of Default" with respect to
the notes:
(a) default in the payment of principal of (or premium, if any, on)
any note when the same becomes due and payable at maturity, upon
acceleration, upon an optional redemption or otherwise;
(b) default in the payment of Additional Amounts or interest on any
note when the same becomes due and payable, and such default continues for
a period of 30 days; provided that the failure to make any of the first six
scheduled interest payments on the notes in a timely manner will constitute
an Event of Default with no grace or cure period;
(c) default 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;
(d) 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 Pledge Agreement (other than a default specified in clause
(a), (b) or (c) above) and such default or breach continues for a period of
30 consecutive days after written notice by the Trustee or the holders of
25% or more in aggregate principal amount of the notes;
(e) there occurs with respect to any issue or issues of Indebtedness
of CompleTel Europe or any Restricted Subsidiary having an outstanding
principal amount of (Euro)11 million (or, to the extent non euro-
denominated, the Euro Equivalent thereof) or more in the aggregate for all
such issues of all such persons, whether such Indebtedness now exists or
shall hereafter be created,
(1) 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
(2) 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;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of (Euro)11 million (or, to the extent non euro-
denominated, the Euro Equivalent thereof) 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 have past 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 (Euro)11 million
(or, to the extent non euro-denominated the Euro Equivalent thereof) during
which a stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
(g) certain events of bankruptcy, insolvency or reorganization
affecting CompleTel Europe or any Significant Subsidiary shall occur;
(h) CompleTel Europe or CompleTel Escrow B.V. shall assert or
acknowledge in writing that any pledge agreement is invalid or
unenforceable or the pledge agreement ceases to give the Trustee the liens,
rights, powers, privileges and security interests purported to be created
thereby; or
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(i) any material agreement or material License which provides the
authority for CompleTel Europe and/or any Significant Subsidiary to operate
the Telecommunications Business it operates on the date hereof in France or
Germany 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 without the obtaining of a
replacement.
If an Event of Default (other than an Event of Default specified in clause
(g) 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 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 principal
amount of, premium, if any, and accrued interest on the notes to be immediately
due and payable. Upon a declaration of acceleration, such principal amount of,
premium, if any, and accrued interest shall be immediately due and payable.
Notwithstanding anything to the contrary in the indenture, in the event of a
declaration of acceleration because an Event of Default set forth in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by 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 (g) above occurs
with respect to CompleTel Europe, the principal amount 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 of the outstanding notes by written notice to CompleTel Europe and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (1) all existing Events of Default, other
than the nonpayment of the principal amount 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 (2) the rescission would not conflict with any judgment
or decree of a court of competent jurisdiction. For information as to the waiver
of defaults, see "--Modification and waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding 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 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:
(1) the holder gives the Trustee written notice of a continuing Event
of Default;
(2) the holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the Trustee to pursue the
remedy;
(3) such holder or holders offer the Trustee indemnity satisfactory
to the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding 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 principal amount 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.
The indenture will require certain officers of CompleTel Europe to certify,
on or before a date not more than 90 days after the end of each fiscal year,
that a review has been conducted of the activities of 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
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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 and assets of CompleTel
Europe and the Restricted Subsidiaries on a consolidated basis,
unless:
(1) 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;
(2) immediately after giving effect to such transaction, no Default
shall have occurred and be continuing;
(3) 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 or
against CompleTel Europe;
(4) 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(Euro)1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant;
provided that this clause (4) shall not apply to a consolidation,
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 or to a transaction that is the merger of
CompleTel Europe and one or more of its Wholly Owned Subsidiaries; and
(5) CompleTel Europe delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clause (4) 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;
provided that clause (4) above does 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 provided further that
any such transaction shall 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
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the indenture with the same effect as if such successor corporation had been
named as CompleTel Europe therein; provided that, solely for purposes of
computing Cumulative Available Cash Flow and cumulative Consolidated Interest
Expense for purposes of clause (C)(1) of the first paragraph of the "Limitation
on Restricted Payments" covenant, 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, lost or mutilated notes to maintain paying agencies
and to hold monies for payment in trust) if, among other things,
(A) CompleTel Europe has deposited with the Trustee, in trust cash in
euros, certain euro-denominated Government Securities 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;
(B) CompleTel Europe has delivered to the Trustee:
(1) 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 issue date such that a ruling is no
longer required or
(y) a ruling directed to the Trustee received from the Internal
Revenue Service to the same effect as the aforementioned opinion of
counsel, and
(2) an opinion of counsel to the effect that:
(x) the creation of the defeasance trust does not violate the
Investment Company Act,
(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;
(C) 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 Restricted Subsidiaries is a party or by which CompleTel Europe or
any of its Restricted Subsidiaries is bound; and
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(D) 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
indenture will no longer be in effect with respect to the first paragraph under
"Consolidation, Merger and Sale of Assets" covenant and all the covenants
described herein under "Covenants," clause (c) under "Events of Default" with
respect to such clauses (4) under "Consolidation, Merger and Sale of Assets,"
clause (d) under "Events of Default" with respect to such other covenants and
clauses (e) and (f) under "Events of Default" shall be deemed not to be Events
of Default upon, among other things, the deposit with the Trustee, in trust, of
cash in euros, certain euro-denominated Government Securities 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 (B)(2), (C) and
(D) 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, 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 euros and/or euro-denominated Government Securities 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.
However, CompleTel Europe will remain liable for such payments.
Modification and waiver
Modifications and amendments of the indenture may be made by the Company
and the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding notes; provided 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 principal amount of, or premium, if any, or interest
on, any note,
(3) change the place or currency of payment of principal of, or
premium, if any, or interest on, any note,
(4) impair the right to institute suit for the enforcement of any
payment on or after the Stated Maturity (or, in the case of a redemption,
on or after the Redemption Date) of any note,
(5) reduce the above-stated percentage of outstanding notes the
consent of whose holders is necessary to modify or amend the 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 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 or any
Restricted Subsidiary 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, other than in accordance
with the terms of the Subsidiary Guaranty or the indenture,
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(10) release any Lien securing the notes other than in accordance with
the terms of the indenture and the pledge agreement, or
(11) affect the ranking of the notes in a manner adverse to the
holders of the notes;
(12) subordinate, in right of payment, the notes in a manner adverse
to the holders of the notes to any other Indebtedness of CompleTel Europe;
or
(13) make any change to the indenture or the notes that would
adversely affect the rights of holders to receive Additional Amounts as
described under "Additional Amounts."
Without the consent of any holder, CompleTel Europe and the Trustee may
amend the indenture (1) to cure any ambiguity, omission, defect or
inconsistency, (2) to provide for the assumption by a successor corporation of
the obligations of CompleTel Europe under the indenture, (3) to add Guaranties
with respect to the notes, (4) to further secure the notes, (5) to add to the
covenants of CompleTel Europe for the benefit of the holders, (6) to surrender
any right or power conferred upon CompleTel Europe, (7) to comply with any
requirement of the Commission in connection with the qualification of the
indenture under the Trust Indenture Act of 1939, (8) to evidence and provide for
the acceptance of appointment hereunder by a successor Trustee or (9) to make
any change that in the good faith opinion of the Board of Directors, as
evidenced by a Board Resolution, does not adversely affect the rights of any
holder in any material respect.
No personal liability of incorporators, stockholders, officers, directors or
employees
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, management board member, supervisory board member 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
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 will 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; provided that if it
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. As long as the notes are listed on the Luxembourg Stock Exchange any
notice or communication to holders of notes will in addition to the above be
published in a daily newspaper of general circulation in Luxembourg (which is
expected to be the Luxemburger Wort).
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Governing law and submission to jurisdiction
The indenture, the notes, the CompleTel LLC guaranty and the pledge
agreement, 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 will submit 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 actions and proceedings instituted in connection
with the notes and the indenture. CompleTel Europe has appointed CT Corporation
as its authorized agent upon which process may be served in any such actions.
Certain definitions
Set forth below is a summary of material defined terms used in the
covenants and other provisions of the indenture.
"Acquired Indebtedness" means Indebtedness of a person existing at the time
such person 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 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,
(5) unrealized foreign currency losses (or minus unrealized foreign
currency gains), and
(6) all other non-cash expenses reducing Adjusted Consolidated Net
Income (or minus non-cash income increasing Adjusted Consolidated Net
Income), other than, in each case, 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, all as
determined on a consolidated basis for CompleTel Europe and the Restricted
Subsidiaries in conformity with GAAP.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of CompleTel Europe and the Restricted Subsidiaries for such
period determined in conformity with GAAP; provided that the following items
shall be excluded in computing Adjusted Consolidated Net Income (without
duplication):
(1) the net income (or loss) of any person that is not a Restricted
Subsidiary, except (x) with respect to net income, to the extent of the
amount of dividends or other distributions actually paid to CompleTel
Europe or any of the Restricted Subsidiaries by such person during such
period and (y) with respect to net losses, to the extent of the amount of
Investments made by 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, any determination
as to the exclusion of net income of a Restricted Subsidiary pursuant to
this clause (2) shall not give effect 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 "Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries";
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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 (on an after-tax
basis);
(6) any compensation expense paid or payable solely with Capital
Stock (other than Disqualified Stock) of CompleTel Europe or any non-cash
compensation expense allocated to CompleTel Europe by CompleTel LLC in the
form of a non-cash capital contribution in the equivalent amount of such
non-cash compensation expense; 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"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities, by contract or otherwise.
"Approved Jurisdiction" means any state of the United States or the
District of Columbia, The Netherlands or any other Member State (as defined in
the Maastricht Treaty) 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 holders 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 shall become
a Restricted Subsidiary or shall be 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 (other than to 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 outside the ordinary course of business of
CompleTel Europe or such Restricted Subsidiary;
and, in each case, 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; provided that "Asset Sale" shall not include:
(a) sales or other dispositions of inventory, receivables and other
current assets,
(b) sales, transfers or other dispositions of assets constituting a
Restricted Payment permitted to be made under the "Limitation on Restricted
Payments" covenant,
(c) sales, liquidation or other disposition of Temporary Cash
Investments,
(d) any transfer of properties and assets that is governed by the
provisions described under "Consolidation, Merger and Sale of Assets,"
(e) sales or other dispositions of damaged, worn out or other
obsolete assets or property in the ordinary course of business, or
(f) sales, transfers or other dispositions of assets with a fair
market value (as certified in an Officers' Certificate) not in excess of
(Euro)2.5 million (or, to the extent non euro-denominated, the Euro
Equivalent thereof) in any transaction or series of related transactions.
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"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:
(a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt
security, and
(b) the amount of such principal payment,
by
(2) the sum of all such principal payments.
"Board of Directors" means, the supervisory board of CompleTel Europe or
any committee of such board duly authorized to act under the indenture.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated,
whether voting or non-voting) of such person's capital stock, whether
outstanding on the issue date 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 the balance sheet of such person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as:
(1) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act), other than a person or group controlled
exclusively by the Equity Investors, becomes the ultimate "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a person shall be deemed 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) 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 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:
(1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation or its parent corporation,
and/or
(2) cash, securities and other property in an amount that
could be paid as a Restricted Payment under the indenture, and
(b) immediately after such transaction no "person" or "group"
(as such terms are used in Section 13(d) and 14(d) of the Exchange
Act), other than a person or group controlled exclusively by the
Equity Investors, is the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act, except that a person shall be deemed
to have "beneficial ownership" of all securities that such person has
the right
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to acquire, whether such right is exercisable immediately or only
after the passage of time), 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) during any period of two consecutive years, individuals who on
the issue date constitute the Board of Directors (together with any
thereafter elected directors whose 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 either were members of
the Board of Directors on the issue date or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the members of the Board of Directors then in office.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of such person's common equity whether or not
outstanding at the issue date, and includes, without limitation, all series and
classes of such common equity.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements, and
Indebtedness that is Guarantied or secured by CompleTel Europe or any of the
Restricted Subsidiaries); 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; excluding, however:
(1) 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 2 of the definition thereof),
and
(2) any premiums, fees and expenses (and any amortization thereof)
payable in connection with the Offering of the notes, all as determined on
a consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of:
(1) the aggregate amount of Indebtedness of CompleTel Europe and the
Restricted Subsidiaries on a consolidated basis outstanding on such
Transaction Date to
(2) the aggregate amount of Adjusted Consolidated EBITDA for the then
most recent four fiscal quarters (or since inception of CompleTel Europe,
if less than four fiscal quarters) for which financial statements of
CompleTel Europe have been filed with the Commission or provided to the
Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant described below (such period being the "Four Quarter Period");
provided that, in making the foregoing calculation,
(A) pro forma effect shall be given to any Indebtedness to be Incurred or
repaid on the Transaction Date;
(B) pro forma effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving pro forma effect to the application of proceeds
of any Asset Disposition) that occur from the beginning of the 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) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any person that has become a
Restricted Subsidiary or has been merged with or into CompleTel Europe or any
Restricted Subsidiary during such Reference Period and that would have
constituted Asset Dispositions or Asset Acquisitions had such transactions
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occurred when such person was a Restricted Subsidiary as if such asset
dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions
that occurred on the first day of such Reference Period; provided that to the
extent that clause (B) or (C) of this sentence requires that pro forma effect be
given to an Asset Acquisition or Asset Disposition, such pro forma calculation
shall be based upon the 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;
and
(D) (1) any Subsidiary of CompleTel Europe that is a Restricted Subsidiary
on the Transaction Date shall be deemed to have been a Restricted Subsidiary at
all times during the Reference Period and (2) any Subsidiary of CompleTel Europe
that is not a Restricted Subsidiary on the Transaction Date shall be deemed not
have been a Restricted Subsidiary at any time during the Reference Period.
"Cumulative Available Cash Flow" means, as of any date of determination,
the positive cumulative Adjusted Consolidated EBITDA realized during the period
commencing on the first day of the fiscal quarter which includes the Prior 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 Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant or, if such cumulative Adjusted Consolidated EBITDA for such
period is negative, the amount by which cumulative Adjusted 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 (excluding, in any event, (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) 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.
"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 (1) or (2) above or Indebtedness having a scheduled maturity prior
to the Stated Maturity of the notes;
provided that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are reasonably determined
by CompleTel Europe to be no more favorable to the holders of such Capital Stock
than the provisions contained in the covenants described under "Limitation on
Asset Sales" and "Repurchase of Notes upon a Change of Control" and such Capital
Stock, or the agreements or instruments governing the redemption rights thereof,
specifically provides that such person will not repurchase or redeem any such
stock pursuant to such provision prior to CompleTel Europe's repurchase of such
notes as are required to be repurchased pursuant to the covenants described
under "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control."
"Equity Investors" means Madison Dearborn Partners, Inc. and LPL Investment
Group, Inc., and their respective Affiliates.
"Euro Equivalent" means, with respect to any monetary amount in a currency
other than euros, at any time for the determination thereof, the amount of euros
obtained by converting such foreign currency involved in such
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computation into euros at the spot rate for the purchase of euros with the
applicable foreign currency as quoted by Reuters at approximately 11:00 a.m.
(New York time) on the date two business days prior to such determination.
"Existing Stockholders" means the Equity Investors and 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.
"Euro Currency Country" means a country for which the euro is the lawful
currency.
"Fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; provided that for purposes of the definition of
"Total Incremental Equity,"
(x) the fair market value of any security registered under the
Exchange Act shall be the average of the closing prices, regular way, of
such security for the 20 consecutive trading days immediately preceding the
sale of Capital Stock, and
(y) in the event the aggregate fair market value of any other
property (other than cash or cash equivalents) received by CompleTel Europe
exceeds (Euro)11 million (or, to the extent non euro-denominated, the Euro
Equivalent thereof), the fair market value of such property shall be
determined by an internationally recognized investment banking firm and set
forth in their written opinion which shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the issue date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the indenture shall be computed in conformity with GAAP applied on a consistent
basis.
"Government Securities" means direct and fully guarantied or insured
obligations of the United States of America or any agency or instrumentality
thereof, the United Kingdom or any Euro Currency Country rated at least "A" by
S&P or "A" by Moody's or obligations guarantied by the United States of America
or any agency or instrumentality thereof or the United Kingdom or any Euro
Currency Country rated at least "A" by S&P or "A" by Moody's.
"Guaranty" means any obligation, contingent or otherwise, of any person
directly or indirectly guarantying any Indebtedness of any other person and,
without limiting the generality of the foregoing, 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) such Indebtedness of such other person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such purchase
arrangements are on arm's-length terms and are entered into in the ordinary
course of business), to take-or-pay, or to maintain financial statement
conditions or otherwise), or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided that the term "Guaranty" shall not include endorsements for collection
or deposit in the ordinary course of business.
"Incur" means, with respect to any Indebtedness, to directly or indirectly
incur, create, issue, assume, Guaranty 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; provided that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any person at any date of
determination (without duplication),
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(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 of such person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto, but excluding obligations with respect to letters of credit
(including trade letters of credit) securing obligations (other than
obligations described in (1) or (2) above or (5), (6), (7) or (8) below)
entered into in the ordinary course of business of such person to the
extent such letters of credit are not drawn upon or, if drawn upon, to the
extent such drawing is reimbursed no later than the third business day
following receipt by such person of a demand for reimbursement),
(4) all obligations of such person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services,
except Trade Payables or accrued liabilities arising in the ordinary course
of business,
(5) all Capitalized Lease Obligations of such person,
(6) all indebtedness of other persons secured by a Lien on any asset
of such person, whether or not such Indebtedness is assumed by such person;
provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B)
the principal amount of such Indebtedness,
(7) all indebtedness of other persons Guarantied by such person to
the extent such Indebtedness is Guarantied 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, all net
obligations of such Person 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 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; provided
(A) that the amount outstanding at any time of any Indebtedness
issued with original issue discount is the face amount of such Indebtedness
less the remaining unamortized portion of the original issue discount of
such Indebtedness at the time of its issuance as determined in conformity
with GAAP,
(B) that money borrowed and set aside at the time of the Incurrence
of any Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" so long as such money
is held to secure the payment of such interest, and
(C) that Indebtedness shall not include any liability for federal,
state, local or any other applicable taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of 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
capital contribution (by means of any transfer of cash or other property (other
than Capital Stock which 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 and shall include:
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(1) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary, and
(2) the fair market value of the Capital Stock (or any other
Investment) held by 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
covenant described under "Limitation on Restricted Payments,"
(1) "Investment" shall include 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 shall be
considered a reduction in outstanding Investments, and
(3) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer.
Notwithstanding the foregoing, 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.
"Leveraged Subsidiary" means any Subsidiary Guarantor that has Incurred
Indebtedness (other than Acquired Indebtedness) pursuant to the first paragraph
of the covenant "Limitation on Indebtedness" or any Refinancings thereof
Incurred under clause (2) of the second paragraph of the covenant "Limitation on
Indebtedness" for so long as any such Indebtedness, or any Refinancing thereof,
is outstanding.
"License" means authorization (or renewal thereof) 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, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Management Services Agreements" means agreements pursuant to which
CableTel Management Inc. provides management services to CompleTel Europe or a
Restricted Subsidiary; provided that the maximum fee payable by any person
pursuant to any such agreement does 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:
(a) with respect to any Asset Sale, the proceeds of such Asset Sale
in the form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the principal,
but not interest, component thereof) when received in the form of cash or
cash equivalents (except to the extent such obligations are financed or
sold with recourse to CompleTel Europe or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted to
cash or cash equivalents, net of:
(1) brokerage commissions and other fees and expenses (including
fees and expenses of counsel and investment bankers) related to such
Asset Sale,
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(2) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale
without regard to the consolidated results of operations of CompleTel
Europe and the Restricted Subsidiaries, taken as a whole,
(3) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (A) is secured
by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale, and
(4) appropriate amounts to be provided by CompleTel Europe or
any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation,
pension and other post employment benefit liabilities, liabilities
related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP, and
(b) with respect to any issuance and sale of Capital Stock, the
proceeds of such issuance and sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent
such obligations are financed or sold with recourse to 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 thereof.
"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
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 (which shall be a
business day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Payment Date");
(3) that any note not tendered will continue to accrue interest (or
original issue discount, as the case may be) 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, as the case may
be) on and after the Payment Date;
(5) that holders electing to have a note purchased pursuant to the
Offer to Purchase will be required to surrender the note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side
of the note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the business day immediately
preceding the Payment Date;
(6) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
business day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such holder, the principal
amount of notes delivered for purchase and a statement that such holder is
withdrawing his election to have such notes purchased; and
(7) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion of
the notes surrendered; provided that each note purchased shall be in a
principal amount of integral multiples of (Euro)1,000; provided further
that the principal amount of any notes left outstanding will not be less
than (Euro)50,000.
In addition, CompleTel Europe (or, in the event of a Change of Control, a
third party) shall publish a notice in Luxembourg as may be required by
applicable law.
On the Payment Date, CompleTel Europe shall:
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(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 by CompleTel
Europe.
The Paying Agent shall promptly mail to the holders of notes so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such holders a new note equal in principal amount to
any unpurchased portion of the note surrendered; provided that each note
purchased and each new note issued shall be an integral multiple of (Euro)1,000,
principal amount. CompleTel Europe will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. 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.
"Officer" means, with respect to CompleTel Europe, (1) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, and (2) the Treasurer or any Assistant Treasurer, or the
Secretary or any Assistant Secretary.
"Officer's Certificate" means a certificate signed by one Officer listed in
clause (1) of the definition thereof and one officer listed in clause (2) of the
definition thereof and delivered to the Trustee.
"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 which 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 which will, upon the making of such Investment, become a Restricted
Subsidiary or be merged or consolidated with or into, or transfer or convey
all or substantially all its assets to, CompleTel Europe or a Restricted
Subsidiary; provided that such person is primarily engaged in a
Telecommunications Business;
(2) Temporary Cash Investments;
(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;
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(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 (Euro)5
million (or, to the extent non euro-denominated, the Euro Equivalent
thereof) at any time outstanding.
"Prior Issue Date" means February 16, 1999, the issue date of CompleTel
Europe's 14% senior discount notes due 2009.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of CompleTel Europe pursuant to an effective registration statement
under the Securities Act or pursuant to a prospectus prepared in connection with
the listing of shares of Common Stock covered thereby on the Paris Bourse, and
pursuant to a dispensation of the Dutch Securities Board ("Stichting Toezicht
Effectenverkeer").
A "Public Market" shall be deemed to 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 by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act or pursuant to a prospectus prepared in connection with the
listing of shares of Common Stock covered thereby on the Paris Bourse.
"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 or otherwise
permitted under the first paragraph of the covenant described under
"Limitation on Indebtedness" or clause (6) of the second paragraph of such
covenant, 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 or otherwise permitted under the
first paragraph of the covenant described under "Limitation on
Indebtedness" or clause (4)(A) of the second paragraph of such covenant;
provided that for all purposes of this definition,
(a) the principal amount of Refinancing Indebtedness incurred
pursuant to this definition (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 Indebtedness) shall 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 pursuant to the terms of such Indebtedness 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,
(b) such Refinancing Indebtedness (x) shall have no scheduled
principal payment prior to the final maturity of the Indebtedness being
refinanced and (y) shall have an Average Life equal to or greater than the
shorter of (1) the Average Life of the Indebtedness refinanced or (2) the
remaining Average Life of the notes, and
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(c) if the Indebtedness to be refinanced is Subordinated
Indebtedness, the Indebtedness to be incurred pursuant to this definition
shall 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.
"Senior Credit Facility" means any senior commercial term loan and/or
revolving credit facility (including any letter of credit subfacility) and/or
vendor financing facility entered into principally with commercial banks and/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,
(1) or 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
(2) 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.
"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, or (ii) any limited
partnership of which such person or any Subsidiary of such person is a general
partner, or (iii) any other person in which such person, or one or more other
Subsidiaries of such person directly or indirectly has more than 50% of the
outstanding partnership or similar equity interests and has the power by virtue
of such ownership to direct or cause the policies, management and affairs
thereof.
"Subsidiary Guaranty" means a guaranty of the notes issued pursuant to the
terms of the indenture by a Restricted Subsidiary.
"Subsidiary Guarantor" means any issuer of a Subsidiary Guaranty for so
long as such Subsidiary Guaranty remains outstanding.
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"Telecommunications Business" means the development, ownership or operation
of one or more telephone, telecommunications, Internet or information systems or
the provision of telephony, telecommunication, Internet or information services
and any related, ancillary or complementary business.
"Temporary Cash Investment" means any of the following:
(1) Government Securities 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 United Kingdom or any Euro
Currency Country and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of (Euro)250 million (or the
foreign currency equivalent thereof) 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 United Kingdom or any Euro
Currency Country, with a rating at the time as of which any investment
therein is made of "P-l" (or higher) according to Moody's or "A-1" (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 guarantied by any state,
commonwealth or territory of the United States of America, the United
Kingdom, or any Euro Currency Country, or by any political 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 Prior 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 Prior Issue Date
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 Prior Issue Date (other than a Restricted Payment made
pursuant to clause (2) of the second paragraph of the covenant "Limitation
on Restricted Payments").
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"Trade Payables" means, with respect to any person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guarantied by such person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by 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 shall be designated an Unrestricted Subsidiary by the Board
of Directors in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Restricted Subsidiary (including
any newly acquired or newly formed Subsidiary of 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; provided that:
(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, if applicable) at the time of such
designation;
(B) either the Subsidiary to be so designated has total assets of
(Euro)1,000 (or, to the extent non euro-denominated, the Euro Equivalent
thereof) or less or if such Subsidiary has assets greater than (Euro)1,000
(or, to the extent non euro-denominated, the Euro Equivalent thereof), such
designation would be permitted under the covenant described under
"--Limitation on Restricted Payments";
(C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
covenants described under "--Limitation on Indebtedness" and "--Limitation
on Restricted Payments"; and
(D) except in the case of an Investment made pursuant to clause (6)
of the second paragraph of the covenant "Limitation on Restricted
Payments," immediately after giving effect to such designation, CompleTel
Europe would be able to Incur (Euro)1.00 of Indebtedness under the first
paragraph of the covenant "Limitation on Indebtedness".
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
(1) no Default shall have occurred and be continuing at the time of
or after giving effect to such designation, and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such
time, have been permitted to be Incurred (and shall be deemed to have been
Incurred) for all purposes of the indenture.
Any such designation by the Board of Directors shall be evidenced to the
applicable Trustee by promptly filing with the applicable 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.
"Wholly Owned" means, with respect to any Subsidiary of any person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such person or one or more Wholly Owned Subsidiaries of such
person.
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Registration Rights Agreement
Background
In a registration rights agreement relating to the old notes, we have
agreed with the initial purchasers that we will, at our cost
. to as promptly as practicable file with the SEC the Exchange Offer
Registration Statement with respect to the Exchange Offer for the
Exchange Notes, which will have terms identical in all material
respects to the notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions), not later than 90 days
after the date of the original issue of the notes,
. use our best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act not later
than 150 days after the date of the original issue of the notes,
. use our best efforts to keep the Exchange Offer Registration Statement
effective until the closing of the Exchange Offer, and
. use our best efforts to cause the Exchange Offer to be consummated not
later than 180 days after the original issue date of the notes.
Promptly after the Exchange Offer Registration Statement has been
declared effective, we will offer the Exchange Notes in exchange for
surrender of the notes.
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 not less than 30 days
(or longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the old 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 prospectus.
Terms of the exchange
For each old note validly tendered to us pursuant to the exchange offer and
not withdrawn by the holder thereof, the holder of such old note will receive an
new note having a principal amount equal to that of the tendered note.
Based on an interpretation of the Securities Act by the staff of the SEC
set forth in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the Exchange Notes issued
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof without further compliance with the registration
and prospectus delivery provisions of the Securities Act. under the conditions
we describe in the section entitled "The Exchange Offer--Resale of the new
notes."
Shelf Registration Statement
If one of the following events occurs
(1) any changes in law or rules or the applicable interpretations of the
staff of the SEC do not permit us to effect the exchange offer,
(2) any other reason the exchange offer is not consummated within 180 days
of the date of original issue of the notes,
(3) any of the initial purchasers so requests if such initial purchaser
holds notes acquired as part of an unsold allotment or as to which
such initial purchaser does not believe it would receive freely
tradeable securities it exchanged in the exchange offer or
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(4) a holder of the notes is not permitted, because of a change in
applicable law or interpretation thereof, to participate in the
Exchange Offer or is eligible under applicable law and interpretation
thereof to participate in, and elects to participate in, the exchange
offer but does not receive freely tradable Exchange Notes pursuant to
the exchange offer.
then, we will, at our cost,
. cost (a) as promptly as practicable but in no event later than 60 days
after the earliest to occur of (1) through (4) above, file with the
SEC the shelf registration statement covering resales of the notes,
. use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act by the 60th day after the
filing of the applicable shelf registration statement but in no event
later than 210 days after the original issue of the notes and
. subject to certain exceptions, use our best efforts to keep the shelf
registration statement effective for a period of two years after the
original issuance of the notes or for such shorter period that will
terminate when all of the notes covered by the shelf registration
statement have been sold pursuant thereto or cease to be outstanding.
If a shelf registration statement is filed, we will provide to each holder
of the prospectus for whom the shelf registration statement was filed with
copies of the prospectus which is a part of the shelf registration statement,
notify each such holder when such shelf registration statement has become
effective and take certain other actions as are required to permit unrestricted
resales of the notes.
A holder selling existing notes or new notes pursuant to the shelf
registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver the 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 is applicable to such a
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
. neither the exchange offer registration statement nor the shelf
registration statement, is filed with the SEC on or prior to the
90th day after April 13, 2000, or
. the exchange offer registration statement is not declared
effective on or prior to the 150/th/ day after April 13, 2000, or
. the exchange offer (if the exchange offer is required to be made)
is not consummated on or prior to the 180th day following the
date of original issue of the notes,
. the shelf registration statement is not filed within 60 days
after the earliest to occur of the applicable shelf registration
filing event,
. the shelf registration statement is not effective on the earlier
of 60 days after the shelf registration statement is filed or 210
days after the date of original issue of the notes, or
. the shelf registration statement is declared effective but shall
thereafter become unusable for more than 45 days in the aggregate
during any 12-month period (each such event referred to in
clauses (a) through (f) above, a "Registration Default");
(2) then
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. the interest rate borne by the notes shall be increased by one-
quarter of one percent per annum upon the occurrence of each
Registration Default, which interest rate (as increased as
aforesaid) will increase by an additional one-quarter of one
percent per annum each 90-day period that such additional
interest continues to accrue under any such circumstances, with
an aggregate maximum increase equal to two percent (2%) per
annum.
Following the cure of all Registration Defaults, the accrual of additional
interest will cease and the interest rate will revert to the original rate.
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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 Clearstream and Euroclear and registered in the
name of their respective nominees.
Depository procedures
Upon the issuance of the global notes, Clearstream or Euroclear, as the
case may be, will credit, on their book-entry registration and transfer system,
their participants' accounts with the respective book-entry interests owned by
such participants in the certificated depositary interest or the certificateless
depositary interests, as the case may be. On the closing date, the accounts to
be credited will be designated by the placement agents.
Such beneficial interests in the global notes are referred to in this
prospectus as "book-entry interests." Ownership of the book-entry interests in
the global notes will be limited to participants in Clearstream or Euroclear, as
the case may be. Procedures with respect to the ownership of book-entry
interests are set forth below. The laws of some countries and some states in the
United States may require that certain purchasers of securities take physical
delivery of these securities in definitive form. These limits and laws may
impair a potential purchaser's ability to own, transfer or pledge the book-entry
interests.
All interest in each of the global notes will be subject to the procedures
and requirements of Clearstream or Euroclear, as the case may be.
Payments on the global notes
Payments of interest, principal and other amounts due on the global notes
will be made to Clearstream and Euroclear, or their nominees, as the registered
owners. 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 Clearstream and Euroclear or their nominees, 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 Clearstream and Euroclear. 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 regarding Clearstream and Euroclear
We understand as follows concerning Clearstream and Euroclear:
Clearstream and Euroclear hold securities for participating organizations.
They also facilitate the clearance and settlement of securities transactions
between their respective participants through electronic book-entry changes in
accounts of such participants. Clearstream and Euroclear provide various
services to their participants, including the safekeeping, administration,
clearance, settlement, lending and borrowing of internationally traded
securities. Clearstream and Euroclear interface with domestic securities
markets. Clearstream and Euroclear participants are financial institutions such
as underwriters, securities brokers and dealers, banks, trust companies and
certain other organizations. Indirect access to Clearstream and Euroclear is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodian relationship with a Clearstream or
Euroclear participant, either directly or indirectly.
Certificated securities
If Clearstream or Euroclear 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 discussions are the opinions of, respectively, Stibbe Simont
Monahan Duhot P.C. on the material Dutch tax consequences and of Holme Roberts &
Owen LLP on the material U.S. federal income tax consequences, under current
law, regarding the exchange of old notes for new notes and the ownership and
disposition of new notes. These opinions do not, however, address the income
taxes imposed by any political subdivision of the Netherlands or the United
States or any tax imposed by any other jurisdiction.
These opinions assume that we are organized and our business is conducted
in the manner outlined in this prospectus. Changes in our organizational
structure or the manner in which we conduct our business may invalidate these
opinions. The laws upon which these opinions are based are subject to change,
perhaps with retroactive effect. A change to such laws may invalidate these
opinions, which will not be updated to reflect changes in laws. A prospective
investor should not construe the contents hereof as tax advice.
Prospective investors should consult their tax advisors regarding the tax
consequences of the exchange of old notes for new notes and of the ownership and
disposition of new notes.
Netherlands tax considerations
General
The following is a general description of the material Netherlands tax
considerations of the exchange of old notes for new notes and of the ownership
and disposition of new notes. This discussion is based on the tax laws and
regulations of the Netherlands, as in effect on the date of this prospectus,
which are subject to change, possibly with retroactive effect. No assurance can
be given that the tax authorities or tax courts in the Netherlands will agree
with this discussion of the tax laws and regulations of the Netherlands. This
discussion does not take into account the individual circumstances of an
investor and does not purport to discuss all of the possible tax consequences of
the exchange of old notes for new notes and of the ownership and disposition of
the new notes, and is not intended as tax advice. Prospective investors should
consult their own tax advisors in determining the Netherlands, as well as any
foreign, tax consequences to them of the exchange of old notes for new notes and
of the ownership and disposition of new notes.
Certain Netherlands tax considerations
Under Netherlands tax laws and regulations in effect on the date of this
prospectus:
(a) Payments of principal and interest on the new notes can be made free
of Netherlands withholding tax or any similar tax, unless the new
notes qualify as profit sharing debentures (winstdelende obligaties)
as referred to in Article 1 of the Netherlands Dividend Withholding
Tax Act (Wet op de dividendbelasting 1965);
(b) A holder of a new note who derives income from a new note, who
realizes a gain on the disposal of a new note, or a holder who
exchanges old notes for new notes will not be subject to Netherlands
taxation on income or capital gains provided that:
(i) such holder is neither a resident nor deemed to be a resident of
the Netherlands; and
(ii) such 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 permanent representative in the
Netherlands and to which enterprise or part of an enterprise, as
the case may be, the new note is attributable; and
(iii) such holder does not have a direct or indirect substantial
interest or deemed substantial interest in our share capital as
defined in the Netherlands Income Tax Act 1964 (Wet op de
inkomstenbelasting 1964), or in the event he does, such interest
forms part of the assets of an enterprise; and
(iv) such holder does not carry out and has not carried out
employment activities in the Netherlands nor carries or carried
out employment activities outside the Netherlands for which the
remuneration is subject to Netherlands wage tax and to which
employment activities the new note is attributable; and
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(v) such holder is not entitled to a share in the profits of an
enterprise effectively managed in the Netherlands, other than
through ownership of securities or through employment, to which
enterprise the new note is attributable.
(c) A holder of a new note will not be subject to Netherlands net wealth
tax in respect of such new note provided that such holder is not an
individual, or if he is an individual, provided that:
(i) such holder is neither a resident nor deemed to be a resident
of the Netherlands; and
(ii) such 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,
as the case may be, the new note is attributable; and
(iii) such holder is not entitled to a share in the profits of an
enterprise effectively managed in the Netherlands, other than
through ownership of securities or through employment, to which
enterprise the new note is attributable.
(d) No gift tax arises in the Netherlands on a gift of a new note by a
holder thereof and no inheritance tax arises in the Netherlands on the
death of a holder thereof, in each case if the holder is neither a
resident nor deemed to be a resident of the Netherlands, provided
that:
(i) such holder does not die within 180 days after having made a
gift, while being at the time of his death a resident or deemed
resident of the Netherlands; and
(ii) such 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,
as the case may be, the new note is or was attributable; and
(iii) such holder is not entitled to a share in the profits of an
enterprise effectively managed in the Netherlands, other than
through ownership of securities or through employment, to which
enterprise the new note is or was attributable.
A holder of a new note who is a citizen of the Netherlands will be
deemed to be a resident of the Netherlands if he has been a resident of the
Netherlands at any time during the ten year period preceding the date of
the gift or his death. For purposes of gift tax, a holder of a new note who
is not a citizen of the Netherlands will be deemed to be a resident of the
Netherlands if he has been a resident of the Netherlands at any time during
the twelve months period preceding the date of the gift.
(e) No Netherlands stamp, issue, capital, registration or similar tax or
duty will be due in the Netherlands in connection with the creation,
issue, offering or redemption of the new notes, save for court fees in
the Netherlands in respect of enforcement of the new notes by legal
proceedings.
New Netherlands legislation
On May 9, 2000, the First Chamber of the Dutch Parliament approved the
legislative proposal on income taxation that was submitted to the Second Chamber
of the Dutch Parliament on September 14, 1999, called the "Income Tax Act 2001."
The Income Tax Act 2001 - which will enter into effect on January 1, 2001 -
will, among other things, substantially change the taxation of investment income
in the Netherlands. It is expected that further legislation ("Veegwet") in the
course of 2000 will amend certain aspects of the Income Tax Act 2001. Below
follows a brief and general overview of the new legislation. Prospective
investors in the new notes are strongly suggested to consult their own tax
advisers as to the consequences of the Income Tax Act 2001.
According to the new legislation, the existing income tax act will be
replaced with the Income Tax Act 2001, in which all items of income will be
categorized in three "boxes":
. Box I comprises business and labor income, income from periodic
payments, income from the taxpayer's primary residence and other
income (e.g. income from notes issued by a company in which an
individual
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holds a (deemed) substantial interest). Box I provides for a
progressive rate of taxation with a maximum rate of 52%;
. Box II comprises income, e.g., dividends and capital gains, derived
from a (deemed) substantial interest in a company. All such income is
subject to a flat tax rate of 25%; and
. Box III comprises all other income, i.e., investment income, e.g.,
interest on the new notes. All such income is deemed to be 4% of the
net value of the taxpayer's assets and liabilities and will be taxed
at a flat rate of 30%. A holder of new notes who is not a resident in
the Netherlands will generally not be subject to taxation under Box
III in respect of his new notes.
Furthermore, the Income Tax Act 2001 abolishes the Netherlands' net wealth
tax, and makes certain amendments to the corporate tax act and the dividend
withholding tax act, and is therefore relevant both to individual and corporate
holders of the new notes, whether or not resident in the Netherlands.
European Union Directive
On May 20, 1998, the European Commission submitted to the Council of
Ministers of the European Union a proposal for a Directive regarding interest
income from savings. The proposed Directive requires paying agents in a European
Union Member State to withhold tax at a minimum rate of 20% from interest,
discount and premium payments to individuals residing in other European Union
Member States or, alternatively, institute an information exchange system to
report these payments to the tax authorities of the European Union Member State
where the recipient of these payments resides. It seems that the proposed
Directive of 1998 will not be adopted or at least not in its current form.
On June 19 and 20, 2000, the European Council agreed that exchange of
information should be the ultimate basis for the taxation of savings income of
non-resident individuals. Until then, European Union Member States should
exchange information on savings income with other European Union Member States,
or operate a withholding tax (the rate is still to be determined). Once
sufficient reassurances with regard to the application of measures on access of
bank information for tax purposes in non-European Union countries (e.g.
Switzerland and the United States) and dependent or associated territories have
been obtained, the European Council will decide on the adoption and
implementation of a Directive no later than December 31, 2002. When a Directive
will be adopted and implemented, any European Union Member State operating a
withholding tax shall agree to implement exchange of information no later than
seven years after the entry into force of the Directive. It is currently not
clear whether or in what form a Directive on taxation of interest income from
savings will be adopted.
Certain United States federal income tax consequences
The following is a general discussion of certain United States federal
income tax consequences applicable to U.S. holders of the notes who are initial
purchasers of the old notes, who exchange their old notes for new notes pursuant
to this exchange offer and who hold the old notes and who will hold the new
notes as capital assets. This discussion is based on the current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), the applicable
Treasury Regulations (the "Regulations") and public administrative and judicial
interpretations of the Code and the Regulations, all of which are subject to
change, which changes could be applied retroactively. This discussion is also
based on the information contained in this prospectus and related documents and
on certain representations from CompleTel Europe as to factual matters. This
discussion does not cover all aspects of United States federal taxation that may
be relevant to, or the actual tax effect that any of the matters described
herein will have on, particular U.S. holders and does not address state, local,
or foreign tax consequences.
The tax consequences to a U.S. holder may vary depending on the U.S.
holder's particular situation or status. U.S. holders that are subject to
special rules under the Code (including insurance companies, tax-exempt
organizations, mutual funds, retirement plans, financial institutions, dealers
in securities or foreign currency, persons that hold the notes as part of a
straddle, hedge or synthetic security transaction, persons that have a
functional currency other than the United States dollar, investors in pass-
through entities, traders in securities that elect to mark-to-market and certain
expatriates) may be subject to special rules not discussed below.
As used in this discussion, the term "U.S. holder" means an initial
purchaser of an old note who is a beneficial owner of that note and will be the
beneficial owner of a new note and who is for United States federal income tax
purposes (i) a citizen or resident of the United States, (ii) a corporation
created or organized in or under the laws of
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the United States, of the District of Columbia, or of any State, (iii) an estate
the income of which is subject to United States federal income tax, regardless
of its source, or (iv) a trust if (a) a court within the United States is able
to exercise primary supervision over the administration of the trust and (b) one
or more United States persons have the authority to control all substantial
decisions of the trust.
Each prospective investor should consult his or her tax adviser regarding
the particular tax consequences to such investor of acquiring, owning and
disposing of the 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.
Exchange of notes
While there is no direct authority on the United States federal income tax
consequences of an exchange of old notes for new notes, in the opinion of Holme
Roberts & Owen LLP, counsel to us, an exchange of old notes for new notes should
not be treated as a taxable exchange for U.S. federal income tax purposes. As a
result, a U.S. holder should not recognize gain or loss on the exchange and
should have the same tax basis and holding period for the new notes as the U.S.
holder had in the old notes immediately prior to the exchange.
Interest
Interest on the new notes and Additional Amounts, if any, paid in respect
of taxes withheld from payments on the new notes (as described in "Description
of the Notes--Additional amounts") generally will be subject to tax to a U.S.
holder as ordinary income at the time accrued or received, in accordance with
such U.S. holder's regular method of accounting for U.S. federal income tax
purposes. The amount of interest required to be included in income by a U.S.
holder will also include the amount of taxes, if any, withheld by us. Interest
income on the new notes will constitute foreign source income, and a U.S. holder
may generally claim either a deduction or, subject to certain limitations, a
foreign tax credit in respect of any foreign tax imposed on such interest
payments for U.S. federal income tax purposes. The rules relating to foreign tax
credits and the timing thereof are extremely complex, and U.S. holders should
consult their tax advisors with regard to the availability of a foreign tax
credit and the application of the foreign tax credit limitations to their
particular situations.
A cash method U.S. holder receiving an interest payment in euros on a new
note will be required to include in gross income the United States dollar value
of such payment (determined using the spot rate on the date such payment is
received) regardless of whether such payment is in fact converted into United
States dollars. No exchange gain or loss will be recognized by such U.S. holder
on the conversion of euros into United States dollars if the euros are converted
to United States dollars on the date received. The United States federal income
tax consequences of the conversion of euros into United States dollars at a
later date is described below. See "--Transactions in euros."
An accrual method U.S. holder will be required to include in gross income
the United States dollar value of the amount of interest income that has accrued
on a new note in a taxable year, determined by translating such income into
United States dollars at the average rate of exchange for the relevant accrual
period (or portion thereof). The average rate of exchange for an accrual period
(or portion thereof) is the simple average of the exchange rates for each
business day of such period (or such other average that is reasonably derived
and consistently applied). In the alternative, an accrual method holder may
elect to translate interest income on a new note using the spot rate on the last
day of an accrual period (or the last day of the taxable year for the portion of
such period within the taxable year). In addition, a U.S. holder may elect to
translate interest income on a new note using the spot rate on the date of
receipt or payment if such date is within five business days of the last date of
an accrual period. Such elections must be made in a statement filed with the
U.S. holder's return and are applicable to all debt instruments held by the U.S.
holder for such year and thereafter acquired. Such elections may not be changed
without the consent of the Internal Revenue Service.
Upon actual receipt of a payment of interest on a new note, an accrual
method U.S. holder will recognize exchange gain or loss with respect to the
accrued interest income in an amount equal to the difference between: (i) the
United States dollar value of the payment received (determined using the spot
rate on the date such payment is received) in respect of such accrual period;
and (ii) the United States dollar value of the interest income accrued during
such accrual period (described in the preceding paragraph). Any such exchange
gain or loss will generally be treated as United States source ordinary income
or loss and not as an adjustment to interest income. The United
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States federal income tax consequences of the conversion of euros into United
States dollars is described below. See "--Transactions in euros."
Dispositions
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a new note (collectively, a "disposition"), a U.S. holder will
generally recognize gain or loss equal to the difference between: (i) the amount
realized by such holder (determined using the spot rate on the date of the
disposition), except to the extent such amount is attributable to accrued but
unpaid stated interest and related exchange gain or loss thereon, if any (which
amounts will be treated as ordinary income or loss as the case may be); and (ii)
such U.S. holder's adjusted tax basis in the new note.
A U.S. holder's adjusted tax basis in a new note generally will equal the
U.S. holder's purchase price of the old note, net of accrued but unpaid stated
interest on the old note as of the purchase date (determined using the spot rate
in effect on the purchase date). Except with respect to gains or losses
attributable to changes in currency exchange rates, as described below, any gain
or loss recognized on the disposition of a new note will be capital gain or loss
and will generally be treated as U.S. source gain or loss. In the case of an
individual U.S. holder, such capital gain will generally be taxable at a
preferential rate if the U.S. holder's holding period exceeds one year at the
time of disposition. The deductibility of capital losses is subject to
limitations.
Upon the disposition of a new note, a U.S. holder generally will realize
exchange gain or loss equal to the amount determined by translating the purchase
price of the old note into United States dollars using the spot rate on the date
of disposition and by subtracting therefrom the amount determined by translating
the purchase price of the old note into United States dollars using the spot
rate on the date the old note was purchased. A U.S. holder will thus realize
exchange gain or loss to the extent that the rate of exchange on the date of
disposition differs from the rate of exchange on the date of purchase. Such
exchange gain or loss will be recognized and included in the gross income of the
U.S. holder only to the extent of the total gain or loss recognized on the
disposition of such note. Any exchange gain or loss recognized on the
disposition of a new note will be treated as United States source ordinary
income or loss and will not be treated as an adjustment to interest income.
Transactions in euros
Euros received as interest on a new note, or as proceeds from the
disposition of a new note, will have a tax basis equal to their United States
dollar value at the time of receipt. A U.S. holder who receives euros will
recognize United States source ordinary income or loss on a sale or other
disposition of such euros equal to the difference between (1) the amount of
United States dollars, or the United States dollar value of any other currency
or property received in such sale or other disposition and (2) the tax basis of
such euros.
A U.S. holder that purchased an old note with previously owned euros would
generally have recognized exchange gain or loss in an amount equal to the
difference, if any, between such holder's tax basis in such euros and the United
States dollar fair market value of such note on the date of purchase. Generally,
any such gain or loss would have been United States source ordinary income or
loss. However, a U.S. holder that converted United States dollars to euros and
immediately used such euros to purchase an old note ordinarily would not have
recognized any exchange gain or loss in connection with such conversion or
purchase.
Information reporting and backup withholding
Certain non-corporate U.S. holders may be subject to backup withholding at
a rate of 31% on payments of principal, premium and interest on, and the
proceeds of the disposition of, the 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
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and has been notified by the IRS that it is subject to backup
withholding tax for failure to report interest or dividend payments.
In addition, such payments of principal and interest to U.S. holders will
generally be subject to information reporting.
Enforceability of Civil Liabilities Against Foreign Persons
Investors seeking to file suit may find it difficult to enforce judgments
obtained in United States courts against CompleTel Europe or its directors 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 the absence of an applicable treaty or convention
providing for the recognition and enforcement of judgments in civil or
commercial matters that 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.
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Information About CompleTel LLC
General
CompleTel LLC was organized on January 8, 1998 as a Delaware limited
liability company, with a strategic objective of becoming a leading
facilities-based operator of a technologically advanced, high-capacity, fiber
optic communications infrastructure and provider of telecommunications and
Internet-related services to business and government end-users, carriers and
Internet service providers in targeted metropolitan areas across Western Europe.
The new notes are guaranteed pursuant to authority granted by the board of
CompleTel LLC on April 6, 2000. The articles of association of CompleTel LLC
will be filed with the Registrar of the District Court in Luxembourg (Greffier
en chef du tribunal d'Arrondissement de et a Luxembourg), where such documents
are available for inspection and copies can be obtained free of charge.
Business
CompleTel LLC is a holding company with no operations other than the
operations conducted by its wholly-owned direct subsidiary CableTel Management,
Inc., a corporation formed to provide personnel and management services to
CompleTel LLC and its subsidiaries, and by its 75.4% indirectly owned
subsidiary, CompleTel Europe N.V. CompleTel LLC's principal operations are
conducted through CompleTel Europe N.V., described in detail elsewhere in this
prospectus.
Legal proceedings
CompleTel LLC is not party to any pending legal proceedings that it
believes would, individually or in the aggregate, have a material adverse effect
on its financial condition or results of operations.
Employees
CompleTel LLC has no employees other than those of its subsidiaries. As of
May 31, 2000, CompleTel Europe had approximately 544 employees and CableTel
Management, Inc. had 10 employees, of whom four were seconded to CompleTel
Europe subsidiaries.
Principal offices; governing documents
CompleTel LLC's principal executive offices and its registered office are
located at 6300 South Syracuse Way, Suite 355, Englewood, Colorado 80111. Copies
of CompleTel LLC's limited liability company agreement and other principal
agreements with and among its members are available for inspection by any
interested person at the company's principal executive offices.
Management
CompleTel LLC is managed by a board of managers comprised of Messrs. James
E. Dovey, chairman and secretary, James C. Allen, Lawrence F. DeGeorge, Paul J.
Finnegan, Royce J. Holland, James N. Perry, William H. Pearson, chief executive
officer and president, and James N. Perry, Jr. Each of their biographies, as
well as compensation and employment agreements with the officers, are included
elsewhere in this prospectus under the heading "Management."
Selected consolidated financial data for CompleTel LLC
CompleTel LLC is the ultimate parent of the group of companies included in
the chart on page 7. Additional information about the group's organization can
be found on pages F-7, F-8, F-38 and F-39. Information about the business of the
group's significant subsidiaries can be found in this prospectus under the
caption "Business." Neither CompleTel LLC nor the issuer has any other
significant subsidiaries.
119
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<TABLE>
<CAPTION>
Three months
Year ended ended
December 31, 1999 March 31, 2000
----------------- --------------
(Audited) (Unaudited)
(in thousands, except per share amounts)
<S> <C> <C>
Statement of Operations Data:
Revenues................................................................... $ 2,985 $ 2,934
Network costs.............................................................. 2,407 2,974
Selling, general and administrative........................................ 37,803 15,060
Non-cash compensation charges.............................................. 675 68,796
Depreciation and amortization.............................................. 4,534 2,960
---------- ----------
Operating loss............................................................. (42,434) (86,856)
(9,411)
Other income (expense)..................................................... (9,269)
Minority interest in loss of consolidated subsidiaries..................... 3,501 279
Net loss................................................................... $ (48,344) $ (95,846)
Basic and diluted loss per common unit..................................... $ (6,908) $ (10,427)
========== ==========
Weighted average number of non-forfeitable common units outstanding........ 7,754 9,418
Ratio of earnings to fixed charges (1)..................................... -- --
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
March 31, -----------------------
2000 1999 1998
--------- ---- ----
(Audited) (Audited
<S> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents................................................ $ 506,309 $ 60,469 $ 3,744
Property and equipment, net.............................................. $ 119,602 $ 92,872 $ 3,441
Total assets............................................................. $ 660,226 $ 182,097 $ 10,042
Long term debt........................................................... $ 82,823 $ 79,922 $ --
Minority interest........................................................ $ 123,717 $ 279 $ --
Total members' equity (deficit).......................................... $ 392,180 $ (64,360) $ (8,418)
</TABLE>
-------------------
(1) In calculating the ratio of earnings to fixed charges, earnings consist of
net loss from continuing operations before income tax expense, plus fixed
charges and amortization of capitalized interest less interest capitalized.
Fixed charges consist of (i) interest expensed and capitalized, (ii)
amortized premiums, discounts and capitalized expenses related to
indebtedness, and (iii) an estimate of the interest within rental expense.
The ratio of earnings to fixed charges was less than 1.0 to 1.0 for the
year ended December 31, 1999 and for the three months ended March 31,2000.
Earnings were thus inadequate to cover fixed charges for the year ended
December 31, 1999 and for the three months ended March 31, 2000. The amount
of the coverage deficiency for the year ended December 31, 1999 and for the
three months ended March 31, 2000 totaled $54.2 million and $28.7 million,
respectively.
Financial position, results of operations and cash flows
Information about CompleTel LLC's financial position, results of operations
and cash flows are set forth in the audited consolidated financial statements of
CompleTel LLC and subsidiaries for the three months ended March 31, 2000 and
1999, and for the year ended December 31, 1999 and for the period from the
commencement of operations (January 8, 1998) to December 31, 1998, and the
accompanying notes thereto, included elsewhere in this prospectus.
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Capitalization
As of March 31, 2000, CompleTel LLC had outstanding 128,712 fully paid and
non-assessable common ownership interests ("Common Units"), which amount
includes the common units issued in connection with the conversion of the
CompleTel LLC preferred interests upon the completion of CompleTel Europe's
initial public equity offering. 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
and are entitled to receive such distributions, if any, as may be declared by
CompleTel LLC's board of managers out of profits allocated to the members.
Common Units issued to management and other key employees of subsidiaries of
CompleTel Europe are subject to time and performance vesting restrictions
described in individual executive securities agreements and in a performance
vesting agreement among the members. Other agreements among the holders are set
forth in a securityholders agreement and a registration rights agreement. Each
of these agreements is described in the notes to the CompleTel LLC consolidated
financial statements included elsewhere in this prospectus.
CompleTel LLC also had outstanding as of March 31, 2000, 187 of its class A
senior units issued to a former key employee for the repurchase of vested common
units upon termination of the employee's employment. The company intends to
redeem these class A senior units pursuant to the terms of the applicable
executive securities agreement.
Except as described in this prospectus, there has been no material change
in CompleTel LLC's capitalization since March 31, 2000.
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, 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 180 days 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 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 180 days 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, 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.
121
<PAGE>
Legal Matters
The validity of the new notes offered in the exchange offer will be passed
upon for CompleTel Europe by Stibbe Simont Monahan Duhot P.C. and by Holme
Roberts & Owen LLP. Certain tax matters will be passed upon for CompleTel Europe
by Holme Roberts & Owen LLP and Stibbe Simont Monahan Duhot P.C.
Experts
The consolidated financial statements of CompleTel Europe N.V. as of
December 31, 1999 and 1998, for the year ended December 31, 1999 and the period
from commencement of operations (January 8, 1998) through December 31, 1998
included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said 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.
The consolidated financial statements of CompleTel LLC as of December 31,
1999 and 1998, for the year ended December 31, 1999 and the period from
commencement of operations (January 8, 1998), through December 31, 1998 included
in this prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
Listing And General Information
1. We were incorporated in The Netherlands on December 14, 1998 as a
public limited company ("naamloze vennootschap," or N.V.) with registered number
34108119. Our registered office is at Drentestraat 24,1083 HK, Amsterdam, The
Netherlands.
2. The old notes have been listed on the Luxembourg Stock Exchange. The
new notes are expected to be listed on the Luxembourg Stock Exchange upon the
expiration of the exchange offer. The new notes will be accepted for clearance
through the accounts of Clearstream and Euroclear and they will have a new
common code and a new ISIN, which will be notified to the Luxembourg Stock
Exchange. The legal notice relating to the issue of new notes and the articles
of association of CompleTel Europe N.V. will be deposited prior to listing with
the Registrar of the District Court in Luxembourg (Greffier en Chf du Tribunal
d'Arrondissement de et a Luxembourg), where such documents are available for
inspection and where copies thereof can be obtained upon request. The Luxembourg
Stock Exchange has been notified prior to commencing the exchange offer. We will
notify the Luxembourg Stock Exchange of the results of the exchange offer. All
documents prepared in connection with the exchange offer will be available free
of charge at the office of the listing agent in Luxembourg and all necessary
actions and services in respect of the exchange offer may be done at the office
of the listing agent in Luxembourg. In the event that the rate of interest
payable on the notes shall be increased or decreased such increase or decrease
shall be included in a notice to the Luxembourg Stock Exchange. The listing
agent appointed for these purposes is Banque Internationale a Luxembourg S.A.,
Luxembourg. Notices to holders will be published in a daily newspaper of general
circulation in Luxembourg (which is expected to be the Luxemburger Wort).
3. Copies of CompleTel Europe and CompleTel LLC statutory documents, the
indenture governing the notes (which includes the form of the note certificate)
and the pledge agreement and the guaranty may be inspected, and our most recent
annual report and audited accounts and unaudited quarterly consolidated
financial statements of the company may be obtained, on any business day (except
for Saturdays and Sundays and legal holidays) free of charge, at the office of
Banque Internationale a Luxembourg S.A., 69 route d'Esch, L-2953 Luxembourg. We
will also comply with our obligations under Dutch law to prepare annual
financial statements complying with the corporate law of The Netherlands and to
deposit the same at the Commercial Register of the Chamber of Commerce and
Industry in Amsterdam, The Netherlands.
122
<PAGE>
4. We have obtained all necessary consents, approvals and authorizations
in connection with the issuance of the new notes. The issue of the old notes and
the new notes was authorized by our board on April 6, 2000.
5. Except as disclosed herein, and except for CompleTel LLC, CompleTel
Europe and its subsidiaries having continued to incur operating losses since
inception, there has been no material adverse change in the consolidated
financial position of CompleTel Europe N.V. or CompleTel LLC since March 31,
2000.
6. Except as disclosed in this prospectus (see "Business--Legal
proceedings" and "--Regulation"), we are not involved in, and have no knowledge
of a threat of, any litigation, administrative proceedings or arbitration which
is or may be material in the context of the issue of the notes.
7. We will not appoint a paying and transfer agent in Luxembourg until
such time, if any, as definitive notes are issued. We have appointed Banque
Internationale a Luxembourg S.A. as the listing agent in Luxembourg for so long
as the notes are listed on the Luxembourg Stock Exchange and until such time as
we are required to appoint a transfer and paying agent located in Luxembourg as
provided in the prospectus. We reserve the right to vary such appointment. Such
appointment will be published in a daily newspaper of general circulation in
Luxembourg (which is expected to the be the Luxemburger Wort).
8. The new notes have been accepted for clearance by Clearstream and
Euroclear under the common code 011488293. The ISIN for the new notes is
XS0114882938.
9. Certain of the financial information set out in this prospectus does
not constitute statutory accounts of CompleTel Europe N.V. or of CompleTel LLC
within the meaning of Section 240 of the U.K. Companies Act 1985.
10. CompleTel Europe has appointed The Chase Manhattan Bank to serve as
Trustee. The Trustee may resign at any time upon 30 days prior notification to
CompleTel Europe. The holders of a majority in principal amount of the
outstanding notes may also remove the Trustee and appoint a successor Trustee
with the consent of CompleTel Europe, and CompleTel Europe may remove the
Trustee under certain circumstances. Upon the resignation or removal of the
Trustee, CompleTel Europe will appoint a successor Trustee and the holders of a
majority in principal amount of the outstanding notes may appoint a successor
Trustee to replace the Trustee appointed by CompleTel Europe. Such appointment
will be published in a daily newspaper of general circulation in Luxembourg
(which is expected to be the Luxemburger Wort).
123
<PAGE>
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 high-capacity, not the fibers themselves. Bandwidth is
measured in Hertz (analog).
Bits........................................ The smallest unit of digital information utilized by electronic information
processing, storage or transmission systems.
Broadband................................... A generic term for high-speed or high-capacity connectivity.
CLEC (competitive local
exchange carrier)........................ A category of telephone service provider (carrier) that offers local services
similar to that of the former monopoly national telephone company such as local
connectivity, own switching capacity, domestic long-distance and international
trafficking capabilities.
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
call.
Co-location................................. 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 former monopoly, 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.
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.
Dark fiber.................................. Any installed fiber-optic cable lacking a light transmission or signal, as opposed
to fiber that is in service or "lit."
Dedicated lines............................. Telecommunications lines dedicated or reserved for use exclusively by particular
customers along predetermined routes (in contrast to telecommunications lines within
the local exchange carrier's public switched network).
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
Dedicated services.......................... Special access, switched transport and private line services.
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.
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.
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 high-capacity 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.
IDC......................................... Internet data center.
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
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.
Interconnection............................. Connection of a telecommunications device or service to the PSTN.
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.
Internet service provider................... A company that provides direct access to the Internet, normally for dial access
customers, by linking its network directly or through other ISPs to the Internet
backbone network.
Kilobits per second (kbps).................. 1,000 bits per second.
LAN (local area network).................... 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.
Line equivalents............................ The basis of a calculation used to normalize various multiplexed digitized voice
data streams into a representative number of standard voice circuit line
equivalents. Each line equivalent is equal to a 64 kilobit data circuit capable of
transporting an uncompressed digitized voice call.
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.
MAN......................................... Metropolitan area network.
Megabit per second (mbps)................... One million 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
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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
high-capacity 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.
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.
On-net...................................... Customers are considered on-net when the physical network extends directly to the
customer's premise and the first point of the customer's connection to the company's
network is at the customer's premise.
POPs (points of presence)................... Locations where a carrier has installed transmission equipment in a service area
that serves as, or relays calls to, a network switching center of that carrier.
PSTN (public switched telephone
network)................................. A telephone network which is accessible by the public through private lines,
wireless systems and pay phones.
Packet...................................... Information represented as bytes grouped together through a communication node with
a common destination address and other attribute information.
Packet switching............................ Sending data in packets through a network. Each packet has a unique identification
and carries its own destination address. Package switching differs from circuit
switching, which is the common method of making a phone call. With circuit
switching, the circuit is 100% used when a call is made. With packet switching, the
conversation, or data, is separated into packets which can be sent through various
routes at various times and reassembled on the other end. Packet switching makes
more efficient use of a circuit.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
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.
Private line................................ A private, dedicated telecommunications connection between end-user locations
(excluding long-distance carrier POPs).
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.
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.
STM (synchronous transfer mode)............. A transport and switching method that depends on information occurring in regular
and fixed patterns with respect to a reference such as a frame pattern. A time
division multiplex and switching technique to be used across the user's network
interface for a broadband ISDN. It gives each user up to 50 million bits per second
simultaneously, regardless of the number of users.
Server...................................... A server is a specialized shared computer on the local area network with corporate
files such as electronic mail. It can also be used to handle sharing of printers,
fax machines and groups of modems.
Switch...................................... A sophisticated computer that accepts instructions from a caller in the form of a
telephone number. Like an address on an envelope, the
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
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.
Tandem-level switching...................... Combines toll and local switched traffic for large exchanges that can serve both
subscriber lines and long-distance circuits within a serving area. Tandem-level
switches are generally the primary point of interconnection with the public network.
Tier One network............................ A proprietary international data network providing transit capacity in excess of
45Mbps between at least three high-traffic internet nodes with agreements to peer
locally to these nodes within recognized peering exchanges.
Traffic..................................... A generic term that includes any and all calls, messages and data sent and received
by means of telecommunications.
VPN (virtual private network)............... Private networking involves securely transmitting corporate data across multiple
sites throughout an entire enterprise. Creating a truly private corporate network
generally requires an Intranet. A virtual private network is one means of
accomplishing such an implementation using the public network or the Internet.
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.
</TABLE>
A-6
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
I. COMPLETEL EUROPE N.V.
Report of Independent Public Accountants.............................................................F-2
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 and 1998..........F-3
Consolidated Statements of Operations for the Year Ended December 3l, 1999,
the Period from Commencement of Operations (January 8, 1998) to December 31, 1998
and for the Three Months Ended March 31, 2000 and 1999 (unaudited).................................F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Year Ended December 31, 1999,
the Period from Commencement of Operations (January 8, 1998) to December 31, 1998
and for the Three Months Ended March 31, 2000 (unaudited)..........................................F-5
Consolidated Statements of Cash Flows for the Year Ended December 31, 1999,
the Period from Commencement of Operations (January 8, 1998) to December 31, 1998
and for the Three Months Ended March 31, 2000 and 1999 (unaudited).................................F-6
Notes to Consolidated Financial Statements...........................................................F-7
II. ACCES ET SOLUTIONS INTERNET S.A.R.L.
Report of Independent Public Accountants............................................................F-24
Balance Sheet as of December 31, 1998...............................................................F-25
Statement of Operations for the Year Ended December 31, 1998........................................F-26
Statement of Cash Flows for the Year Ended December 31, 1998........................................F-27
Notes to Financial Statements.......................................................................F-28
III. COMPLETEL LLC
Report of Independent Public Accountants............................................................F-32
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 and 1998.........F-33
Consolidated Statements of Operations for the Year Ended December 31, 1999,
the Period from Commencement of Operations (January 8, 1998) to December 31, 1998
and for the Three Months Ended March 31, 2000 and 1999 (unaudited)................................F-34
Consolidated Statements of Members' Equity (Deficit) for the Year Ended December 31, 1999,
the Period from Commencement of Operations (January 8, 1998) to December 31, 1998
and for the Three Months Ended March 31, 2000 and 1999 (unaudited)................................F-35
Consolidated Statements of Cash Flows for the Year Ended December 31, 1999,
the Period from Commencement of Operations (January 8, 1998) to December 31, 1998
and for the Three Months Ended March 31, 2000 and 1999 (unaudited)................................F-37
Notes to Consolidated Financial Statements..........................................................F-38
</TABLE>
F-1
<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) and subsidiaries (the
"Company") as of December 31, 1999 and 1998 and the related consolidated
statements of operations, shareholders' equity (deficit) and cash flows for the
year ended December 31, 1999, and 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, 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, 1999 and 1998 and the results of their
operations and their cash flows for the year ended December 31, 1999, and for
the period from commencement of operations (January 8, 1998) to December 31,
1998, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 2, 2000.
F-2
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of Euro Dollars, except share and per share amounts)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
------------ -------------- ------------
ASSETS (unaudited) (audited) (audited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................ (Euro)521,643 (Euro)57,115 (Euro) 1,472
Customer accounts receivable..................................... 4,588 1,709 451
Affiliate receivables............................................ 6,635 304 --
Prepaid expenses, VAT receivables and other current assets....... 12,102 14,677 153
------------ ------------ -----------
Total current assets....................................... 544,968 73,805 2,076
------------ ------------ -----------
LONG-TERM ASSETS:
Property and equipment, net...................................... 123,871 91,946 2,888
Licenses and other intangibles, net.............................. 4,188 4,557 814
Deferred financing costs, net.................................... 12,164 5,082 744
Other long-term assets........................................... 846 818 219
------------ ------------ -----------
Total long-term assets..................................... 141,069 102,403 4,665
------------ ------------ -----------
TOTAL ASSETS.......................................................... (Euro)686,037 (Euro)176,208 (Euro)6,741
============ ============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Construction payables............................................ (Euro)28,388 (Euro)28,593 (Euro) --
Trade accounts payable........................................... 12,947 9,850 1,678
Accrued liabilities.............................................. 21,303 12,686 1,276
Affiliate payables............................................... 5,781 2,412 8,969
------------ ------------ -----------
Total current liabilities.................................. 68,419 53,541 11,923
------------ ------------ -----------
LONG-TERM DEBT........................................................ 86,143 79,596 --
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY (DEFICIT):
Ordinary shares, nominal value Euro .10 per share, 625,000,000 shares
authorized; 157,413,060, 126,133,060 and,
24,444,820 shares issued and outstanding at March 31, 2000, 15,741 12,613 2,444
December 31, 1999 and 1998, respectively......................
Additional paid-in capital....................................... 769,602 116,463 1,880
Deferred compensation............................................ (106,641) (28,036) (462)
Other cumulative comprehensive loss.............................. 8,726 728 (137)
Accumulated deficit.............................................. (155,953) (58,697) (8,907)
------------ ------------ -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT).................................. 531,475 43,071 (5,182)
------------ ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT).................. (Euro)686,037 (Euro)176,208 (Euro)6,741
============ ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in thousands of Euro Dollars, except share and per share amounts)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
Commencement Three Months
of Operations Ended March 31,
Year Ended (January 8, 1998) to --------------
December 31, 1999 December 31, 1998 2000 1999
----------------- ------------------ ----- ----
(audited) (audited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES............................................... (Euro)2,861 (Euro)-- (Euro)2,972 (Euro) --
OPERATING EXPENSES:
Network costs..................................... 2,307 -- 3,011 119
Selling, general and administrative............... 30,302 3,754 13,127 3,454
Management fees to affiliate...................... 6,195 2,551 2,117 856
Non-cash compensation changes..................... 634 164 69,660 31
Depreciation and amortization..................... 4,302 40 2,946 123
------------ ----------- ----------- -----------
Total operating expenses..................... 43,740 6,509 90,861 4,583
------------ ----------- ----------- -----------
OPERATING LOSS......................................... (40,879) (6,509) (87,889) (4,583)
------------ ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income................................... 2,447 -- 444 500
Interest expense, net of capitalized interest..... (7,893) -- (1,868) (1,170)
Foreign exchange loss and other expense........... (3,465) -- (7,943) --
------------ ----------- ----------- -----------
Total other income (expense)................. (8,911) -- (9,367) (670)
------------ ----------- ----------- -----------
NET LOSS BEFORE INCOME TAXES........................... (49,790) (6,509) (97,256) (5,253)
INCOME TAX PROVISION................................... -- -- -- --
------------ ----------- ----------- -----------
NET LOSS............................................... (Euro)(49,790) (Euro)(6,509) (Euro)(97,256)(Euro)(5,253)
============ =========== ============ ===========
BASIC AND DILUTED LOSS PER ORDINARY SHARE.............. (Euro)(0.50) (Euro)(0.27) (Euro)(0.77) (Euro)(0.07)
============ =========== ============ ===========
WEIGHTED AVERAGE NUMBER OF ORDINARY
SHARES OUTSTANDING................................. 99,056,060 24,444,820 126,820,533 76,258,178
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Stated in thousands of Euro Dollars, except share and per share amounts)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
Other
Ordinary Shares Additional Cumulative
------------------ Paid-in Deferred Comprehensive
Number Amount Capital Compensation Loss
---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 8, 1998........................................ -- (Euro)-- (Euro)-- (Euro)-- (Euro)--
Deemed issuance of ordinary shares, net of (Euro)46
subscription receivable on January 8, 1998.................. 24,444,820 2,398 -- -- --
Cash contributions by Parent ................................. -- -- 1,254 -- --
Payment on subscription receivable on December 14, 1998....... -- 46 -- -- --
Deemed contributions by Parent related to allocation of
non-cash compensation charges............................... -- -- 626 (517) --
Amortization of allocated deferred compensation charges....... -- -- -- 55 --
Cumulative translation adjustment............................. -- -- -- -- (137)
Net loss...................................................... -- -- -- -- --
----------- ------------ ------------- -------------- -----------
BALANCE, December 31, 1998...................................... 24,444,820 (Euro)2,444 (Euro) 1,880 (Euro) (462) (Euro)(137
=========== ============ ============= ============== ===========
Issuance of ordinary shares in connection with corporate
Reorganization............................................. 73,537,325 7,354 43,512 -- --
Issuance of ordinary shares in connection with the Units
Offering................................................... 7,375,000 738 3,266 -- --
Issuance of ordinary shares in connection with capital
contributions.............................................. 20,775,915 2,077 39,597 -- --
Deemed contributions by Parent related to allocation of
non-cash compensation charges.............................. -- -- 2,055 (2,055) --
Issuance of stock options in December 1999.................... -- -- 26,153 (26,153) --
Amortization of allocated deferred compensation charges....... -- -- -- 634 --
Cumulative translation adjustment............................. -- -- -- -- 865
Net loss...................................................... -- -- -- -- --
----------- ------------ ------------- -------------- -----------
BALANCE, December 31, 1999...................................... 126,133,060 (Euro)12,613 (Euro)116,463 (Euro)(28,036) (Euro)728
=========== ============ ============= ============== ===========
Issuance of ordinary shares in connection with initial public
offering, net of underwriters' discount and offering
costs................................................... 31,280,000 3,128 508,007 -- --
Deemed contributions by Parent related to allocation of
non-cash compensation charges........................... -- -- 142,505 (142,505) --
Repurchase of shares allocated from Parent.................... -- -- (3,128) -- --
Issuance of stock options..................................... -- -- 5,755 (5,755) --
Amortization of deferred compensation......................... -- -- -- 69,655 --
Cumulative translation adjustment............................. -- -- -- -- 7,998
Net Loss........................................................ -- -- -- -- --
----------- ------------ ------------- -------------- -----------
BALANCE, March 31, 2000 (unaudited)............................. 157,413,060 (Euro)15,741 (Euro)769,602 (Euro)(106,641) (Euro)8,726
=========== ============ ============ ============== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Comprehensive
Deficit Loss Total
---------- ---------- ----------
<S> <C> <C> <C>
BALANCE, January 8, 1998........................................ (Euro)-- (Euro)-- (Euro)--
Deemed issuance of ordinary shares, net of (Euro)46
subscription receivable on January 8, 1998.................. (2,398) -- --
Cash contributions by Parent ................................. -- -- 1,254
Payment on subscription receivable on December 14, 1998....... -- -- 46
Deemed contributions by Parent related to allocation of
non-cash compensation charges............................... -- -- 109
Amortization of allocated deferred compensation charges....... -- -- 55
Cumulative translation adjustment............................. -- (137) (137)
Net loss...................................................... (6,509) (6,509) (6,509)
------------- ------------ ------------
BALANCE, December 31, 1998...................................... (Euro)(8,907) (Euro)(6,646) (Euro)(5,182)
============= ============ ============
Issuance of ordinary shares in connection with corporate -- -- 50,866
Reorganization.............................................
Issuance of ordinary shares in connection with the Units
Offering................................................... -- -- 4,004
Issuance of ordinary shares in connection with capital
contributions.............................................. -- -- 41,674
Deemed contributions by Parent related to allocation of
non-cash compensation charges.............................. -- -- --
Issuance of stock options in December 1999.................... -- -- --
Amortization of allocated deferred compensation charges....... -- -- 634
Cumulative translation adjustment............................. -- 865 865
Net loss...................................................... (49,790) (49,790) (49,790)
------------- ------------ ------------
BALANCE, December 31, 1999...................................... (Euro)(58,697) (Euro)(48,925) (Euro)43,071
============= ============ ============
Issuance of ordinary shares in connection with initial public
offering, net of underwriters' discount and offering
costs................................................... -- -- 511,135
Deemed contributions by Parent related to allocation of
non-cash compensation charges........................... -- -- --
Repurchase of shares allocated from Parent.................... -- -- (3,128)
Issuance of stock options..................................... -- -- --
Amortization of deferred compensation......................... -- 69,655
Cumulative translation adjustment............................. -- 7,998 7,998
Net Loss...................................................... (97,256) (97,256) (97,256)
------------- ------------ ------------
BALANCE, March 31, 2000 (unaudited)............................. (Euro)(155,953) (Euro)(89,258) (Euro)531,475
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of Euro Dollars)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
Commencement
of Operations Three Months Ended
(January 8, 1998) March 31,
Year Ended to ---------------
December 31, 1999 December 31, 1998 2000 1999
----------------- ----------------- ---- ----
(audited) (audited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................... (Euro)(49,790) (Euro)(6,509) (Euro)(97,256)(Euro)(5,253)
Adjustments to reconcile net loss to cash flows from
operating activities:
Depreciation and amortization.......................... 4,302 40 2,946 123
Non-cash compensation expense.......................... 634 164 69,660 31
Accretion of senior notes.............................. 7,617 -- 2,933 1,161
Amortization of deferred financing costs............... 226 -- 74 --
Changes in assets and liabilities:
Increase in receivables............................ (14,548) (451) (2,879) (1,422)
Increase in prepaid expenses and other current
assets............................................ (1,409) (153) 2,575 (282)
Increase in other long-term assets................. (582) (219) (28) (45)
Increase in trade accounts payable................. 9,740 1,678 3,097 5,220
Increase in accrued liabilities.................... 11,465 1,275 5,595 (620)
Increase (decrease) in net affiliate
payables/receivables.............................. (7,246) 8,969 2,962 (4,460)
------------ ----------- ------------- ------------
Net cash flows from operating activities...... (39,591) 4,794 (10,321) (5,547)
------------ ----------- ------------- ------------
INVESTING ACTIVITIES:
Expenditures for property and equipment.................... (93,009) (2,928) (33,254) (9,776)
Increase in construction payables.......................... 27,514 -- -- --
Purchase of licenses and other intangibles................. (4,135) (814) -- (1,819)
Offering proceeds and investment earnings placed in escrow. (70,146) -- -- (64,676)
Proceeds from escrowed offering and investment earnings.... 70,146 -- -- --
------------ ----------- ------------- ------------
Net cash flows from investing activities...... (69,630) (3,742) (33,254) (76,271)
------------ ----------- ------------- ------------
FINANCING ACTIVITIES:
Gross proceeds from senior notes offering.................. 63,063 -- -- 63,063
Proceeds from issuance of ordinary shares and subsequent
capital contribution...................................... 96,544 1,300 -- 55,720
Proceeds from initial public offering....................... -- -- 511,136 --
Deferred financing costs................................... (3,997) (744) (6,938) (3,269)
------------ ----------- ------------- ------------
Net cash flows from financing activities...... 155,610 556 504,198 115,514
------------ ----------- ------------- ------------
Effect of exchange rates on cash........................... 9,254 (136) 3,905 (2,217)
------------ ----------- ------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS....................... 55,643 1,472 464,528 31,479
CASH AND CASH EQUIVALENTS, beginning of period.................. 1,472 -- 57,115 1,472
------------ ----------- ------------- ------------
CASH AND CASH EQUIVALENTS, end of period........................ (Euro)57,115 (Euro)1,472 (Euro)521,643 (Euro)32,951
============ =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(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 incorporated 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-capacity, fiber
optic communications infrastructure and provider of telecommunications and
Internet-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-capacity 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 Services SAS, CompleTel Holdings
LLC ("CompleTel Holdings"), CompleTel ECC B.V. ("CompleTel ECC"), CompleTel
(N.A.) N.V. ("NANV") and CompleTel 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 (see Note 4). Through a series of
transactions in the restructuring, CompleTel LLC contributed approximately
(Euro)51 million of equity, consisting of cash of approximately (Euro)46 million
and accounts receivable of approximately (Euro)5 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 73,537,325 additional ordinary
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 (see Note 4). In connection with this issuance
by CompleTel Holdings of its Non-Voting Class B Membership Interests, CompleTel
Europe issued 7,375,000 additional ordinary shares to NANV and NANV issued
additional ordinary shares to CompleTel Holdings in consideration of a cash
contribution to CompleTel Europe totaling approximately (Euro)4 million. This
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
incorporated as of January 8, 1998. The incorporation is reflected through a
deemed issuance, on January 8, 1998, of 24,444,820 shares of CompleTel Europe in
exchange for a subscription receivable from Parent of approximately
(Euro)46,000, 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
F-7
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
subsidiaries consisting of BVI, BVII, CompleTel France, CompleTel Germany,
CompleTel UK, CompleTel ECC and CompleTel SPC.
In November and December 1999, Parent received additional cash
contributions totaling approximately (Euro)41.7 million from new and existing
investors. As of December 31, 1999, Parent had contributed, through a series of
planned transactions, (Euro)39.6 million to CompleTel GmbH through intermediate
subsidiaries in exchange for one share of CompleTel GmbH, and contributed
approximately (Euro)2.1 million to CompleTel Europe through intermediate
subsidiaries in exchange for ordinary shares of CompleTel Europe. Through this
series of planned transactions, an intermediate subsidiary of Parent received
one share of CompleTel GmbH, which was contributed to BVI in February 2000 in
exchange for one BVI class B share. Also, in February 2000 the BVI share was
contributed to CompleTel Europe in exchange for ordinary shares in CompleTel
Europe. These transactions have been accounted for as a reorganization of
entities under common control. Accordingly, the accompanying consolidated
financial statements retroactively reflect the deemed capital contribution by
Parent through certain intermediate subsidiaries to BVI and CompleTel Europe of
the one share interest in CompleTel GmbH and the associated 20,775,915 ordinary
shares issued by CompleTel Europe as if such transaction had occurred in
December 1999.
CompleTel Europe has 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, development and construction 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 exited the development stage during the fourth quarter
of 1999. The Company expects to continue to generate negative cash flows from
operations in each market while it continues 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. The
Company currently offers its services in two markets in France and one market in
Germany and plans to deploy networks in six additional markets in France and
three additional markets in Germany. The Company is also developing an
Internet-related services business in these markets and the U.K. 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.
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 current
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.
F-8
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Sources of additional financing may include commercial bank borrowings, vendor
financing and/or the private or public sale of equity or debt securities.
(2) Summary Of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP" ). The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. The Company has adopted a calendar fiscal
year.
Stock-Splits
In April 1999, the Company executed a stock-split through which its 431
ordinary shares then outstanding were converted into 21,071,429 shares of the
Company's ordinary shares. Additionally, the Company increased its authorized
shares of ordinary shares to 105,330,800. Subsequent to December 31, 1999, the
Company completed a 5-for-1 stock split through which its then outstanding
ordinary shares totaling 25,226,612 were converted into 126,133,060 ordinary
shares. Additionally, the Company increased its authorized ordinary shares to
625,000,000 and changed the nominal value of its ordinary shares to Euro .10 per
ordinary share. Accordingly, the accompanying consolidated financial statements
have been retroactively restated to give effect to these recapitalizations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
CompleTel Europe and its wholly-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.
Receivables
Receivables consist primarily of amounts due to the Company's European
subsidiaries for value added taxes ("VAT") paid on purchased goods and services.
VAT receivables are recoverable through a netting of VAT payable on sales
revenue or by a request for reimbursement to the applicable taxing authority.
Prepaid Expenses and Other Current Assets
Prepaid expenses consist of prepaid rent and prepaid insurance. Prepayments
are amortized on a straight-line basis over the life of the underlying
agreements. Other current assets consist primarily of deposits on office and
switch location premises.
F-9
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 when ready for their intended use on a straight line basis over the
estimated useful lives of the related assets as follows:
Estimated
Useful Life
-----------
Network equipment............................................ 3 to 8 years
Office furniture and equipment............................... 5 years
Computer equipment and software.............................. 3 to 5 years
Leasehold improvements....................................... 9 to12 years
Buildings ................................................... 20 years
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
--------- ------------ ------------
(unaudited) (audited) (audited)
<S> <C> <C> <C>
Network equipment........................... (Euro)61,743 (Euro)42,343 (Euro) --
Office furniture and equipment.............. 2,182 1,384 111
Computer equipment and software............. 6,334 5,095 521
Leasehold improvements...................... 3,558 1,847 20
Buildings .................................. 216 205 --
------------- ------------ -----------
Property and equipment, in service.......... 74,033 50,874 652
Less: accumulated depreciation............. (7,013) (4,144) (39)
------------- ------------ -----------
Property and equipment, in service, net..... 67,020 46,730 613
Construction in progress.................... 56,851 45,216 2,275
------------- ------------ -----------
Property and equipment, net................. (Euro)123,871 (Euro)91,946 (Euro)2,888
============= ============ ===========
</TABLE>
The Company capitalized approximately (Euro)1.3 million, (Euro)1.3 million
and (Euro)0 of interest for the three months ended March 31, 2000 (unaudited),
the year ended December 31, 1999 and for the period from commencement of
operations (January 8, 1998) to December 31, 1998, respectively.
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
costs should be capitalized and amortized versus expensed. 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 AICPA Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities."
F-10
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 Costs
The Company capitalizes all third-party direct costs associated with
obtaining licenses. Capitalized license costs are amortized at commencement of
operations 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.
Revenue Recognition
The Company recognizes revenue for its services in the period earned.
Stock-Based Compensation
The Company's Parent and the Company account 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." Certain non-cash compensation amounts are pushed down from Parent to
the Company and recorded as a deemed capital contribution, with an offsetting
entry to deferred compensation. Deferred compensation is amortized to expense
over the vesting period of the related stock-based awards. The Company adopted
an employee stock option plan in December 1999 (Note 8).
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 bases 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.
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 (loss) by their nature in the financial
statements and (ii) display the accumulated balance of other comprehensive
income (loss) separately from retained earnings (deficit) 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 statements of
shareholders' equity (deficit), includes cumulative translation adjustments.
F-11
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Basic and Diluted Loss Per Ordinary Share
The Company computes earnings (loss) per ordinary 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 ordinary shares
outstanding during each period. "Diluted earnings (loss) per share" includes the
effects of potentially issuable ordinary shares, but only if dilutive. Because
the Company had no potentially issuable shares until the award of certain stock
options in December 1999, and because any such shares would be antidilutive,
there are no differences between basic and diluted loss per ordinary share for
the Company through December 31, 1999. The weighted average ordinary shares
outstanding for the period assumes the initial capitalization of the Company
(24,444,820 ordinary shares) occurred as of January 8, 1998.
Foreign Operations and Foreign Exchange Rate Risk
Through December 31, 1999, the functional currency for the Company's
foreign operations was the applicable local currency for the affiliate company
and the functional currency for CompleTel Europe was the U.S. dollar. Effective
January 1, 2000, CompleTel Europe and each of its subsidiaries, except those in
the U.K. adopted the Euro as their functional currency. Additionally, the
Company has adopted the Euro as its financial reporting currency. As a result,
the Company has restated prior period amounts by translating prior period U.S.
dollar amounts into the Euro. The Company's results of operations for periods
prior to January 1, 1999 (introduction date for the Euro) have been restated
using the January 1, 1999 exchange rate between the U.S. dollar and the Euro.
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 consolidated statements of operations are translated at the
average exchange rates during the period. Exchange rate fluctuations on
translating foreign currency financial statements into Euro that result in
unrealized gains or losses are referred to as translation adjustments.
Cumulative translation adjustments are recorded as a separate component of
shareholders' equity (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 foreign 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. If the Company enters into hedging
transactions, 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.
New Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), 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 was effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. During 1999, the Financial Accounting Standards Board
issued Statement of
F-12
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities--Deferral of the Effective Date of SFAS 133" ("SFAS 137")
which delayed the effective date of SFAS 133 until all fiscal quarters of fiscal
years beginning after June 15, 2000. Through December 31, 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.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective March 31, 2000. The Company has evaluated SAB 101 and it believes
that there is no effect on the revenue recognition policies currently in place.
Reclassifications
Certain amounts in the accompanying financial statements as of December 31,
1999 and 1998 have been reclassified to conform with the March 31, 2000
presentation.
(3) Related Party Transactions
Rights of Parent's Unitholders
If a qualified public offering or sale of Parent 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 or 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 will be based on
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 (Note 4) 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 1999, Parent and Management Co., executed management services
agreements (as amended, the "Management Agreements"), pursuant to which
Management Co. performs certain services for Parent and Parent's direct and
indirect subsidiaries. The Management Agreements provide for reimbursement in an
amount of 105% (103% prior to January 31, 1999) of all costs, expenses, charges
and disbursements incurred by Management Co. in the performance of the
Management Agreements. These items incurred by Management Co. consist primarily
of executive management salaries and benefits, occupancy costs and professional
fees and are allocated to certain of the Parent's direct and indirect
subsidiaries (the "Operating Subsidiaries") based upon an estimate of the
percentage of such items that are attributable to the operations of the
Operating Subsidiaries. Management believes that the allocation method is
reasonable and that such costs are representative of the costs which would have
been incurred by the Operating Subsidiaries on a stand-alone basis without any
support from the Parent. For the year ended December 31, 1999 and for the period
from commencement of operations (January 8, 1998) to December 31, 1998, the
Company recorded approximately (Euro)6.2 million and (Euro)2.6 million,
respectively, for billings under the Management Agreements.
F-13
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) Indebtedness
Senior Discount Notes
In February 1999, the Company and CompleTel Holdings completed an Offering
of 147,500 units (the "Units") consisting of approximately (Euro)131.9 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 (Euro)64.9
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 approximately
(Euro)67.1 million gross proceeds from the Offering, approximately (Euro)63.1
million was attributed to the Notes and approximately (Euro)4 million was
attributed to the 1,475,000 Class B Membership Interests of CompleTel Holdings.
The (Euro)4 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, with
the Notes accreting to their stated principal amount at maturity at an effective
interest rate of approximately 15.1%. The accretion will be charged to interest
expense. Commencing February 15, 2004, cash 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 Notes mature February 15, 2009.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
------------- ------------- ------------
(unaudited) (audited) (audited)
<S> <C> <C> <C>
14% Senior Discount Notes, face amount(Euro)131.9 million,
due 2009, effective interest rate of 15.1% .......... (Euro)86,143 (Euro)79,596 (Euro) --
(Euro)265 million senior secured credit facility ......... -- -- --
------------ ------------ ---------
(Euro)86,143 (Euro)79,596 (Euro) --
============ ============ =========
</TABLE>
(5) Commitments And Contingencies
Operating Leases, Including Rights-of-Way Agreements
The Company has entered into various operating lease agreements for network
switch locations, office space, employee residences and vehicles. In addition,
during 1999, the Company entered into various rights-of-way agreements. Future
minimum lease obligations related to the Company's operating leases are as
follows for the years subsequent to December 31, 1999 and 1998, respectively (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
------------- ------------ ------------
(unaudited) (audited) (audited)
<S> <C> <C> <C>
December 31, 2000................................ (Euro)6,030 (Euro) 6,136 (Euro) 732
December 31, 2001................................ 6,001 6,088 827
December 31, 2002................................ 5,970 5,973 834
December 31, 2003................................ 5,702 5,742 818
December 31, 2004................................ 5,340 5,656 812
Thereafter....................................... 16,265 16,657 4,262
------------- ------------ -----------
Total................................. (Euro)45,308 (Euro)46,252 (Euro)8,285
============= ============ ===========
</TABLE>
F-14
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rent expense for the period from commencement of operations (January
8, 1998) through December 31, 1998 was approximately (Euro)103,000 and for the
year ended December 31, 1999 was approximately (Euro)1.4 million.
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.
Service Licenses
France
On December 13, 1998 the Secretaire d'Etat a l'Industrie, based on the
recommendation of the Autorite de Regulation des Telecommunications ("ART"),
awarded the Company's French operating subsidiary a fixed wireline license and
service license for network deployment in four regions and six cities and the
provision of services in four regions and six departments in France that the
Company intends to serve. The term of these licenses is 15 years from December
13, 1998. Under French law, these licenses entitle the Company, among other
things, to obtain rights-of-way to establish network infrastructure along public
roads, to obtain easements on private property and to obtain certain rights on
public domain property other than roads.
United Kingdom
On January 11, 1999, the Secretary of State for Trade and Industry at the
Department of Trade and Industry granted CompleTel UK an individual license to
operate fixed public telecommunications systems of any kind in the United
Kingdom. To provide international services in the United Kingdom, the Company
has also obtained an international simple voice resale license.
Germany
On March 8, 1999, the Regulierungsbehorde fur Telekommunikation und Post
granted CompleTel Germany class 3 (general infrastructure license) and class 4
(license required for operation of voice telephony services based on
self-operated telecommunications networks) licenses for three markets in
Germany, including the Company's initial target market, which were subsequently
amended in July 1999 and January 2000, to include among others, CompleTel
Germany's additional markets. These licenses are of unlimited duration.
(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 The Netherlands or 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.
F-15
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For Dutch corporate income tax purposes, net operating loss ("NOL")
carryforwards may be carried forward indefinitely.
Germany
As of December 31,1999, CompleTel Germany had generated NOL carryforwards
for income tax purposes totaling approximately (Euro)8.2 million. For German
income tax purposes, NOL carryforwards may be carried forward indefinitely. The
current statutory tax rate for Germany is 52.38%.
France
As of December 31, 1999, CompleTel France had generated NOL carryforwards
for income tax purposes totaling approximately (Euro)31.4 million. 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 total net
deferred tax assets as of December 31, 1999 and 1998, due to the uncertainty of
realization through future operations. 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
year ended December 31, 1999 and for the period from commencement of operations
(January 8, 1998) to December 31, 1998, is reconciled as follows (in thousands):
<TABLE>
<CAPTION>
Commencement
of Operations
Year Ended (January 8, 1998)
December 31, to December 31,
1999 1998
------------ ------------------
<S> <C> <C>
Expected income tax benefit at the weighted
average statutory rate of 39.56%.............. (Euro)19,697 (Euro) 2,169
Stock-based compensation......................... (256) (55)
Other............................................ 77 --
Valuation allowance.............................. (19,518) (2,114)
------------ ------------
Total income tax benefit.................... (Euro) -- (Euro) --
============ ============
Deferred tax assets are as follows:
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets--
Operating loss carryforwards.................. (Euro)19,545 (Euro)1,032
Capitalized start-up costs.................... 928 1,040
Net unrealized foreign exchange loss.......... 608 17
Depreciation and amortization................. 1,641 14
Other......................................... 9 1
------------ -----------
Total deferred tax assets..................... 22,731 2,104
Less valuation allowance...................... (22,731) (2,104)
------------ -----------
Net deferred taxes............................ (Euro) -- (Euro) --
============ ===========
</TABLE>
F-16
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Segment Reporting
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), 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.
Through December 31, 1999, a significant portion of the Company's
expenditures were associated with its network deployment in France and Germany.
A significant portion of the Company's revenues through December 31, 1999 have
been generated by an indirect subsidiary of the Company's UK subsidiary.
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.
As of December 31, 1998 and for the period from inception (January 8, 1998)
to December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CompleTel CompleTel CompleTel Corporate
SAS GmbH UK Ltd. and Other Consolidated
--------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................................ (Euro) -- (Euro) -- (Euro) -- (Euro) -- (Euro) --
Depreciation and amortization........... 40 -- -- -- 40
Net loss................................ (5,121) (258) (345) (785) (6,509)
Total assets............................ 5,294 16 18 1,413 6,741
Expenditures for long-lived assets...... 3,125 16 18 583 3,742
As of December 31, 1999 and for the year ended December 31, 1999 (in thousands):
<CAPTION>
CompleTel CompleTel CompleTel Corporate
SAS GmbH UK Ltd. and Other Consolidated
------------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Revenues.................................... (Euro) 1,903 (Euro) -- (Euro) 958 (Euro) -- (Euro) 2,861
Depreciation and amortization............... 3,301 643 69 289 4,302
Net loss.................................... (33,238) (7,840) (1,483) (7,229) (49,790)
Total assets................................ 80,860 67,674 1,724 25,950 176,208
Expenditures for long-lived assets.......... 68,854 27,435 855 -- 97,144
<CAPTION>
As of March 31, 2000 and for the three months ended March 31, 2000 (unaudited, in thousands):
CompleTel
CompleTel CompleTel CompleTel Europe
SAS GmbH UK Ltd. and Other Consolidated
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues (Euro) 1,808 (Euro) 228 (Euro) 936 (Euro) -- (Euro) 2,972
Depreciation and amortization 2,039 726 35 146 2,946
Net Loss (13,435) (6,515) (313) (76,993) (97,256)
Total assets 112,736 64,889 2,573 505,839 686,037
Expenditures for long-lived assets 18,989 14,447 167 941 34,544
</TABLE>
F-17
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of March 31, 1999 and for the three months ended March 31, 1999 (unaudited,
in thousands):
<TABLE>
<CAPTION>
CompleTel
CompleTel CompleTel CompleTel Europe
SAS GmbH UK Ltd. and Other Consolidated
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues (Euro) -- (Euro) -- (Euro) -- (Euro) -- (Euro) --
Depreciation and Amortization 123 -- -- -- 123
Net Loss (3,680) (127) (368) (1,078) (5,253)
Total Assets 50,321 47 49 75,130 125,547
Expenditures for Long-Lived Assets 11,039 25 19 512 11,595
</TABLE>
(8) Employee Incentive Plans
Parent Common Units
Certain employees of the Company have purchased common units of Parent for
$1 per unit under their executive securities agreements. The common units issued
consist of non-performance time vesting units and performance vesting units. The
non-performance time vesting units generally vest over a four year period.
Vesting for non-performance time vesting units is accelerated upon a qualified
public offering or a qualified sale of Parent (or any of its subsidiaries) by
Madison Dearborn Partners ("MDP"), as defined in the executive securities
agreements. The intrinsic value of the non-performance time vesting units was
accounted for at issuance and pushed down to the Company as additional paid-in
capital, with an offsetting entry to deferred compensation. The intrinsic value
of the non-performance time vesting units issued through December 31, 1999 and
December 31, 1998, totaled approximately (Euro)2.6 million and (Euro)517,000,
respectively. This deferred compensation is being amortized over the four year
vesting period. Amortization of deferred compensation expense totaled
approximately (Euro)634,000 and (Euro)55,000 for the years ended December 31,
1999 and for the period ended December 31, 1998, respectively.
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 MDP. 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 MDP at fair market value.
Any performance vesting units that do not vest upon such a deemed sale will be
forfeited.
For financial reporting periods ending prior to final determination of the
number of Performance Vesting Units that will vest, compensation cost will be
recorded by Parent, and allocated to the Company, 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 December 31, 1999
and 1998, no compensation cost has been recorded related to the performance
vesting units as the number of units that may ultimately vest is not yet
reasonably determinable.
Assuming an IPO price per ordinary share of (Euro)16.50, the Company will
record compensation expense of approximately (Euro)39.6 million due to the
anticipated vesting of certain performance vesting units held by certain of our
employees in connection with what is anticipated to be a qualified public
offering as defined in CompleTel LLC's executive securities agreements. For each
(Euro)1 increase in the anticipated IPO price per ordinary share, additional
compensation expense and deferred compensation of approximately (Euro)7.2
million will be recorded. In addition, based upon the IPO value of the Company
as indicated above, the Company will record additional compensation expense and
deferred compensation of approximately (Euro)19.2 million and (Euro)60 million,
respectively, for performance vesting units that will not vest as a result of
the IPO but which may vest upon a qualified sale by MDP or in May 2005 based on
a deemed vesting date as defined. The additional deferred compensation will be
amortized to expense over the remaining vesting period to May 18, 2005 (deemed
vesting date if not prior due to a qualified sale by MDP as defined in the
executive securities agreements). The recorded amount of compensation expense
and deferred compensation for these awards will be adjusted at each reporting
date to reflect management's estimate of
F-18
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the number of such units that will ultimately vest and the fair market value of
those units as of the end of each reporting period based on the then current
market value of the Company's ordinary shares, assuming the successful
completion of the Company's anticipated IPO.
Stock Option Plan
In December 1999, the Company adopted the CompleTel Europe N.V. 2000 Stock
Option Plan (the "Option Plan"). The Option Plan provides for the grant of
options to purchase ordinary shares of CompleTel Europe to employees of the
Company.
Options granted are subject to vesting as follows. Options granted to
employees resident in France vest in an increment of 60% of the ordinary shares
subject to the option on the third anniversary of the date of the grant and in
two increments of 20% on the fourth and fifth anniversaries of the date of the
grant. Options granted to employees resident in the United Kingdom, Germany and
the U.S. vest in annual increments of 25% of the ordinary shares subject to the
option, commencing on the first anniversary date of the grant.
The number of options to acquire shares under the Option Plan totals
18,919,960, or approximately 15.0% of the Company's ordinary shares issued and
outstanding as of December 31, 1999. The first grant, which took place in
December 1999, included 2,035,230 options granted, or approximately 1.6% of the
share capital of the Company. These options have an exercise price of $2.60
((Euro)2.59 at December 31, 1999) per ordinary share. Deferred compensation was
recorded in December 1999 totaling approximately (Euro)26.2 million which
represents the estimated intrinsic value of such options at that date. The
deferred compensation will be amortized to expense over the applicable vesting
period related to the individual awards.
In February 2000, the Company granted options to purchase 383,740 ordinary
shares with an exercise price of $2.60 per share and recorded deferred
compensation of approximately (Euro)5.8 million.
Pro Forma Fair Value Disclosures
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), which defines a fair value based method of accounting for employee stock
options and similar equity instruments. However, as allowed by SFAS 123, the
Company has elected to account for its stock-based compensation plans using the
intrinsic value based method of APB 25 and provide pro forma disclosures of net
income (loss) and earnings (loss) per share as if the fair value based method
had been applied.
For pro forma disclosure purposes, the Company has computed the fair value
of each option as of the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions.
Year Ended
December 31, 1999
-----------------
Risk-free interest rate................................ 6.4%
Expected dividend yield................................ 0%
Expected lives outstanding............................. 5.5 years
Expected volatility.................................... 17.1%
The estimated fair value of options granted is amortized to expense over
the option vesting period. Cumulative compensation costs recognized in pro forma
net income or loss with respect to options that are forfeited prior to vesting
are adjusted as a reduction of pro forma compensation expense in the period of
forfeiture.
Had compensation cost for the Option Plan been determined based upon the fair
value of options on their date of grant, the Company's net loss for the year
ended December 31, 1999 and for the period from inception (January 8, 1998) to
December 31, 1998, would have been increased by approximately (Euro)54,000 and
(Euro)0, respectively.
F-19
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) ASI Acquisition
On March 24, 1999, CompleTel SAS acquired all of the outstanding stock of
Acces et Solutions Internet ("ASI"), an Internet service provider based in Lyon,
for approximately (Euro)1.9 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
(Euro)67,000, which is classified as property and equipment in the accompanying
consolidated balance sheet. The resulting excess cost over the fair value of
tangible net assets acquired, or goodwill, was recorded in the amount of
approximately (Euro)1.8 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 consolidated balance sheet.
The following unaudited pro forma condensed consolidated operating results
for the year ended December 31, 1999 and for the period from commencement of
operations (January 8, 1998) to December 31, 1998, 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 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
For the Year Ended (January 8, 1998) to
December 31, 1999 December 31, 1998
-------------------------- -----------------------------
Historical Pro Forma Historical Pro Forma
<S> <C> <C> <C> <C>
Revenues..................................... (Euro) 2,861 (Euro) 3,107 (Euro) -- (Euro) 874
============== ============== ============== ============
Net Loss..................................... (Euro) (49,790) (Euro) (49,883) (Euro) 6,509 (Euro)(6,627)
============== ============== ============== ============
Basic and diluted loss per ordinary share.... (Euro) (.50) (Euro) (.50) (Euro) (.27) (Euro) (.27)
============== ============== ============== ============
Weighted average number of ordinary shares
outstanding.................................. 99,056,060 99,056,060 24,444,820 24,444,820
============== ============== ============== ============
</TABLE>
(10) Subsequent Events
Credit Agreement
In January 2000, we executed an agreement for a (Euro)265 million senior
secured credit facility with Goldman Sachs International and Paribas as
co-arrangers of the facility. The funds will be available to our subsidiaries,
initially to include CompleTel ECC, CompleTel Services S.A.S., CompleTel France,
and CompleTel Germany, in two tranches, including a Euro term facility available
until December 31, 2000, in the aggregate amount of (Euro)105 million and a Euro
revolving loan facility available until December 31, 2002, in the aggregate
amount of (Euro)160 million. The (Euro)160 million tranche will become available
after May 31, 2000, if the euro term facility is fully drawn, and other
conditions are satisfied. Following December 31, 2002, up to (Euro)141 million
of the outstanding advances under the Euro revolving loan facility will first be
converted into a term loan, and any other outstanding advances will become part
of a (Euro)19 million working capital facility. The facility matures on December
31, 2006.
F-20
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
This agreement terminates, supersedes and replaces, without penalty, the
original commitment from Paribas for $90 million USD ((Euro)90 million at
December 31, 1999) in senior credit (see Note 4). Additionally, the commitment
with Nortel Networks for $20 million USD ((Euro)20 million at December 31, 1999)
in vendor financing has been terminated. No termination fees are payable to
Nortel or Paribas.
The notes are structurally subordinated to any debt incurred under the senior
secured credit facility. Additionally, the terms of the agreement require that
the senior secured credit facility be guaranteed to the extent allowed by law by
CompleTel Europe and each of its subsidiaries. The terms of the agreement
further require that the senior secured credit facility be secured by a
perfected security interest in all of the Company's present and future material
assets and revenue and those of its subsidiaries and by a pledge of the stock of
each of the borrowers.
The funds are to be used substantially to deploy our networks in France and
Germany. Advances under the facility cannot exceed certain limits that increase
with time, and are subject to other conditions, including that the subsidiaries
must be operational in designated cities in France and Germany, and satisfy a
debt to capital test. In addition, the facility includes various financial and
other covenants and restrictions that limit our ability to pay dividends,
dispose of assets, and effect merger and consolidation transactions. The
facility also limits the use of proceeds of an initial public offering, other
equity investments, or a high yield debt issue as it provides that any such
proceeds be held as cash equivalent investments or used to develop our
telecommunications businesses in France and Germany.
The rate of interest will be variable based on EURIBOR, plus a margin of up
to 3.75% per annum for the term loan facility or 3.00% per annum for the
revolving loan facility that will be determined based on a senior debt leverage
ratio test, and costs. Upon an event of default, advances may accelerate and
become immediately due and payable and the undrawn portion of the facilities
will be cancelled and the commitments of the banks reduced to zero. The facility
is secured by our assets and the assets of our subsidiaries and the stock in
certain of our subsidiaries, and we and several of our subsidiaries have agreed
to guarantee the payments under the facility and to indemnify the banks against
certain losses.
(11) Events Subsequent to Date of Report of Independent Public Accountants
Initial Public Offering
On March 30, 2000, the Company completed its initial public offering
("IPO") of common stock. In that offering, the Company issued 31,280,000 shares
of its common stock in exchange for gross proceeds of approximately (Euro)547.4
million. The Company will use the proceeds to (i) further develop fiber optic
networks in its target markets in France and Germany, (ii) fund the expansion of
its Internet-related services, (iii) develop complimentary local access systems,
(iv) fund net operating losses and (v) for general corporate purposes.
We have applied for an exemption from regulations required by the
Investment Company Act of 1940. As a result of the regulation, to remain in
compliance with the investment requirements, we have invested approximately
(Euro)434.8 million of our initial public offering proceeds in short-term
maturities of U.S. treasury bills. As a result of this requirement, we have
entered into forward currency contracts for the total amount of these
investments to minimize our currency exposure.
Compensation Charges
The Company's IPO caused certain common units of Parent held by employees of the
Company and Parent to vest as a result of meeting specified performance vesting
criteria. As a result, the Company recorded compensation expense in the quarter
ended March 31, 2000 of approximately (Euro)42.4 million based on the value of
those vested common units as implied by the IPO price received.
F-21
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, based upon the IPO value of the Company as indicated above, the
Company recorded additional compensation expense and deferred compensation of
approximately (Euro)24.0 million and (Euro)74.9 million, respectively, for
performance vesting units that did not vest as a result of the IPO but which may
vest upon a qualified sale by Madison Dearborn Partners ("MDP") (investor in
Parent) or in May 2005 based on a deemed vesting date as defined. The additional
deferred compensation will be amortized to expense over the remaining vesting
period to May 18, 2005 (deemed vesting date if not prior due to a qualified sale
by MDP as defined in the executive securities agreements). The recorded amount
of compensation expense and deferred compensation for these awards will be
adjusted at each reporting date to reflect management's estimate of the number
of such units that will ultimately vest and the fair market value of those units
as of the end of each reporting period based on the then current market value of
the Company's ordinary shares. For each (Euro)1 increase in the market value per
ordinary share, additional compensation expense and deferred compensation of
approximately (Euro)7.5 million will be recorded with respect to non-vested
performance vesting units.
The compensation charges described above are included in non-cash compensation
charges in the accompanying statement of operations for the three months ended
March 31, 2000. Also included in non-cash compensation charges is (Euro)3.3
million resulting from the recognition of deferred compensation on stock options
granted to employees and other common units of Parent held by employees subject
only to time vesting.
On March 27, 2000, the Company granted additional options to purchase 175,000
ordinary shares with an exercise price equal to the public offering price
(Note 11).
Employee Loans
In January 2000 iPcenta Limited, a wholly-owned indirect subsidiary of the
Company, loaned a Managing Director of CompleTel Europe the principal amount of
$206,500 to purchase common units of CompleTel LLC. The principal amount,
together with accumulated interest at the rate of 7% compounded semi-annually,
is due and payable on the earlier of January 15, 2003, or 30 days after a
termination for cause, or 90 days after any other termination of employment. The
common units are subject to vesting and forfeiture provisions and will, if
vested, entitle the Managing Director to receive a pro rata number of CompleTel
Europe shares when and if Parent is liquidated. iPcenta has agreed to forgive a
pro rata portion of the principal and interest on the note as the common units
vest or upon any forfeiture. The Company is recognizing compensation expense
equal to the $206,500 loan amount which will be forgiven over the related
vesting period of the common units.
A limited number of the Company's employees have obtained interest bearing loans
in an approximate aggregate principal amount of (Euro)2,000,000 from a
commercial bank to purchase the Company's shares. These include loans to two
Managing Directors of CompleTel Europe, in the principal amounts of
(Euro)567,000 and (Euro)309,000, respectively. The loans are for a term of 18
months and are secured by a pledge of the shares purchased by such individuals.
In addition, CompleTel Europe has agreed to guarantee the employee and officer
loans in the approximate total amount of (Euro)2 million and has agreed to
assume the interest cost payments on the loans.
Senior Notes Offering
In April 2000, the Company completed an offering of an aggregate (Euro)200
million 14% senior notes due 2010 (the "Senior Notes"). A portion of the
proceeds were used to repurchase $27.0 million ((Euro)27.6 million) principal
amount at maturity of the existing notes. The Company lent approximately
(Euro)78.0 million of the net proceeds to a wholly-owned subsidiary which used
the funds to invest in a portfolio of securities which is pledged as security
for the Senior Notes. The proceeds of these pledged securities will be used to
make the first six interest payments on the Senior Notes. The remaining proceeds
from the Senior Notes offering will be used to (i) fund the further deployment
of the Company's networks in existing markets and an additional six cities in
France and Germany, (ii) fund the expansion of the Company's Internet-related
services, (iii) develop complementary local access systems, (iv) fund net
operating losses and (v) for general and corporate purposes.
F-22
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
Credit Facility Suspension Agreement
In April 2000, the Company entered into an agreement (the "Suspension
Agreement") with the lenders under its credit facility which provides that the
Company will not borrow funds under its credit facility until the credit
facility is amended and that, in turn, during this period, the lenders will
suspend the application of various provisions, including substantially all of
the representations, covenants and events of default in the credit facility.
During such period, certain other provisions of the credit facility will remain
in effect including, without limitation, the obligation to maintain the security
interests of the lenders and to pay, among other things, commitment fees to the
lenders. The Suspension Agreement will be in effect until the earlier of (a) six
months or, if extended by the Company, nine months after the effective date of
the Suspension Agreement, (b) the date the Company cancels its credit facility
or (c) the date an amendment to the credit facility is in effect. In the event
that an amendment to the credit facility cannot be agreed upon by six months,
or, if extended by the Company, nine months, after the effective date of the
Suspension Agreement, the Suspension Agreement and credit facility will
terminate. After giving effect to the 14% senior notes offering, without this
suspension of the covenants, the Company would not be able to borrow under its
credit facility without obtaining a waiver from the lenders. The Company intends
to negotiate an amendment to the credit facility prior to the expiration of the
Suspension Agreement which will include modifications to the covenants and
permit the Company to borrow under such amended credit facility.
F-23
<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
/s/ Pierre Jouanne
--------------------------
Pierre Jouanne
Paris, France
June 24, 1999
F-24
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
BALANCE SHEET
DECEMBER 31, 1998
(Stated in thousands of U.S. Dollars)
ASSETS
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
====
The accompanying notes are an integral part of this balance sheet.
F-25
<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)
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
=====
The accompanying notes are an integral part of this financial statement.
F-26
<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)
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
====
The accompanying notes are an integral part of this financial statement.
F-27
<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
Acces et Solutions Internet S.A.R.L. ("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.
French 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
FRF) 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:
. 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 ("French GAAP"). 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.
F-28
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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.
. Machinery and equipment 3 years
. Miscellaneous fixtures and fittings 5 years
. Office equipment Between 3 and 5 years
As of December 31, 1998, the breakdown of fixed assets is as follows:
Description Gross Value Accumulated Depreciation Net Book Value
----------- ----------- ------------------------ --------------
(USD'000) (USD'000) (USD'000)
Tangible 135 65 70
Intangible 4 2 2
Financial 15 - 15
(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.
F-29
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
NOTES TO FINANCIAL STATEMENTS--(Continued)
(7) Receivables
Receivables are valued at their face value.
As of December 31, 1998, accounts receivable were as follows:
A/R (Gross) Reserve A/R (Net)
----------- ----------- -----------
(USD'000) (USD'000) (USD'000)
466 66 400
(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.
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 being 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 25000) 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:
Number of shares % shares
---------------- --------
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%
=== =======
(11) Cash And Cash Equivalents
There are no restrictions on the bank balances of USD 211,000 as of
December 31, 1998.
F-30
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L
NOTES TO FINANCIAL STATEMENTS--(Concluded)
(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%.
(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-31
<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) and subsidiaries (the "Company") as
of December 31, 1999 and 1998 and the related consolidated statements of
operations, members' equity (deficit) and cash flows for the year ended December
31, 1999, and 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CompleTel LLC and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for the year ended December 31, 1999, and for
the period from the commencement of operations (January 8, 1998) to December 31,
1998, in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 2, 2000 (except for the matters regarding the senior notes offering
and amendment to corporate and investor agreements discussed in Note 12, as to
which the date is March 23, 2000).
F-32
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of U.S. Dollars, except unit amounts)
(After Corporate Reorganization See Note 1)
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
---------- ------------ -----------
(unaudited) (audited) (audited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 506,309 $ 60,469 $ 3,744
Customer accounts receivable.................................. 4,411 1,702 537
Prepaid expenses, VAT receivables and other
current assets............................................. 12,134 14,892 214
---------- ----------- -----------
Total current assets..................................... 522,854 77,063 4,495
---------- ----------- -----------
LONG-TERM ASSETS:
Property and equipment, net................................... 119,602 92,872 3,441
Licenses and other intangibles, net........................... 4,026 4,938 950
Deferred financing costs, net................................. 12,887 6,352 869
Other long-term assets........................................ 857 872 287
---------- ----------- -----------
Total long-term assets................................... 137,372 105,034 5,547
---------- ----------- -----------
TOTAL ASSETS....................................................... $ 660,226 $ 182,097 $ 10,042
========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Construction payables......................................... $ 27,292 $ 28,711 $ --
Trade accounts payable........................................ 13,758 10,693 1,964
Accrued liabilities........................................... 20,456 13,383 3,308
---------- ----------- -----------
Total current liabilities................................ 61,506 52,787 5,272
---------- ----------- -----------
LONG-TERM DEBT..................................................... 82,823 79,922 --
---------- ----------- -----------
MINORITY INTEREST.................................................. 123,717 279 --
COMMITMENTS AND CONTINGENCIES (Note 6)
REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED UNITS:
No par value, -0-, 84,070 and 61,950 units authorized,
issued and outstanding, respectively........................ -- 113,469 13,188
MEMBERS' EQUITY (DEFICIT):
Common units, no par value; 131,494 units authorized; 123,572
18,485 and 16,385 units issued and outstanding,
respectively................................................ 663,539 30,065 737
Deferred compensation......................................... (104,578) (28,495) (540)
Other cumulative comprehensive loss........................... (6,564) (3,912) (160)
Accumulated deficit........................................... (160,217) (62,018) (8,455)
---------- ----------- -----------
TOTAL MEMBERS' EQUITY (DEFICIT).................................... 392,180 (64,360) (8,418)
---------- ----------- -----------
TOTAL LIABILITIES AND MEMBERS' EQUITY (DEFICIT).................... $ 660,226 $ 182,097 $ 10,042
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-33
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
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
of Operations
Year (January 8,
Ended 1998) to Three Months Ended
December 31, December 31, March 31,
1999 1998 2000 1999
----------- ---------- ----------- ----------
(audited) (audited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES ....................................................... $ 2,985 $ -- $ 2,934 $ --
OPERATING EXPENSES:
Network costs.............................................. 2,407 -- 2,974 134
Selling, general and administrative........................ 37,803 7,852 15,060 4,800
Non-cash compensation expense.............................. 675 192 68,796 35
Depreciation and amortization.............................. 4,534 59 2,960 145
---------- -------- --------- ----------
Total operating expenses.............................. 45,419 8,103 89,790 5,114
---------- -------- --------- ----------
OPERATING LOSS.................................................. (42,434) (8,103) (86,856) (5,114)
---------- -------- --------- ----------
OTHER INCOME (EXPENSE):
Interest income............................................ 2,814 11 464 1,874
Interest expense, net of capitalized interest.............. (8,604) -- (1,902) (1,302)
Foreign exchange loss and other expense.................... (3,621) -- (7,831) --
---------- -------- --------- ----------
Total other income (expense).......................... (9,411) 11 (9,269) 572
---------- -------- --------- ----------
NET LOSS BEFORE MINORITY INTEREST............................... (51,845) (8,092) (96,125) (4,542)
MINORITY INTEREST IN LOSS OF CONSOLIDATED
SUBSIDIARIES................................................. 3,501 -- 279 --
---------- -------- --------- ----------
NET LOSS BEFORE INCOME TAXES.................................... (48,344) (8,092) (95,846) (4,542)
INCOME TAX PROVISION............................................ -- -- -- --
---------- -------- --------- ----------
NET LOSS........................................................ (48,344) (8,092) (95,846) (4,542)
ACCRETION OF REDEEMABLE CUMULATIVE
CONVERTIBLE PREFERRED UNITS.................................. (5,219) (363) (2,353) (972)
---------- -------- --------- ----------
NET LOSS APPLICABLE TO COMMON UNITS............................. $ (53,563) $ (8,455) $ (98,199) $ (5,514)
========== ======== ========= ==========
BASIC AND DILUTED LOSS PER COMMON UNIT.......................... $ (6,908) $ (1,940) $ (10,427) $ (1,306)
========== ======== ========= ==========
WEIGHTED AVERAGE NUMBER OF NON-FORFEITABLE
COMMON UNITS OUTSTANDING .................................... 7,754 4,359 9,418 4,222
========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(Stated in thousands of U.S. Dollars, except unit and per unit amounts)
(After Corporate Reorganization See Note 1)
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Cumulative During the Total
Common Units Deferred Comprehensive Development Comprehensive
Number Amount Compensation Loss Stage Loss Total
------ ------ ------------ ------------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 8, 1998 -- $ -- $ -- $ -- $ -- $ -- --
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 common units at August 24, 1998
for services provided 263 13 -- -- -- -- 13
Issuance of forfeitable common units 10,797 609 (604) -- -- -- 5
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)
======= ====== =========== ========== ========= =========== ========
Cancellation of units deemed issued at
formation and units issued for
services provided (2,250) (61) 61 -- -- -- --
Issuance of forfeitable common units to
management investor 2,250 300 (300) -- -- -- --
Repurchases of previously issued
forfeitable common units (121) (24) 24 -- -- -- --
Issuance of forfeitable common units 2,221 1,915 (1,915) -- -- -- --
Issuance of subsidiary stock options -- 26,500 (26,500) -- -- -- --
Gain on issuance of equity at subsidiary -- 698 -- -- -- -- 698
Amortization of deferred compensation -- -- 675 -- -- 675
Accretion of redeemable cumulative
convertible preferred units -- -- -- -- (5,219) -- (5,219)
Cumulative translation adjustments -- -- -- (3,752) -- (3,752) (3,752)
Net loss -- -- -- -- (48,344) (48,344) (48,344)
------- ------ ----------- ---------- --------- ----------- --------
BALANCE, December 31, 1999 18,485 $30,065 $ (28,495) $ (3,912) $ (62,018) $ (52,096) $(64,360)
======= ====== =========== ========== ========= =========== ========
</TABLE>
F-35
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
(Stated in thousands of U.S. Dollars, except unit and per unit amounts)
(After Corporate Reorganization See Note 1)
<TABLE>
<CAPTION>
Deficit
Other Accumulated
Cumulative During the Total
Common Units Deferred Comprehensive Development Comprehensive
Number Amount Compensation Loss Stage Loss Total
------ -------- ------------ ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization of deferred compensation -- $ -- $ 68,796 $ -- $ -- $ -- $ 68,796
Issuance of forfeitable common units 100 1,150 (1,150) -- -- -- --
Repurchase of forfeitable common units (500) -- (3,007) -- -- -- (3,007)
Conversion of redeemable cumulative
convertible preferred units to forfeitable
common units 105,487 115,822 -- -- -- -- 115,822
Gain on issuance of equity at subsidiary -- 375,780 -- -- -- -- 375,780
Allocation of non-cash compensation charges -- 140,722 (140,722) -- -- -- --
Accretion of redeemable cumulative
convertible preferred units -- -- -- (2,353) (2,353) (2,353)
Cumulative translation adjustments -- -- -- (2,652) -- (2,652) (2,652)
Net loss -- -- -- -- (95,846) (95,846) (95,846)
------- -------- --------- -------- --------- ---------- ---------
BALANCE, March 31, 2000 (unaudited) 123,572 $663,539 $(104,578) $ (6,564) $(160,217) $ (86,466) $ 392,180
====== ======== ========= ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in thousands of U.S. Dollars)
(After Corporate Reorganization See Note 1)
<TABLE>
<CAPTION>
Commencement of
Operations
Year (January 8,
Ended 1998) to Three Months Ended
December 31, December 31, March 31,
1999 1998 2000 1999
----------- ----------- ----------- -----------
( audited) ( audited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss ............................................................. $ (48,344) $ (8,092) $ (95,846) $ (4,542)
Adjustments to reconcile net loss to cash flows from
operating activities-
Depreciation and amortization ................................... 4,534 59 2,960 145
Non-cash compensation expense ................................... 675 192 68,796 35
Accretion of senior notes ....................................... 7,948 -- 2,901 1,302
Amortization of deferred financing costs ........................ 570 -- 72 --
Minority interest in net loss ................................... (3,501) -- (279) --
Changes in assets and liabilities-
Increase in customer accounts receivable ................... (15,176) (537) (2,709) (1,596)
Increase in prepaid expenses and other current assets....... (1,574) (214) 2,758 (300)
Increase in other long-term assets ......................... (629) (287) 15 (51)
Increase in trade accounts payable and accrued liabilities.. 22,217 4,935 10,138 5,207
--------- --------- --------- ---------
Net cash flows from operating activities .............. (33,280) (3,944) (11,194) 200
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Expenditures for property and equipment .............................. (97,527) (3,485) (35,137) (10,976)
Increase (decrease) in construction payables ......................... 28,711 -- (1,419) --
Purchase of licenses and other intangibles ........................... (4,315) (950) -- (2,041)
Offering proceeds and investment earnings placed in escrow ........... (73,198) -- -- (73,198)
Proceeds from escrowed offering and investment earnings .............. 73,198 -- -- --
--------- --------- --------- ---------
Net cash flows from investing activities .............. (73,131) (4,435) (36,556) (86,215)
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Gross proceeds from senior notes offering ............................ 70,532 -- -- 70,532
Proceeds from issuance of common units ............................... 3 5 1,150 --
Proceeds from initial public offering ................................ -- -- 491,406 --
Issuance of redeemable cumulative convertible preferred units ........ 94,716 12,113 -- 52,580
Issuance of equity in subsidiary ..................................... 4,478 -- -- 4,478
Loan from member ..................................................... -- 1,300 -- --
Payment on loan from member .......................................... -- (266) -- --
Deferred financing costs ............................................. (6,054) (869) (6,607) (3,668)
--------- --------- --------- ---------
Net cash flows from financing activities .............. 163,675 12,283 485,949 123,922
Effect of exchange rates on cash ..................................... (539) (160) 7,641 (3,623)
--------- --------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................. 56,725 3,744 445,840 34,284
CASH AND CASH EQUIVALENTS, beginning of period ............................ 3,744 -- 60,469 3,744
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period .................................. $ 60,469 $ 3,744 $ 506,309 $ 38,028
========= ========= ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of member loan to preferred units ........................... $ -- $ 1,034 $ -- $ --
========= ========= ========= =========
Accretion of redeemable cumulative convertible preferred units ......... $ 5,219 $ 363 $ 2,353 $ 972
========= ========= ========= =========
SAB No. 51 gain recorded in members' equity related to
issuance of equity in subsidiary ..................................... $ 698 $ -- $ 375,780 $ 698
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(After Corporate Reorganization See Note 1)
(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-capacity, fiber
optic communications infrastructure and provider of telecommunications and
Internet-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-capacity 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 6). 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, in exchange for the issuance of
73,537,325 additional ordinary 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 (see Note 6). The
restructuring was accounted for as a reorganization of entities under common
control, similar to a pooling of interests.
F-38
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In November and December 1999, Parent received additional cash
contributions totaling approximately $42.1 million from new and existing
investors. As of December 31, 1999, Parent had contributed, through a series of
planned transactions, $40 million to CompleTel GmbH through intermediate
subsidiaries in exchange for one share of CompleTel GmbH, and contributed
approximately $2.1 million to CompleTel Europe through intermediate subsidiaries
in exchange for ordinary shares of CompleTel Europe. Through this series of
planned transactions, an intermediate subsidiary of Parent received one share of
CompleTel GmbH, which was contributed to BVI in February 2000 in exchange for
one BVI class B share. Also, in February 2000 the BVI share was contributed to
CompleTel Europe in exchange for ordinary shares in CompleTel Europe. These
transactions have been accounted for as a reorganization of entities under
common control.
The Company has 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,
development and construction 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 exited the development stage during the fourth quarter of 1999. The
Company expects to continue to generate negative cash flows from operations in
each market while it continues 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. The
Company currently offers its services in two markets in France and one market in
Germany and plans to deploy networks in six additional markets in France and
three additional markets in Germany. The Company is also developing an
Internet-related services business in these markets and the U.K. 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.
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 current
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,
F-39
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
(2) Summary Of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. 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.
Receivables
Receivables consist primarily of amounts due to the Company's European
subsidiaries for value added taxes ("VAT") paid on purchased goods and services.
VAT receivables are recoverable through a netting of VAT payable on sales
revenue or by a request for reimbursement to the applicable taxing authority.
Prepaid Expenses and Other Current Assets
Prepaid expenses consist of prepaid rent and prepaid insurance. Prepayments
are amortized on a straight-line basis over the life of the underlying
agreements. Other current assets consist primarily of deposits on office and
switch location premises.
F-40
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Property and Equipment
Property and equipment includes network equipment, office furniture and
equipment, computer equipment and software, leasehold improvements, buildings
and construction in progress. These assets are stated at cost and are being
depreciated when ready for their intended use on a straight-line basis over the
estimated useful lives of the related assets as follows:
Estimated
---------
Useful Life
-----------
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
Buildings 20 years
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
---------- -------------- ------------
(unaudited) (audited) (audited)
<S> <C> <C> <C>
Network equipment $ 59,360 $ 39,955 $ -
Office furniture and equipment 2,119 1,521 132
Computer equipment and software 6,683 5,582 688
Leasehold improvements 3,421 1,855 24
Buildings 208 206 -
--------- --------- -------
Property and equipment, in service 71,791 49,119 844
Less: accumulated depreciation (6,846) (4,215) (59)
--------- --------- -------
Property and equipment, in service, net 64,945 44,904 785
Construction in progress 54,657 47,968 2,656
--------- --------- -------
Property and equipment, net $ 119,602 $ 92,872 $ 3,441
========= ========= =======
</TABLE>
The Company capitalized approximately $1.4 million, $1.4 million and $0 of
interest for the quarter ended March 31, 2000 (unaudited), the year ended
December 31, 1999 and for the period from commencement of operations (January 8,
1998) to December 31, 1998, respectively.
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
costs should be capitalized and amortized versus expensed. 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 AICPA Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities."
F-41
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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. Costs to
obtain equity financing are capitalized and amortized through the date preferred
units are convertible to conversion securities (Note 4).
License Costs
The Company capitalizes all third-party direct costs associated with
obtaining licenses. Capitalized license costs are amortized at commencement of
operations 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.
Revenue Recognition
The Company recognizes revenue for its services in the period earned.
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." Deferred compensation is
amortized to expense over the vesting period of the related stock-based awards.
CompleTel Europe adopted an employee stock option plan in December 1999 (Note
8).
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.
F-42
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
SAB No. 51 Accounting Policy--Sale of Stock by Subsidiaries
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 provision of Staff Accounting Bulletin Number 51 ("SAB
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 51 gain recorded directly in equity in accordance
with SAB 51.
In March 2000, the Company recorded a SAB 51 gain of approximately $376
million as a result of CompleTel Europe's initial public offering of its
ordinary shares. This gain was recorded directly in equity.
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 (loss) by their nature in the financial
statements and (ii) display the accumulated balance of other comprehensive
income (loss) separately from retained earnings (deficit) 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 statements of
members' equity (deficit), includes cumulative translation adjustments.
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 share" is determined by
dividing net income (loss) 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 potentially issuable common units would be antidilutive, there are no
differences between basic and diluted loss per common unit for the Company
through December 31, 1999. The weighted average common units outstanding for the
1998 period assumes the initial capitalization of the Company (2,400 common
units) occurred as of January 8, 1998.
Foreign Operations and Foreign Exchange Rate Risk
The functional currency for the Company's foreign 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 consolidated
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' equity (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.
F-43
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company's foreign 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. If the Company enters into hedging
transactions, 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.
New Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), 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 was effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
During 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of SFAS 133" ("SFAS 137")
which delayed the effective date of SFAS 133 until all fiscal quarters of fiscal
years beginning after June 15, 2000. Through December 31, 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.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB 101
is effective March 31, 2000. The Company has evaluated SAB 101 and it believes
that there is no effect on the revenue recognition policies currently in place.
Reclassifications
Certain, prior period amounts have been reclassified to conform to the
current presentation.
(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 61,950 Preferred Units have been 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,
25,000 were issued, or
F-44
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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 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"). An
additional 798 common units were issued to employees subject to time vesting and
to performance vesting similar to that under the Performance Vesting Agreement,
but without any forfeiture requirements on holder of referred units. 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 December 31, 1999. On
January 28, 1999, the Company entered into the Second Amended and Restated
Limited Liability Company Agreement of CompleTel LLC, increasing the authorized
Preferred Units to 65,750 (see Note 4). On November 23, 1999, the Company
entered into the Third Amended and Restated Limited Liability Company Agreement
of CompleTel LLC, increasing the authorized Preferred Units to 84,070 and
increasing the authorized number of common units to 131,494 (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 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.
F-45
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31, 1999 and December 31, 1998, 14,472 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 $2,734,000 and $604,000 for the Non-Performance Vesting Units
issued through December 31, 1999 and 1998, respectively. This deferred
compensation is being amortized over the four year vesting period. As of
December 31, 1999 and 1998, 8,957 and 10,558 of the issued Non-Performance
Vesting Units are subject to forfeiture, respectively. The status of the issued
Non-Performance Vesting Units as of March 31, 2000, December 31, 1999 and 1998
are as follows.
<TABLE>
<CAPTION>
As of March 31, 2000 (unaudited):
Total Units Vested Units Non-vested 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 14,072 5,344 8,728
-------- ------- -------
Total 18,085 9,357 8,728
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999:
Total Units (1) Vested Units Non-vested 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 14,472 5,515 8,957
-------- ------- -------
Total 18,485 9,528 8,957
======== ======= =======
</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-46
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of December 31, 1998:
<TABLE>
<CAPTION>
Total Units Vested Units Non-vested 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 10,558
------ ----- ------
Total 16,385 5,797 10,558
====== ===== ======
</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 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.
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 December 31, 1999 and 1998, 7,422 and 6,981 Performance Vesting
Units were outstanding, respectively. As of December 31, 1999 and 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.
As discussed in Note 12, CompleTel Europe has commenced an Initial Public
Offering of its ordinary shares. Assuming an IPO price per ordinary share of
$15.91 (euro 16.50), the Company will record compensation expense of
approximately $38.2 million due to the anticipated vesting of certain
Performance Vesting Units in connection with what is anticipated to be a
Qualified Public Offering as defined in the Performance Vesting Agreement and
the applicable Executive Securities Agreements. For each $1 increase in the
anticipated IPO price per ordinary share, additional compensation expense and
deferred compensation of approximately $7.2 million will be recorded. In
addition, based upon the valuation of Parent's equity implied by the IPO value
of the Company as indicated above, the Company will record additional
compensation expense and deferred compensation of approximately $18.5 million
and $57.9 million, respectively, for performance vesting units that will not
vest as a result of the IPO but which may vest upon a qualified sale by MDP or
in May 2005 based on a deemed vesting date as defined. The additional deferred
compensation will be amortized to expense over the remaining vesting period to
May 18, 2005 (deemed vesting date if not prior due to a qualified sale by MDP as
defined in the executive securities agreements). The recorded amount of
compensation expense and deferred compensation for these awards will be adjusted
at
F-47
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
each reporting date to reflect management's estimate of the number of such units
that will ultimately vest and the fair market value of those units as of the end
of each reporting period based on the then current market value of the CompleTel
Europe's ordinary shares, assuming the successful completion of the CompleTel
Europe's anticipated IPO.
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. 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 "tag-along" rights of 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] to participate pro rata in such
transfer. 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. (See Note
12)
(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
F-48
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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.
Pursuant to a Second Amended and Restated Equity Purchase Agreement, dated
November 23, 1999, additional Preferred Units were purchased by the existing
Private Equity Investors, the Management Investors and a new Private Equity
Investor, increasing the number of outstanding Preferred Units to 84,070. Of the
additional 18,320 Preferred Units, 17,862 Preferred Units were issued to the
Private Equity Investors and 458 Preferred Units were issued to the Management
Investors in exchange for capital contributions totaling approximately $41.1
million and approximately $1.0 million, respectively.
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 84,070 currently outstanding Preferred Units are
F-49
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
convertible into 105,487 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 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 cannot
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 December 31, 1999 and 1998, the value of the Preferred Units has been
accreted approximately $5.2 million 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
F-50
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
reclassified as a component of additional paid-in capital in the members'
deficit section of the consolidated balance sheet.
Certain terms of the Second Amended and Restated Equity Purchase Agreement
were amended in March 2000 (See Note 12).
(5) Indebtedness
Senior Discount Notes
In February 1999, CompleTel Europe and CompleTel Holdings 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 $72.6 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, with
the Notes accreting to their stated principal amount at maturity at an effective
interest rate of approximately 15.1%. The accretion will be charged to interest
expense. Commencing February 15, 2004, cash 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 Notes mature February 15, 2009.
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
---------- -------------- -----------
(unaudited) (audited) (audited)
<S> <C> <C> <C>
14% Senior Discount Notes, face amount $147.5 million,
due 2009, effective interest rate of 15.1% $ 82,823 $ 79,922 $ -
======== ======= =====
</TABLE>
(6) Commitments And Contingencies
Operating Leases, Including Rights-of-Way Agreements
The Company has entered into various operating lease agreements for network
switch locations, office space, employee residences and vehicles. In addition,
during 1999, the Company entered into various rights-of-way agreements. Future
minimum lease obligations related to the Company's operating leases are as
follows for the years subsequent to December 31, 1999 and 1998, respectively (in
thousands):
F-51
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
March 31, December 31, December 31,
2000 1999 1998
---------- ------------ -----------
(unaudited) (audited) (audited)
<S> <C> <C> <C>
December 31, 2000 $ 5,803 $ 6,167 $ 855
December 31, 2001 5,775 6,119 966
December 31, 2002 5,743 6,001 974
December 31, 2003 5,482 5,766 955
December 31, 2004 5,134 5,679 948
Thereafter 15,637 16,726 4,975
------- ------- ------
Total $43,574 $46,458 $9,673
======= ======= ======
</TABLE>
Total rent expense for the period from commencement of operations (January
8, 1998) through December 31, 1998 was approximately $160,000 and for the year
ended December 31, 1999 was approximately $1.6 million.
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.
Service Licenses
France
On December 13, 1998 the Secretaire d'Etat a l'Industrie, based on the
recommendation of the Autorite de Regulation des Telecommunications ("ART"),
awarded the Company's French operating subsidiary a fixed wireline license and
service license for network deployment in four regions and six cities and the
provision of services in four regions and six departments in France that the
Company intends to serve. The term of these licenses is 15 years from December
13, 1998. Under French law, these licenses entitle the Company, among other
things, to obtain rights-of-way to establish network infrastructure along public
roads, to obtain easements on private property and to obtain certain rights on
public domain property other than roads.
United Kingdom
On January 11, 1999, the Secretary of State for Trade and Industry at the
Department of Trade and Industry granted CompleTel UK an individual license to
operate fixed public telecommunications systems of any kind in the United
Kingdom. To provide international services in the United Kingdom, the Company
has also obtained an international simple voice resale license.
F-52
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Germany
On March 8, 1999, the Regulierungsbehorde fur Telekommunikation und Post
granted CompleTel Germany class 3 (general infrastructure license) and class 4
(license required for operation of voice telephony services based on
self-operated telecommunications networks) licenses for three markets in
Germany, including the Company's initial target market, which were subsequently
amended in July 1999 and January 2000, to include among others, CompleTel
Germany's additional markets. These licenses are of unlimited duration.
(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. Taxable
income of Management Co. is subject to tax at the regular U.S. federal income
tax rate.
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 The Netherlands or 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
corporate income tax purposes, net operating loss ("NOL") carryforwards may be
carried forward indefinitely.
Germany
As of December 31,1999, CompleTel Germany had generated NOL carryforwards
for income tax purposes totaling approximately $8.2 million. For German income
tax purposes, NOL carryforwards may be carried forward indefinitely. The current
statutory tax rate for Germany is 52.38%.
France
As of December 31, 1999, CompleTel France had generated NOL carryforwards
for income tax purposes totaling approximately $31.5 million. 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.
F-53
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company has recorded a valuation allowance equal to the total net
deferred tax assets as of December 31, 1999 and 1998, due to the uncertainty of
realization through future operations. 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
year ended December 31, 1999 and for the period from commencement of operations
(January 8, 1998) to December 31, 1998, is reconciled as follows (in thousands):
<TABLE>
<CAPTION>
Commencement
of Operations
Year Ended (January 8, 1998)
December 31, to December 31,
1999 1998
-------------- ---------
<S> <C> <C>
Expected income tax benefit at the U.S.
statutory rate of 38.25% $ 18,491 $ 3,095
Parent operating income (loss) passed
through to its members 1,360 (153)
International rate differences 683 (369)
Stock based compensation (272) -
Other non-deductible expenses 80 (99)
Valuation allowance (20,342) (2,474)
--------- --------
Total income tax benefit $ - $ -
========= =========
</TABLE>
Deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ -----------
<S> <C>
Deferred tax assets:
Operating loss carryforwards $ 19,615 $ 1,222
Capitalized start-up costs 932 1,214
Net unrealized foreign exchange loss 611 20
Depreciation and amortization 1,648 16
Other 10 2
---------- ---------
Total deferred tax assets 22,816 2,474
Less valuation allowance (22,816) (2,474)
---------- ---------
Net deferred taxes $ - $ -
========== =========
</TABLE>
F-54
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(8) Segment Reporting
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), 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.
Through December 31, 1999, a significant portion of the Company's
expenditures were associated with its network deployment in France and Germany.
A significant portion of the Company's revenues through December 31, 1999 have
been generated by an indirect subsidiary of the Company's UK subsidiary.
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.
As of December 31, 1998 and for the period from inception (January 8, 1998)
to December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CompleTel Company
CompleTel CompleTel CompleTel Europe (Including
SAS GmbH UK Ltd. and Other Management Co.) Consolidated
--------- --------- --------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ - $ -
Depreciation 46 - - - 13 59
Net Loss (5,949) (300) (400) (912) (894) (8,455)
Total Assets 6,180 19 21 1,650 2,172 10,042
Expenditures for Long-Lived
Assets 3,647 19 21 681 67 4,435
</TABLE>
As of December 31, 1999 and for the year ended December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
CompleTel Company
CompleTel CompleTel CompleTel Europe (Including
SAS GmbH UK Ltd. and Other Management Co.) Consolidated
-------- ---------- --------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,986 $ - $ 999 $ - $ - $ 2,985
Depreciation 3,445 671 72 301 45 4,534
Net Loss (34,684) (8,181) (1,548) (7,543) (1,607) (53,563)
Total Assets 81,250 68,000 1,732 31,115 - 182,097
Expenditures for Long-
Lived Assets 71,850 28,628 892 - 472 101,842
</TABLE>
F-55
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
As of March 31, 2000 and for the year ended March 31, 2000 (unaudited, in
thousands):
<TABLE>
<CAPTION>
CompleTel Company
CompleTel CompleTel CompleTel Europe (Including
SAS GmbH UK Ltd. and Other Management Co.) Consolidated
--- ---- ------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 1,785 $ 225 $ 924 - - $ 2,934
Depreciation 2,014 717 35 144 50 2,960
Net Loss (13,267) (6,434) (309) (76,031) (84) (96,125)
Total Assets 108,384 62,384 2,474 486,313 671 660,226
Expenditures for Long-
Lived Assets 19,739 14,226 165 929 78 35,137
</TABLE>
As of March 31, 1999 and for the year ended March 31, 1999 (unaudited, in
thousands):
<TABLE>
<CAPTION>
CompleTel Company
CompleTel CompleTel CompleTel Europe (Including
SAS GmbH UK Ltd. and Other Management Co.) Consolidated
--- ---- ------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ $ $ $ $ $ -
Depreciation 138 - - - 7 145
Net Loss (4,129) (143) (413) (1,209) 1,352 (4,542)
Total Assets 54,014 50 52 80,645 2,498 137,259
Expenditures for Long-
Lived Assets 10,345 28 21 575 7 10,976
</TABLE>
(9) Parent Company Only Financial Information
The following financial information reflects the parent company only
condensed statement of operations data, condensed balance sheet data, and
condensed cash flows data.
<TABLE>
<CAPTION>
Commencement
of Operations Three Months
Year Ended (January 8, 1998) Ended
December 31, 1999 to December 31, 1998 March 31, 2000
----------------- -------------------- --------------
(audited) (audited) (unaudited)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS:
Interest income.......................... $ 255 $ 11 $ 3
Interest expense......................... (368) - (58)
General and administrative expense....... (84) (400) (2,111)
Equity in losses of subsidiaries......... (48,147) (7,703) (93,680)
-------- ------- ------------
Net loss................................. $(48,344) $(8,092) $ (95,846)
======== ======= =========
</TABLE>
F-56
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 March 31, 2000
----------------- ----------------- --------------
BALANCE SHEET DATA: (audited) (audited) (unaudited)
<S> <C> <C> <C>
Cash and cash equivalents................ $ 293 $ 1,743 $ 296
Receivables from affiliates.............. 5,714 9,492 4,869
Other current assets..................... 10 42 10
-------- -------- --------
Total current assets.............. 6,017 11,277 5,175
Investments in subsidiaries.............. 42,936 (6,185) 387,132
Deferred financing costs, net............ 1,249 - 1,193
Notes receivable from affiliates - - 338
-------- -------- --------
Total assets...................... $ 50,202 $ 5,092 $393,838
======== ======== ========
Current liabilities.......................... $ 1,093 $ 322 $ 1,658
-------- ------- -------
Redeemable cumulative convertible preferred
units:
No par value, 84,070 units authorized;
84,070, 61,950 and 0 units issued and
outstanding................................... 113,469 13,188 -
-------- -------- --------
Common units, no par value, 131,494 units
authorized; 18,485, 16,385 and 123,572 units
issued and outstanding...................... 30,065 737 663,539
Deferred compensation........................ (28,495) (540) (104,578)
Other cumulative comprehensive loss.......... (3,912) (160) (6,564)
Accumulated deficit.......................... (62,018) (8,455) (160,217)
-------- -------- --------
Total members' (equity)........... (64,360) (8,418) 392,180
-------- -------- --------
Total liabilities and members'
deficit......................... $ 50,202 $ 5,092 $393,838
======== ======== ========
</TABLE>
F-57
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
<TABLE>
<CAPTION>
Commencement
of Operations Three Months
Year Ended (January 8, 1998) Ended
December 31, to December 31, March 31,
1999 1998 2000
--------- --------- -----------
CASH FLOWS DATA: (audited) (audited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(48,344) $(8,092) $(95,846)
Equity in losses of subsidiaries 48,147 7,703 93,680
Amortization of deferred financing costs 334 -- 56
Changes in-
Other current assets 32 (10) 118
Receivables from affiliates 3,778 (9,492) 845
----- ------- ---
Net cash from operating activites 3,947 (9,891) (1,147)
----- ------- ----------
Cash flows from investing activities:
Investment in subsidiaries (98,533) (1,518) -
-------- ------- ----------
Net cash from investing activities (98,533) (1,518) -
-------- ------- ----------
Cash flows from financing activities:
Issuance of redeemable cumulative
convertible Preferred Units 94,716 12,113 -
Loan from member - 1,300 -
Payment of loan from member - (266) -
Issuance of Common Units 3 5 1,150
Deferred financing costs (1,583) - -
----- ------- ----------
Net cash from financing activities 93,136 13,152 1,150
------ ------- ----------
Net increase (decrease) in cash and cash
equivalents (1,450) 1,743 3
Cash and cash equivalents, beginning of period
1,743 - 293
----- ------- ---
Cash and cash equivalents, end of period $ 293 $ 1,743 $296
====== ======= ====
</TABLE>
F-58
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS"(Continued)
(10) Employee Incentive Plans
Stock Option Plan
In December 1999, CompleTel Europe adopted the CompleTel Europe N.V. 2000
Stock Option Plan (the "Option Plan"). The Option Plan provides for the grant of
options to purchase ordinary shares of CompleTel Europe to employees of the
Company.
Options granted are subject to vesting as follows. Options granted to
employees resident in France vest in an increment of 60% of the ordinary shares
subject to the option on the third anniversary of the date of the grant and in
two increments of 20% on the fourth and fifth anniversaries of the date of the
grant. Options granted to employees resident in the United Kingdom, Germany and
the U.S. vest in annual increments of 25% of the ordinary shares subject to the
option, commencing on the first anniversary date of the grant.
The number of options to acquire shares under the Option Plan totals
18,919,960, or 15.0% of the Company's ordinary shares issued and outstanding as
of December 31, 1999. The first grant, which took place on December 30, 1999,
included 2,035,230 options granted, or approximately 1.6% of the share capital
of the Company. These options have an exercise price of $2.60 per ordinary
share. Deferred compensation was recorded in December 1999 totaling
approximately $26.5 million which represents the estimated intrinsic value of
such options at that date. The deferred compensation will be amortized to
expense over the applicable vesting period related to the individual awards.
In February 2000, the Company granted options to purchase 383,740 ordinary
shares with an exercise price of $2.60 per share and recorded deferred
compensation of approximately (Euro)5.8 million.
Pro Forma Fair Value Disclosures
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), which defines a fair value based method of accounting for employee stock
options and similar equity instruments. However, as allowed by SFAS 123, the
Company has elected to account for its stock-based compensation plans using the
intrinsic value based method of APB 25 and provide pro forma disclosures of net
income (loss) and earnings (loss) per share as if the fair value based method
had been applied.
For pro forma disclosure purposes, the Company has computed the fair value
of each option as of the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions.
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
--------------
<S> <C>
Risk-free interest rate...................... 6.4%
Expected dividend yield...................... 0%
Expected lives outstanding................... 5.5 years
Expected volatility.......................... 17.1%
</TABLE>
The estimated fair value of options granted is amortized to expense over
the option vesting period. Cumulative compensation costs recognized in pro forma
net income or loss with respect to options that are forfeited prior to vesting
are adjusted as a reduction of pro forma compensation expense in the period of
forfeiture.
F-59
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Had compensation cost for the Option Plan been determined based upon the
fair value of options on their date of grant, the Company's net loss for the
year ended December 31, 1999 and for the period from inception (January 8, 1998)
to December 31, 1998, would have been increased by $54,000 and $0, respectively.
(11) ASI Acquisition
On March 24, 1999, CompleTel SAS acquired all of the outstanding stock of
Acces et Solutions Internet ("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 consolidated
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
consolidated balance sheet.
The following unaudited pro forma condensed consolidated operating results
for the year ended December 31, 1999 and for the period from commencement of
operations (January 8, 1998) to December 31, 1998, 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 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
For the Year Ended (January 8, 1998) to
December 31, 1999 December 31, 1998
----------------- -----------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues...................................... $ 2,985 $ 3,242 $ - $ 1,020
======== ========= ======== ========
Net loss applicable to common units........... $(53,563) $ (56,660) $ (8,455) $ (8,593)
======== ========= ======== ========
Basic and diluted loss per common units....... $ (6,908) $ (7,307) $ (1,940) $ (1,971)
======== ========= ======== ========
Weighted average number of common units
outstanding................................ 7,754 7,754 4,359 4,359
======== ========= ======== ========
</TABLE>
F-60
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(12) SUBSEQUENT EVENTS
Credit Agreement
In January 2000, we executed an agreement for a (Euro)265 million senior
secured credit facility with Goldman Sachs International and Paribas as
co-arrangers of the facility. The funds will be available to our subsidiaries,
initially to include CompleTel ECC, CompleTel Services S.A.S., CompleTel France,
and CompleTel Germany, in two tranches, including a euro term facility available
until December 31, 2000, in the aggregate amount of (Euro)105 million and a euro
revolving loan facility available until December 31, 2002, in the aggregate
amount of (Euro)160 million. The (Euro)160 million tranche will become available
after May 31, 2000, if the euro term facility is fully drawn, and other
conditions are satisfied. Following December 31, 2002, up to (Euro)141 million
of the outstanding advances under the euro revolving loan facility will first be
converted into a term loan, and any other outstanding advances will become part
of a (Euro)19 million working capital facility. The facility matures on December
31, 2006.
This agreement terminates, supersedes and replaces, without penalty, the
original commitment from Paribas for $90 million in senior credit (see Note 6).
Additionally, the commitment with Nortel Networks for $20 million in vendor
financing has been terminated. No termination fees are payable to Nortel
Networks or Paribas.
The notes are structurally subordinated to any debt incurred under the
senior secured credit facility. Additionally, the terms of the agreement require
that the senior secured credit facility be guaranteed to the extent allowed by
law by CompleTel Europe and each of its subsidiaries. The terms of the agreement
further require that the senior secured credit facility be secured by a
perfected security interest in all of the Company's present and future material
assets and revenue and those of its subsidiaries and by a pledge of the stock of
each of the borrowers.
The funds are to be used substantially to deploy our networks in France and
Germany. Advances under the facility cannot exceed certain limits that increase
with time, and are subject to other conditions, including that the subsidiaries
must be operational in designated cities in France and Germany, and satisfy a
debt to capital test. In addition, the facility includes various financial and
other covenants and restrictions that limit our ability to pay dividends,
dispose of assets, and effect merger and consolidation transactions. The
facility also limits the use of proceeds of an initial public offering, other
equity investments, or a high yield debt issue as it provides that any such
proceeds be held as cash equivalent investments or used to develop our
telecommunications businesses in France and Germany.
The rate of interest will be variable based on EURIBOR, plus a margin of up
to 3.75% per annum for the term loan facility or 3.00% per annum for the
revolving loan facility that will be determined based on a senior debt leverage
ratio test, and costs. Upon an event of default, advances may accelerate and
become immediately due and payable and the undrawn portion of the facilities
will be cancelled and the commitments of the banks reduced to zero. The facility
is secured by our assets and the assets of our subsidiaries and the stock in
certain of our subsidiaries, and we and several of our subsidiaries have agreed
to guarantee the payments under the facility and to indemnify the banks against
certain losses.
Initial Public Offering
Subsequent to December 31, 1999, CompleTel Europe filed a registration
statement on Form F-1 with the Securities and Exchange Commission covering
CompleTel Europe's proposed issuance of up to 27,200,000 of its ordinary shares
to the public (the "Proposed IPO"). If consummated, the proceeds from the
Proposed IPO will be used to (i) fund the further deployment of the Company's
networks in existing markets and an additional six cities
F-61
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
in France and Germany, (ii) fund the expansion of the Company's Internet-related
services, (iii) develop complementary local access systems, (iv) fund net
operating losses and (v) for general and corporate purposes.
Senior Notes Offering
In March 2000, the Company commenced an offering of an aggregate 300
million Euro senior notes due 2010 (the "Senior Notes"). If consummated, the
proceeds from the proposed senior notes offering will be used to (i) fund the
further deployment of the Company's networks in existing markets and an
additional six cities in France and Germany, (ii) fund the expansion of the
Company's Internet-related services, (iii) develop complementary local access
systems, (iv) fund net operating losses and (v) for general and corporate
purposes.
Amendments of Corporate and Investor Agreements
On March 23, 2000, the Company and certain of its investors approved
amendments to certain agreements that will become effective only if the Proposed
IPO is consummated on or before April 30, 2000, with net proceeds to CompleTel
Europe (after underwriting discounts and commissions) equal to at least $60
million. Additionally, the price per share in the Proposed IPO must equal at
least three times the amount of capital contributed by the Private Equity
Investors and the Management Investors per share of CompleTel Europe
beneficially owned by such investors on a fully diluted, as if converted basis.
Under the approved amendments to the LLC Agreement (see Note 3) and the
Equity Purchase Agreement (see Note 4), the Proposed IPO will be deemed a
Qualified Public Offering. Accordingly, the Preferred Units will be converted
into Common Units and the rights of Preferred Unit holders to require the
repurchase by Parent of their Purchaser Securities will terminate. In connection
with the conversion of the Preferred Units, Parent is required to pay each
converting holder in cash and amount equal to the accrued but unpaid preferred
yield with respect to each of their converted Preferred Units. Under an approved
amendment to the LLC Agreement, Parent may satisfy such payment obligation by
issuing additional Common Units representing a beneficial ownership in CompleTel
Europe ordinary shares having a value (based on the per share amount received in
the Proposed IPO) equal to the accrued but unpaid yield payable.
Under the approved amendments to the Performance Vesting Agreement and the
Executive Securities Agreements (see Note 3), the Proposed IPO will be deemed a
Qualified Public Offering. Accordingly, one-third of the Performance Vesting
Units will vest or be forfeited under the multiple-of-invested-capital tests
calculated based on the price per share received in the Proposed IPO.
Additionally, for such Performance Vesting Units that vest as a result of the
Proposed IPO, a corresponding number of Common Units otherwise issuable upon the
conversion of Preferred Units described above, will be forfeited.
(13) EVENTS SUBSEQUENT TO REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Initial Public Offering
On March 30, 2000, the Company completed its initial public offering
("IPO") of common stock. In that offering, the Company issued 31,280,000 shares
of its common stock in exchange for gross proceeds of approximately (Euro)547.4
million. The Company will use the proceeds to (i) further develop fiber optic
networks in its target markets in France and Germany, (ii) fund the expansion of
its Internet-related services, (iii) develop complimentary local access systems,
(iv) fund net operating losses and (v) for general corporate purposes.
F-62
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
We have applied for an exemption from regulations required by the
Investment Company Act of 1940. As a result of the regulation, to remain in
compliance with the investment requirements, we have invested approximately
(Euro)434.8 million of our initial public offering proceeds in short-term
maturities of U.S. treasury bills. As a result of this requirement, we have
entered into forward currency contracts for the total amount of these
investments to minimize our currency exposure.
Compensation Charges
The Company's IPO caused certain common units of Parent held by employees
of the Company and Parent to vest as a result of meeting specified performance
vesting criteria. As a result, the Company recorded compensation expense of
approximately (Euro)42.4 million based on the value of those vested common units
as implied by the IPO price received. In addition, based upon the IPO value of
the Company as indicated above, the Company recorded additional compensation
expense and deferred compensation of approximately (Euro)24.0 million and
(Euro)74.9 million, respectively, for performance vesting units that did not
vest as a result of the IPO but which may vest upon a qualified sale by Madison
Dearborn Partners ("MDP") (investor in Parent) or in May 2005 based on a deemed
vesting date as defined. The additional deferred compensation will be amortized
to expense over the remaining vesting period to May 18, 2005 (deemed vesting
date if not prior due to a qualified sale by MDP as defined in the executive
securities agreements). The recorded amount of compensation expense and deferred
compensation for these awards will be adjusted at each reporting date to reflect
management's estimate of the number of such units that will ultimately vest and
the fair market value of those units as of the end of each reporting period
based on the then current market value of the Company's ordinary shares. For
each (Euro)1 increase in the market value per ordinary share, additional
compensation expense and deferred compensation of approximately (Euro)7.5
million will be recorded with respect to non-vested performance vesting units.
The compensation charges described above are included in non-cash
compensation charges in the accompanying statement of operations for the three
months ended March 31, 2000. Also included in non-cash compensation charges is
(Euro)3.3 million resulting from the recognition of deferred compensation on
stock options granted to employees and other common units of Parent held by
employees subject only to time vesting.
In addition, on March 27, 2000, the Company granted additional options to
purchase 175,000 ordinary shares with an exercise price equal to the public
offering price.
Employee Loans
In January 2000 iPcenta Limited, a wholly-owned indirect subsidiary of the
Company, loaned a Managing Director of CompleTel Europe the principal amount of
$206,500 to purchase common units of CompleTel LLC. The principal amount,
together with accumulated interest at the rate of 7% compounded semi-annually,
is due and payable on the earlier of January 15, 2003, or 30 days after a
termination for cause, or 90 days after any other termination of employment. The
common units are subject to vesting and forfeiture provisions and will, if
vested, entitle the Managing Director to receive a pro rata number of CompleTel
Europe shares when and if Parent is liquidated. iPcenta has agreed to forgive a
pro rata portion of the principal and interest on the note as the common units
vest or upon any forfeiture. The Company is recognizing compensation expense
equal to the $206,500 loan amount which will be forgiven over the related
vesting period of the common units.
A limited number of the Company's employees have obtained interest bearing
loans in an approximate aggregate principal amount of (Euro)2,000,000 from a
commercial bank to purchase the Company's shares. These include loans to two
Managing Directors of CompleTel Europe, in the principal amounts of
(Euro)567,000 and (Euro)309,000, respectively. The loans are for a term of 18
months and are secured by a pledge of the shares purchased by such individuals.
In addition, CompleTel Europe has agreed to guarantee the employee and officer
loans in the approximate total amount of (Euro)2 million and has agreed to
assume the interest cost payments on the loans.
F-63
<PAGE>
COMPLETEL LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Concluded)
Senior Notes Offering
In April 2000, the Company completed an offering of an aggregate (Euro)200
million 14% senior notes due 2010 (the "Senior Notes"). A portion of the
proceeds were used to repurchase $27.0 million ((Euro)27.6 million) principal
amount at maturity of the existing notes. The Company lent approximately
(Euro)78.0 million of the net proceeds to a wholly-owned subsidiary which used
the funds to invest in a portfolio of securities which is pledged as security
for the Senior Notes. The proceeds of these pledged securities will be used to
make the first six interest payments on the Senior Notes. The remaining proceeds
from the Senior Notes offering will be used to (i) fund the further deployment
of the Company's networks in existing markets and an additional six cities in
France and Germany, (ii) fund the expansion of the Company's Internet-related
services, (iii) develop complementary local access systems, (iv) fund net
operating losses and (v) for general and corporate purposes.
Credit Facility Suspension Agreement
In April 2000, the Company entered into an agreement (the "Suspension
Agreement") with the lenders under its credit facility which provides that the
Company will not borrow funds under its credit facility until the credit
facility is amended and that, in turn, during this period, the lenders will
suspend the application of various provisions, including substantially all of
the representations, covenants and events of default in the credit facility.
During such period, certain other provisions of the credit facility will remain
in effect including, without limitation, the obligation to maintain the security
interests of the lenders and to pay, among other things, commitment fees to the
lenders. The Suspension Agreement will be in effect until the earlier of (a) six
months or, if extended by the Company, nine months after the effective date of
the Suspension Agreement, (b) the date the Company cancels its credit facility
or (c) the date an amendment to the credit facility is in effect. In the event
that an amendment to the credit facility cannot be agreed upon by six months,
or, if extended by the Company, nine months, after the effective date of the
Suspension Agreement, the Suspension Agreement and credit facility will
terminate. After giving effect to the 14% senior notes offering, without this
suspension of the covenants, the Company would not be able to borrow under its
credit facility without obtaining a waiver from the lenders. The Company intends
to negotiate an amendment to the credit facility prior to the expiration of the
Suspension Agreement which will include modifications to the covenants and
permit the Company to borrow under such amended credit facility.
F-64
<PAGE>
PRINICIPAL OFFICE OF COMPLETEL EUROPE N.V.
Kruisweg 609
2131 NA Hoofddorp
The Netherlands
AUDITORS OF COMPLETEL EUROPE N.V.
Arthur Anderson LLP
1225 17/th/ Street
Denver, Colorado 80202
LEGAL ADVISORS OF COMPLETEL EUROPE N.V.
United States Counsel
Holme Roberts & Owen LLP
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
Dutch Counsel
Stibbe Simont Monahan Duhot P.C.
350 Park Avenue
New York, New York 10022
TRUSTEE, PRINCIPAL PAYING AGENT, REGISTRAR, AND EXCHANGE AGENT
The Chase Manhattan Bank
Global Trust Services
450 W. 33/rd/ Street
15/th/ Floor
New York, New York 10001
LUXEMBOURG LISTING AGENT
Banque Internationale a Luxembourg
69 route d'Esch
L-2953 Luxembourg
<PAGE>
[LOGO OF COMPLETEL]
CompleTel Europe N.V.
(Euro) 200,000,000 14% Series B Senior Notes due 2010
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PROSPECTUS
Dated July 24, 2000
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The exchange offer will expire at 5:00 p.m., New York City time, on August 24,
2000, unless we extend it.
