<PAGE>
As filed with the Securities and Exchange Commission on March 6, 2000
Registration No. 333-30834
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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COMPLETEL EUROPE N.V.
(Exact name of Registrant as specified in its charter)
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Amsterdam, The Netherlands 4813 98-0202823
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
Kruisweg 609
2132 NA Hoofddorp, The Netherlands
(31) 20 666 1701
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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James E. Dovey
6300 S. Syracuse Way, Suite 355
Englewood, Colorado 80111
(303) 741-4788
Fax: (303) 741-4823
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies of correspondence to:
W. Dean Salter, Esq. and Jonathan A. Schaffzin, Esq.
Linda K. Wackwitz, Esq. Cahill Gordon & Reindel
Holme Roberts & Owen LLP 80 Pine Street
1700 Lincoln, Suite 4100 New York, New York 10005
Denver, Colorado 80203 (212) 701-3000
(303) 861-7000 Fax (212) 269-5420
Fax (303) 866-0200
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Calculation of Registration Fee
<TABLE>
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<CAPTION>
Amount Proposed Proposed Amount of
Title of each class of to be maximum offering maximum aggregate registration
securities to be registered registered price per share(1) offering price(2) fee(3)
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<S> <C> <C> <C> <C>
Ordinary shares (Euro).10
nominal value per share... 31,280,000 shares $16.88 $528,006,400 $139,394
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes (i) shares that the Underwriters may purchase to cover
overallotments, if any, and (ii) shares that are to be offered and sold to
persons outside the U.S. but that may be resold by persons from time to
time in the U.S. during the distribution.
(3) $105,600 of this fee has already been paid. $33,794 is being paid
simultaneously with the filing hereof.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities or our soliciting an offer to buy these +
+securities in any jurisdiction where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 6, 2000
PRELIMINARY PROSPECTUS
[LOGO OF COMPLETEL]
CompleTel Europe N.V.
27,200,000 Ordinary Shares
(Euro) per ordinary share
$ per ordinary share
We are offering 27,200,000 ordinary shares in this offering. We are offering
the ordinary shares in a public offering in the United States and to
institutions in Canada. We are concurrently offering the ordinary shares to
institutions internationally and to retail investors in France under separate
prospectuses.
Madison Dearborn Partners and LPL Telecom Europe, L.P. have indicated their
intent to purchase ordinary shares in this offering, at the price to public
specified below, for an aggregate amount of $33 million.
It is currently estimated that the initial public offering price per ordinary
share will be between (Euro)15.50 and (Euro)17.50, or $14.95 and $16.88, based
on an exchange rate of (Euro)1.00 per $0.9643, the Noon Buying Rate on Tuesday,
February 29, 2000. Prior to this offering there has been no public market for
our ordinary shares. We have applied to have the ordinary shares approved for
quotation on the Nasdaq National Market under the symbol "CLTL" and we have
applied to have the ordinary shares approved for listing on the Premier Marche
of the ParisBourseSBF S.A. under the symbol "CTL".
Investing in the ordinary shares involves a high degree of risk. See "Risk
Factors" beginning on page 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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<TABLE>
<CAPTION>
Per Ordinary Share
Per Ordinary Share (outside the U.S. Total
(U.S. and Canada) and Canada) (assuming (Euro)1.00 = $0.9643)
------------------ ------------------ -------------------------------
<S> <C> <C> <C>
Public offering price... $ (Euro) (Euro)
Underwriting
discount(1)............ $ (Euro) (Euro)
Proceeds to CompleTel
(before expenses)...... $ (Euro) (Euro)
</TABLE>
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(1) No underwriting discount will be made with respect to the ordinary shares
purchased by Madison Dearborn Partners and LPL Telecom Europe, L.P.
We have granted the underwriters a 30-day option to purchase from us up to an
aggregate of 4,080,000 additional ordinary shares to the extent that the
underwriters sell more than 27,200,000 ordinary shares.
The underwriters are offering ordinary shares subject to various conditions.
The underwriters expect to deliver the ordinary shares to purchasers through
the facilities of The Depositary Trust Company for settlement in dollars, and
through the facilities of SICOVAM or through the facilities of the Euroclear
System or Clearstream for settlement in euros, on or about , 2000.
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Joint Global Coordinators and Joint Bookrunners
Salomon Smith Barney International Goldman Sachs International
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Salomon Smith Barney Goldman, Sachs & Co.
BNP Paribas Group Merrill Lynch & Co.
, 2000
<PAGE>
[DESCRIPTION OF ANY PHOTOS, ARTWORK]
Map of western Europe showing planned and existing networks. Map showing typical
customer and metropolitan area network. Plan to implement and integrate Internet
Strategy. Map showing western Europe with Internet protocol network
infrastructure. Photo diagram of Internet data center design. Company artwork
and logo.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer is
not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
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Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
Table of Contents.......................................................... i
Prospectus Summary......................................................... 1
Risk Factors............................................................... 7
Use of Proceeds............................................................ 16
Dividend Policy............................................................ 16
Capitalization............................................................. 17
Exchange Rate Data......................................................... 18
Dilution................................................................... 19
Selected Consolidated Financial Data....................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 21
Business................................................................... 31
Management................................................................. 55
Principal Shareholders..................................................... 65
Related Party Transactions................................................. 67
Description of Capital Stock .............................................. 68
Description of Material Indebtedness....................................... 72
Shares Eligible for Future Sale............................................ 76
Taxation................................................................... 78
Underwriting............................................................... 86
Service of Process and Enforceability of Civil Liabilities................. 90
Legal Matters.............................................................. 90
Experts.................................................................... 90
Where You Can Find More Information........................................ 91
Shares Certificates and Transfer........................................... 91
Market Information......................................................... 93
Glossary of Terms.......................................................... 94
Index to Financial Statements.............................................. F-1
</TABLE>
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Until and including , 2000, all dealers that buy, sell or trade
these securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to unsold allotments or subscriptions.
i
<PAGE>
PROSPECTUS SUMMARY
This summary contains basic information about us and this offering. This
summary may not include all of the information that may be important to you.
You should read the entire prospectus, including the "Risk Factors" section and
our audited consolidated financial statements and related notes thereto
included elsewhere in this prospectus before making an investment decision.
Unless otherwise specified, financial and other information contained in this
prospectus does not give effect to the exercise of the underwriters'
overallotment option and share amounts give effect to the 5-for-1 stock split
that we effected subsequent to December 31, 1999. Unless otherwise specified,
euro amounts are converted to dollars at a rate of (Euro)1.00 per $0.9643 , the
euro noon buying rate in New York on February 29, 2000. Technical terms used in
our business are explained in the Glossary included in this prospectus. Unless
otherwise noted, all references in this prospectus to shares mean our ordinary
shares, and the terms "we", "our", and "us", refer to CompleTel Europe N.V. and
its subsidiaries, and "CompleTel Europe" refers to CompleTel Europe N.V. only.
Facilities-based competitive local access provider
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 applications services.
We construct and operate our own state-of-the-art fiber optic metropolitan
area networks, 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 implementing our business plan to deploy and operate our
metropolitan area networks in 11 cities, Paris, Grenoble, Lyon, Marseille Lille
Nice and Toulouse in France and Berlin, Essen, Munich and Nuremberg in Germany,
and provide our Internet-related services in these cities and the United
Kingdom. We plan to use the proceeds from this offering to expand the
deployment of our networks in our existing markets, to develop metropolitan
area networks in an additional six cities in France and in Germany, and to
accelerate the deployment of our Internet-related services. As of February 25,
2000, we had deployed over 447 route kilometers of local networks, and we had
launched service in nine major cities, Paris, Grenoble, Lyon, Marseille and
Lille in France, and Berlin, Essen, Munich and Nuremberg in Germany. During the
first half of 2000, we expect to become operational in two additional cities,
Toulouse and Nice in France. As of February 25, 2000, we had 315 orders, for
118,549 line equivalents of capacity, of which 137 services were installed,
with the remainder pending installation.
Strategy
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:
Target attractive and addressable telecommunications markets. We are
currently focusing on the telecommunications markets in France and Germany.
These countries constitute the two largest
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<PAGE>
telecommunications markets in continental Europe. In 1998, France and Germany
had telecommunications revenues of approximately $24.7 billion and $36.2
billion, according to Tarifica, an independent telecommunications consulting
group. We believe that to date, limited competition exists for the provision of
local access services in France and Germany. As a result of the liberalization
of the telecommunications market, both countries also have favorable regulatory
environments for investing in local access systems. We also expect that the
demand for high-capacity local access services will increase significantly,
driven by increasing Internet usage. According to a 1999 report prepared by
Ovum, an independent research group, Internet access revenues in France and
Germany are expected to increase at annual rates of 33.1% and 32.9%,
respectively, between 1999 and 2003, rising from $360 million and $780 million
to $1.1 billion and $2.4 billion during this period, respectively.
Deploy on-net customer-driven network. We design, deploy and operate our own
fiber optic metropolitan area networks in each of the markets we serve. Our
metropolitan area networks are reliable, scalable, Internet protocol compliant
backbones with a minimum of 144 fibers. We believe that owning and operating
our networks will enable us to be a low-cost provider of telecommunications
services and control the quality and range of services provided to our
customers. We also have implemented integrated, scalable customer care systems
and have constructed a European operations center to provide instant on-line
access to our network and customer and technical support service 24 hours per
day, 7 days a week. We outsource our network assembly operations to minimize
execution time while maximizing our use of capital by partnering with companies
with proven track-records, such as Nortel and Siemens. These alliances provide
us with equipment, services and personnel to design, build and service our
networks.
We design our networks initially in areas with a high density of potential
customers and limited infrastructure competition, such as the central business
districts of medium-sized cities and the underserved business centers of major
cities. We perform extensive statistical and market analyses to identify high
revenue potential customers and to confirm the limited presence of alternative
local providers. We believe that our geomarketing planning allows us to
maximize the return on local infrastructure assets, by optimizing routes of our
networks while minimizing our deployment costs. We plan to expand incrementally
our customer segments to lower density areas and to smaller customers, with
additional access technologies such as point-to-multipoint wireless broadband
and digital subscriber line services.
Offer high-capacity telecommunications services. We provide our directly
connected customers local access services over our own networks and bundled
resold long-distance services through the networks of other carriers. While the
growth rate for traditional voice services is lower than the growth in Internet
services, the switched voice market is the largest telecom segment. In addition
to traditional voice services, we also provide a variety of high-speed private
line services, both to business end-users and to the growing carrier market.
Implement an integrated Internet strategy. Through our Internet division, we
are focused on providing a suite of Internet-related services, including
dedicated high-capacity access, co-location and website hosting. Increasing
demand for basic Internet services presents opportunities to market our
Internet-related services, such as operating system and management support, as
well as application service provisioning. We plan to rapidly expand our
Internet data centers by modifying our existing switch centers at incremental
cost. We believe our ability to provide Internet data services packaged with
our metropolitan area networks differentiates us from competing Internet
service providers.
Pursue underserved and growing customer segments. We serve three high-growth
customer segments: business end-users, Internet-related providers and other
telecommunications carriers. We believe that business end-users, especially
small- and medium-sized enterprises and government entities are attractive
segments because they are underserved by the incumbent public operators, have a
high proportion of local calling and
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they are unlikely to experience significant price competition compared to
multinational customers. The carrier segment is also growing, as international
and national carriers have significant needs for high-capacity, dedicated local
access. Finally, we believe Internet-related providers have significant high-
capacity access and value-added application requirements. Corporate Internet
spending in France and Germany is expected to grow from $1.2 billion and $2.3
billion in 1998 to $7.2 billion and $12.9 billion in 2003, respectively,
according to IDC, an independent research group.
Build experienced and local management team. 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 has 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. In each of
our national markets, we have hired local management teams with broad
telecommunications industry experience from companies such as COLT, Cegetel,
Alcatel, VIAG Interkom, Siemens AG, France Telecom and Deutsche Telekom. All of
our employees participate in equity ownership plans.
Leverage experienced telecommunications industry investors. 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, including Focal Communications Corporation,
Nextel Communication, Inc. and Allegiance Telecom, Inc., among others;
LPL Investment Group; and Meritage Investment Partners. Two of our directors,
James C. Allen and Royce Holland, provide us with significant additional
competitive local exchange carrier experience. Mr. Allen was a co-founder and
the former chief executive officer of Brooks Fiber Properties and serves as a
director of several other 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 CEO of Allegiance.
Exploit our first-mover advantage. Before other alternative providers
consider entering our selected markets, we plan to continue to recruit and
retain experienced personnel, grow and develop our customer base, secure
critical rights-of-way and promote our name recognition.
Office addresses
Our principal executive office is located at Kruisweg 609, 2132 NA
Hoofddorp, The Netherlands, telephone number 31-20-666-1701.
3
<PAGE>
The Offering
The Global Offering......... The global offering consists of (i) a public
offering of shares in the United States and an
institutional offering of shares in Canada, (ii)
an institutional offering of shares outside the
United States and Canada, and (iii) a retail
offering of shares in France. A total of
27,200,000 shares will be issued in the global
offering.
Offering Price.............. It is currently estimated that the initial public
offering price per share will be between
(Euro)15.50 and (Euro)17.50, or $14.95 and
$16.88, based on exchange rate of (Euro)1.00 per
$0.9643, the Noon Buying Rate on Tuesday,
February 29, 2000.
Overallotment Option........ We have granted the underwriters a 30-day option
to purchase up to an aggregate of 4,080,000
additional shares solely to cover overallotments,
if any.
Use of Proceeds from the
Global Offering............ We expect to use the net proceeds from this
offering to:
. fund the further deployment of our networks
in our existing markets;
. fund the development of our fiber optic
metropolitan area networks in an additional
six cities in France and Germany;
. fund the expansion of our Internet-related
services;
. develop complementary local access systems;
. fund net operating losses; and
. for general corporate purposes.
Lock-up Provisions.......... We and each of the following persons have agreed
not to sell or dispose of shares or securities
convertible into shares for 180 days, commencing
on the date of this prospectus, without the
consent of the joint global coordinators:
. CompleTel LLC, CompleTel Holdings LLC,
CompleTel (NA) N.V. and CompleTel Europe
. Madison Dearborn Partners, LPL Investment
Group, Meritage Investment Partners and
their affiliates
. Members of our Supervisory Board and Board
of Management and our significant employees
The 180 day lock-up period also applies to any
shares purchased in this offering by any of the
persons listed above.
Shares Outstanding After
the Global Offering........ 153,333,060 shares will be outstanding after the
global offering. If the underwriters exercise
their overallotment option in full, 157,413,060
shares will be outstanding. In addition,
options to acquire 2,468,970 shares are
outstanding.
4
<PAGE>
Listing.....................
We have applied to have the shares approved for
quotation on the Nasdaq National Market under the
symbol "CLTL" and we have applied to have the
shares approved for listing on the Premier Marche
of the ParisBourse under the symbol "CTL". Prior
to this offering, there has been no public market
for the shares.
Settlement..................
The underwriters expect to deliver the shares
quoted on the Nasdaq National Market against
payment in U.S. dollars through the Depository
Trust Company's book entry facilities and to
deliver the shares listed on the Premier Marche
of the ParisBourse against payment in euro
through SICOVAM or through the book-entry
facilities of Morgan Guaranty Trust Company of
New York, Brussels office, as operator of the
Euroclear System, or Clearstream, formerly
Cedelbank, on or about , 2000.
Security Codes.............. Shares listed on the Nasdaq National Market:
. CUSIP:
. ISIN:
Shares quoted on the Premier Marche of the
ParisBourse:
. CUSIP:
. ISIN:
. SICOVAM:
. Common Code:
5
<PAGE>
CompleTel Europe N.V. Corporate Organizational Chart
The following chart shows our corporate structure after giving effect to
this offering. In addition, within 30 days following completion of this
offering, CompleTel Holdings LLC will be dissolved. After dissolving CompleTel
Holdings LLC, CompleTel LLC, through CompleTel (N.A.) N.V., will hold 77.5% of
our shares, investors in this offering, including certain of CompleTel LLC's
members, will collectively hold 17.7% of our shares, and the former holders of
class B interests of CompleTel Holdings LLC will collectively hold 4.8% of our
shares. The post-dissolution share holdings of CompleTel Holdings LLC and the
former class B interest holders will reflect their pre-dissolution economic
interest in shares held by CompleTel Holdings LLC. We will not issue any new
shares in connection with the dissolution of CompleTel Holdings LLC and the
related transactions.
[CHART]
- --------
(1) Includes anticipated purchases by Madison Dearborn Partners and LPL Telecom
Europe, L.P.
6
<PAGE>
RISK FACTORS
An investment in our shares involves a high degree of risk. You should
consider carefully the following risks, as well as all of the other information
in this prospectus, before deciding to buy our shares.
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 whether we will
be able to achieve our business objectives. We commenced operations in January
1998 and only recently began commercial operation. As of December 31, 1999, we
had only $3.0 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 December 31,
1999, we have incurred cumulative operating losses of $50.2 million and have
cumulative negative Adjusted EBITDA of $44.9 million. Our ability to generate
positive Adjusted EBITDA and operating profits will depend on a number of
factors, including, but not limited to:
. our ability to attract and retain new customers;
. our ability to attract and retain experienced, qualified personnel;
. our ability to construct network infrastructure in a timely and efficient
manner;
. 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 any or all 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 will 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 will need additional capital to fully implement our business plan. Our
principal capital expenditure requirements will involve the construction,
leasing and maintenance of our telecommunications networks, the purchase,
installation and maintenance of network switches and switch electronics,
network operations and Internet data centers. We may not be successful in
raising sufficient additional capital at all or on terms that we will consider
acceptable to develop our business. If we do not receive additional financing,
we may be unable to complete our deployment in existing markets, develop
metropolitan area networks in additional cities, or accelerate the deployment
of Internet-related services as contemplated by our current business plan. As a
result, we may have to modify, delay, or abandon some of our planned expansion
or expenditures.
As of December 31, 1999, together with our affiliates, we had raised
aggregate gross consideration of $182.9 million from debt and private equity
financings. As of December 31, 1999, we had incurred cumulative operating
losses of $50.2 million and made cumulative capital expenditures for property
and equipment of $100.5 million. We will satisfy our aggregate capital
requirements for our current business plan to deploy and
7
<PAGE>
operate our networks in 11 cities with the remaining funds we have already
raised and funds available to us under our (Euro)265 million senior secured
credit facility. We intend to use the proceeds from this offering to expand the
deployment of our networks in our existing markets and develop our networks in
six additional cities.
Based on our current plans, we expect that we will make aggregate capital
expenditures of approximately $575 million to deploy our planned 17 city
network in France, Germany and the United Kingdom through December 31, 2003. We
intend to fund our capital expenditures and operating losses through December
31, 2003 with cash on hand, the proceeds from this offering, funds available to
us under our credit facility and/or other funds to be raised from various
sources of financing, which we currently expect will largely consist of debt
financing, as market conditions may permit. There can be no assurances that we
will obtain the additional financing we need to complete the deployment of our
planned networks.
The actual amount and timing of our future capital requirements may differ
materially from our estimates. Among other things, we may need additional
financing if we experience:
. cost overruns;
. demand for our services that varies from our expectations;
. adverse regulatory, technological, or competitive developments;
. adverse changes in interconnection charges;
. adverse changes in interest or currency exchange rates;
. changes in engineering design and technology; and
. unforeseen delays.
Also, the size and timing of any future awards of additional fixed wireless
licenses and wireless local loop licenses, or the launch of new services, such
as DSL, will also affect our capital requirements, revenues and costs. These
factors may cause actual revenues and costs to vary from our expectations to a
material degree, which would affect our future capital requirements. We may
also need additional capital if we alter the schedule or the markets in our
deployment plan. If we are awarded all 18 of the wireless local loop licenses
that we have applied for, we anticipate that we will require approximately $255
million of additional debt and/or equity financing to construct and operate
wireless local loop facilities.
Our debt and credit agreements impose significant limitations on how we conduct
our business and a default under our indenture or credit agreements could
significantly impact our ability to operate our business
Under our existing indenture and senior secured credit facility, we are
subject to a number of significant covenants. These covenants limit our ability
to, among other things:
. borrow additional funds;
. pay dividends and make other distributions;
. make capital expenditures and other investments;
. make acquisitions or consolidate, merge or dispose of our assets;
. enter into transactions resulting in a change of control of our business;
and
. use the proceeds from this offering for projects outside of France and
Germany.
Our senior credit facility covenants also require us to achieve and maintain
specified minimum financial and operating results.
If we fail to comply with these covenants, we will default under these
agreements. A default, if not waived, could result in an acceleration of our
indebtedness, in which case the debt would become immediately due and payable.
If this occurs, we may not be able to repay our debt or borrow sufficient funds
to refinance it. Even if new financing is available, it may not be on terms
that are acceptable to us. We will not be able to borrow under the credit
facility unless we satisfy these covenants and other availability tests.
8
<PAGE>
In addition, to implement all aspects of our current business plan, we will
need to obtain waivers from our lenders or negotiate an amendment to the credit
facility with them. We cannot assure you we will be able to obtain the
necessary waivers or negotiate an amendment on terms acceptable to us. Our
failure to do so may materially impair our business prospects and results of
operations. See "Management's Discussion and Analysis of Financial Conditions
and Results of Operations--Liquidity and Capital Resources" and "Description of
Material Indebtedness."
We cannot predict how the competitive environment in our markets will develop
in the future
We are deploying our networks in recently liberalized markets and operating
in an evolving and competitive industry. In order to achieve profitability, we
must effectively compete against an increasing number of telecommunications
providers. We expect to compete with incumbent public telecommunications
operators, 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.
The telecommunications markets in France and Germany have historically been
dominated by France Telecom and Deutsche Telekom. 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.
We expect to have significant competition from more well-established, well-
funded website hosting providers with greater name recognition in the Internet-
related services market. We cannot assure you that we will be able to secure
sufficient market share and effectively compete in this well-established
market.
Our network plan is under development 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. We use a five step deployment process for each MAN,
including completing detailed analyses of the demographic, competitive,
economic and telecommunications demand characterization of each target city
prior to deploying any planned MAN. We then perform a walk-by inspection for
proposed routes and seek necessary rights-of-way and construction permission
from appropriate municipal authorities. If we decide to reallocate any funds to
deploy networks in markets 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 at all or is not
available on terms we can reasonably accept. Our ability to pursue our business
plan and complete the deployment of our network in France and Germany could be
adversely affected if we fail to obtain such additional financing.
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;
. changes or inaccuracies in our research or assumptions;
. unexpected results of operations in our initial target markets;
9
<PAGE>
. regulatory and technological developments;
. changes in or discoveries of specific market conditions favoring
expedited deployment into other attractive Western European metropolitan
markets; and
. award of wireless local loop licenses or deployment of DSL technologies.
If we do not effectively manage rapid expansion of our business, our financial
condition may suffer
Our business plan calls for rapid expansion and considerable increases in
the complexity of our operations. This rapid expansion and increased complexity
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;
. monitor operations;
. 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 networks involves many challenges that could stop or slow our
growth
Impediments to the deployment of our networks could prevent or significantly
delay the deployment of one or more of our planned networks. These impediments
could also significantly increase our costs for deploying our planned networks.
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 of the European Union Directives
regarding telecommunications liberalization; and
. increased competition and pricing pressures.
For example, we are likely to encounter difficulties in acquiring additional
necessary licenses for our planned deployment in Amiens in France, and Hamburg,
Mannheim and Stuttgart in Germany, 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.
10
<PAGE>
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 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, 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 or Siemens 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.
If we do not continually adapt to technological change, we could lose customers
and market share
The telecommunications industry is subject to rapid and significant changes
in technology, and we rely on outside vendors for the development of and access
to new technology. The effect of technological changes on our business cannot
be predicted. We believe our future success will depend, in part, on our
ability to anticipate or adapt to such changes and to offer, on a timely basis,
services that meet customer demands. We cannot assure you that we will
anticipate the demand for new technology or obtain access to new technology on
a timely basis or on satisfactory terms. If we fail to obtain new technology,
we could lose customers and market share.
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.
Our need to comply with extensive government regulation and licensing
requirements could increase our costs and slow our growth
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 metropolitan area networks 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.
11
<PAGE>
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 senior notes
indenture and 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 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.
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.
If we are unable to develop wireless transmissions systems, we may not be able
to serve all of 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 metropolitan area networks. 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 suitable rights to use 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 Marseille, France. We filed for a permanent license for 18
regions in France on January 31, 2000. As a result, our experimental
authorization in Marseilles has been extended through the date that a permanent
license is awarded or denied. A decision on this license is expected within
approximately six months from January 31, 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 which we have
applied to operate. Also, 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 are securing 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.
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
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<PAGE>
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 effect our ability to operate our networks or
bill our customers. Our customers' operations could also be affected in ways
that could reduce their usage of our networks or cause them to delay payments
or fail to pay us. 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 guarantee 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 short-term investments 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. See "Capitalization" and "Use
of Proceeds."
Investment Company Act regulation, for the most part, 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
may need to restructure our short-term investments. Currently, 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. If necessary to avoid Investment Company Act regulation, we would
instead be 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. In addition, should we be limited to holding U.S.
government securities to avoid Investment Company Act regulation, our exposure
to foreign currency exchange rate fluctuations would increase 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 we are not an investment
company for a period of one year from the date of the exemption. We have not
yet received this exemption, and it is possible that we will not ultimately
receive it.
We might be classified as a passive foreign investment company, resulting in
adverse tax consequences to U.S. holders of our shares
If we were to be considered a passive foreign investment company (PFIC) for
U.S. federal income tax purposes in 2000 or in future years, certain US
taxpayers that own our shares at any time during a taxable year for which we
are a PFIC will be subject to a complex set of rules under the Internal Revenue
Code and could be subject to additional taxes upon certain distributions by us
or upon a sale or disposition of their shares. We were a PFIC in 1998 and 1999,
and there is a possibility that we will be a PFIC in 2000 or in future years.
We intend to conduct our investment and business activities in a manner to
avoid PFIC status in 2000 and in future years. Whether we are a PFIC is a
factual determination that must be made annually, and thus may change. As a
result, we cannot assure you that we will not be deemed a PFIC in the future.
See "Taxation--U.S. Federal Income Tax--Passive Foreign Investment Company" for
a further discussion of the PFIC rules, the qualified electing fund election
and the election to mark our shares to market which, if timely and effectively
made, will allow U.S. holders of our shares to avoid certain adverse tax
consequences of the PFIC rules.
13
<PAGE>
Investors in our shares will incur immediate dilution and may experience
further dilution.
The initial public offering price of our shares will be substantially higher
than the pro forma net tangible book value per share of our outstanding shares
immediately after the offering. If you purchase our shares in this offering,
you will incur an immediate and substantial dilution in the pro forma net
tangible book value per share from the price you will have paid for the shares.
Also, we have granted options to purchase our shares with exercise prices
significantly below the anticipated initial public offering price. To the
extent these options are exercised, you will experience further dilution. See
"Dilution."
Shares eligible for public sale after this offering could adversely affect our
stock price.
After this offering, we will have 153,333,060 outstanding shares. We will
have 157,413,060 shares outstanding if the underwriters exercise their
overallotment option in full. Of these shares, the shares sold in this offering
will be freely tradable except for any shares purchased by our "affiliates" as
defined in Rule 144 under the U.S. Securities Act of 1933, as amended. The
currently outstanding shares will not be registered shares and may only be
offered for resale in the U.S. in compliance with the registration requirements
under the U.S. Securities Act of 1933 or pursuant to an exemption therefrom,
and following the expiration of lock-up agreements entered into with the
underwriters. We and each of the following persons have agreed not to sell or
dispose of shares or securities convertible into shares for 180 days,
commencing on the date of this prospectus, without the consent of the joint
global coordinators:
. CompleTel LLC, CompleTel Holdings LLC, CompelTel (N.A.) N.V. and
CompleTel Europe
. Madison Dearborn Partners, LPL Investment Group, Meritage Investment
Partners and their affiliates
. Members of our Supervisory Board and Board of Management and our
significant employees
The 180 day lock-up period also applies to any shares purchased in this
offering by any of the persons listed above.
Holders of class B interests will be issued an aggregate of 7,375,000 shares
within 30 days following this offering in exchange for membership interests
held in our indirect parent, CompleTel Holdings LLC. None of the holders of
class B interests has entered into any lock-up agreement relating to the shares
and may be able to resell some or all of their shares immediately upon
issuance. See "Shares Eligible for Future Sale" and "Underwriting."
As of the date of this prospectus, we had issued outstanding options to
purchase 2,468,970 shares which become exercisable over a period of time. We
will also have an additional 16,450,990 shares available for future issuances
under our stock option plan prior to consummation of this offering.
We cannot predict if future sales of our shares, or the availability of our
shares for sale, will materially adversely affect the market price for our
shares or our ability to raise additional capital by offering equity
securities.
Prior to this offering, there was no public market for our shares, and the
price of our shares may be volatile.
Prior to this offering, there was no public market for our shares. We have
applied to the Nasdaq National Market to list the shares for quotation and to
the Premier Marche of the ParisBourse to list our shares. We cannot predict,
however, the extent to which investor interest in our stock will lead to the
development of a trading market in our shares or how liquid that market might
become. The initial public offering price for our shares will be determined by
negotiations between us and the representatives of the underwriters and may not
be indicative of prices that will prevail in the trading market.
Stock markets in the U.S. and Europe recently have experienced significant
price and volume fluctuations and the market prices of securities of
telecommunications services providers and technology companies,
14
<PAGE>
particularly Internet-related companies, have been highly volatile. The market
price of our shares could be subject to significant fluctuations due to a
variety of factors, including, among other things, actual or anticipated
fluctuations in our operating results and financial performance, announcements
of technological innovations by our existing or future competitors or changes
in financial estimates by securities analysts. Investors may not be able to
resell their shares at or above the initial public offering price listed on the
front cover page of this prospectus. From time-to-time, following periods of
volatility in the market price of a company's securities, securities class
action litigation in the U.S. has been instituted against such a company. The
institution of any such litigation against us could result in substantial costs
and a diversion of our management's attention and resources, which could
materially adversely affect our business, results of operations and financial
condition.
We do not expect to pay dividends for the foreseeable future, and you will not
receive a positive return on an investment in our shares unless the market
price for our shares increases.
If we do not pay dividends on our shares, you will not receive a positive
return on your investment unless the market price for our shares increases. We
have never declared or paid any cash dividends on our shares. We currently
intend to retain any future earnings to finance operations, expand our network,
repay outstanding obligations and finance future acquisitions. Therefore, we do
not expect to pay any dividends in the foreseeable future. In addition, the
terms of our outstanding senior notes and our credit facility each effectively
prohibit our ability to pay cash dividends on our capital stock for the
foreseeable future.
Our shares will be concentrated among a small group of investors.
After giving effect to this offering, CompleTel LLC and certain of its
members will beneficially own or control approximately 77.5% of our outstanding
ordinary shares on a fully diluted basis, and Madison Dearborn Partners and LPL
Investment Group Inc. together will beneficially own or control approximately
57.5% of the outstanding membership interests of CompleTel LLC. Consequently,
as a practical matter, even after this offering, Madison Dearborn Partners and
LPL Investment Group Inc. will be able to control most matters requiring
approval by our shareholders, including the election of our Supervisory Board
and Board of Management, management policy and some fundamental corporate
actions. See "Principal Shareholders."
Foreign currency exchange rate fluctuations may adversely affect our financial
results.
Our results of operations may be affected by fluctuations in the value of
the local currencies in which our operating subsidiaries transact business,
principally the French franc and German mark, which have a fixed rate to the
euro, relative to the dollar. Changes in foreign currency exchange rates can
reduce the value of our assets and revenues and increase our liabilities and
costs, as measured in the dollar as our functional currency. Historically, we
have not attempted to reduce our exposure to these exchange rate risks by using
hedging transactions. We may therefore suffer losses solely as a result of
exchange rate fluctuations. 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 exposes them to risk from foreign currency
exchange rate fluctuations. Further, the value of our investment in an
operating subsidiary is affected by the exchange rate between the dollar and
the local currency of the operating subsidiary. 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. To avoid characterization as an Investment Company we may be required to
invest in dollar denominated investments which will increase our exposure to
currency fluctuations.
------------
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. These forward-looking statements are usually
accompanied by words such as "believe," "anticipate," "plan," "expect" and
similar expressions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including the risks faced by us described above and elsewhere in this
prospectus.
15
<PAGE>
USE OF PROCEEDS
We estimate that we will receive approximately $407.3 million ((Euro)422.4
million) in net proceeds from this offering based upon an assumed initial
public offering price of $15.91 per share, or (Euro)16.50 per share, the mid-
point of the offering range, or $468.8 million ((Euro)486.2 million) if the
underwriters exercise their overallotment option in full, after deducting
underwriting discounts and commissions and estimated offering expenses. We
expect to use the net proceeds from this offering to:
. fund the further deployment of our networks in our existing markets;
. fund the development of our fiber optic metropolitan area networks in an
additional six cities in France and Germany;
. fund the expansion of our Internet-related services;
. develop complementary local access systems;
. fund net operating losses; and
. for general corporate purposes.
The actual amount of net proceeds we spend on a particular use will depend
on many factors including, but not limited to:
. our future revenue growth;
. additional financing sources;
. obtaining any required consents and waivers from our lenders;
. obtaining additional licenses;
. our future capital expenditures; and
. the amount of cash generated by or used in our operations.
Until we use the net proceeds of this offering 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.
DIVIDEND POLICY
We have never declared or paid any dividends. For the foreseeable future, we
plan to retain our earnings, if any, to reinvest in our business. The terms of
some of our existing debt facilities prevent us from paying dividends. Further,
Dutch regulations limit our ability to pay dividends from statutory capital
equity. See "Description of Capital Stock--Annual accounts and profits
distribution."
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CAPITALIZATION
The following table sets forth our cash position and capitalization as of
December 31, 1999 on an actual basis and as adjusted to give effect to the
proceeds of this offering at an assumed offering price of (Euro)16.50 ($15.91)
per share, the mid-point of the offering range. This table gives effect to the
5-for-1 split we effected subsequent to December 31, 1999. Except as described
in this prospectus, there has been no material change to our capitalization
since December 31, 1999. This table should be read in conjunction with our
audited consolidated financial statements and the related notes included
elsewhere in this prospectus. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of December 31, 1999
----------------------------
Actual(1) As Adjusted
------------ -------------
(unaudited)
(in thousands of dollars)
<S> <C> <C>
Cash and cash equivalents......................... $ 57,349 $ 464,639
============ ============
Long-term debt:
14% senior discount notes, at accreted value.... 79,922 79,922
------------ ------------
Shareholder's equity:
Ordinary shares; nominal value (translated from
(Euro) .10 per share), 625,000,000 shares
authorized; 126,133,060 and 153,333,060 shares
issued and outstanding, respectively........... 14,171 16,794
Additional paid-in capital ..................... 124,166 528,833
Deferred compensation........................... (28,495) (28,495)
Other cumulative comprehensive loss ............ (3,912) (3,912)
Deficit accumulated during the development
stage.......................................... (62,316) (62,316)
------------ ------------
Total shareholders' equity.................... 43,614 450,904
------------ ------------
Total capitalization.......................... $123,536 $ 530,826
============ ============
</TABLE>
- --------
(1) After giving effect to a 5-for-1 stock split, an increase in authorized
shares to 625,000,000 and change in nominal value to (Euro).10 per share
effected subsequent to December 31, 1999.
17
<PAGE>
EXCHANGE RATE DATA
In this prospectus, references to "dollars", or "$" are to U.S. currency,
references to "euro" or "(Euro)" are to the single currency introduced on
January 1, 1999. 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, as 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.
On January 1, 1999, the euro became the single legal currency of the
participating European Union member states, including The Netherlands, France
and Germany. The conversion rates of the currencies of the participating member
states were irrevocably fixed against the euro effective January 1, 1999. On
that date, the French franc, the German mark and the Netherlands guilder ceased
to be the legal currency of France, Germany and The Netherlands, respectively.
From January 1, 1999 until June 30, 2002, the French franc, the German mark and
the Netherlands guilder will 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 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, as appropriate. From January 1, 2002 until the local currencies are
withdrawn and cease to be legal tender, cash payments will be made either 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.
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 Rates") for dollars expressed in dollar
per one euro as indicated:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Exchange Rate:
Period end (1).............................. $1.007 $1.181
Average during period (2)................... 1.065 --
High during period (2)...................... 1.002 --
Low during period (2)....................... 1.181 --
</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,
therefore Euro Noon Buying Rates are not meaningful for these periods.
18
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999, was $33.6 million
((Euro)34.8 million) or $.27 per share ((Euro).28 per share). Net tangible book
value per share is net tangible book value divided by the number of shares
outstanding. After giving effect to our sale of 27,200,000 shares in this
offering, at an estimated initial public offering price of $15.91 per share
((Euro)16.50 per share), the mid-point of the offering range, and application
of the estimated proceeds therefrom, our net tangible book value as of December
31, 1999, would have been $440.9 million ((Euro)457.2 million), or $2.88 per
share ((Euro)2.98 per share).
Dilution per share represents the difference between the price per share
paid by new investors for the shares issued in this offering and the pro forma
net tangible book value per share immediately after the completion of the
offering. The following table illustrates this net tangible book value per
share dilution without giving effect to dilution that will occur when
outstanding options are exercised:
<TABLE>
<CAPTION>
Per Share
------------------
<S> <C> <C>
Assumed initial public offering price, which is the mid-
point of the offering range............................... (Euro)16.50 $15.91
Net tangible book value before this offering............... .28 .27
Increase in net tangible book value attributable to this
offering.................................................. 2.70 2.61
----------- ------
Pro forma net tangible book value, as adjusted to reflect
this offering............................................. 2.98 2.88
Dilution to new investors purchasing shares in the
offering.................................................. 13.52 13.03
</TABLE>
Assuming this offering had occurred on December 31, 1999, the following
table summarizes the differences between the total cash consideration paid
(excluding non-cash deferred compensation and compensation expense recorded in
additional paid-in capital) and the average price per share paid by the
existing shareholder and the new investors with respect to the number of
ordinary shares purchased from us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- ------------------------------ Average
Number Percent Amount Percent Price per Share
----------- ------- ---------------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Existing
shareholder(1)......... 126,133,060 82.26% (Euro)116,524 $112,364 20.61% (Euro) .92 $ .89
IPO purchase by
investors in existing
shareholder............ 2,074,040 1.35 34,222 33,000 6.05 16.50 15.91
New investors........... 25,125,960 16.39 414,578 399,779 73.34 16.50 15.91
----------- ------ ------------- -------- ------ ---------- -----
Total................. 153,333,060 100.00% (Euro)565,324 $545,143 100.00% (Euro)3.69 $3.56
=========== ====== ============= ======== ====== ========== =====
</TABLE>
We have granted options to purchase our shares at exercise prices
significantly below the anticipated initial public offering price. To the
extent such options are exercised, you will experience further dilution.
(1) Includes gross cash consideration paid by investors in existing shareholder
and its beneficial owners for equity interests in existing shareholder
whose principal investment is in CompleTel Europe.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
the audited consolidated financial statements included elsewhere in this
prospectus which have been prepared in accordance with accounting principles
generally accepted in the U.S. The selected consolidated financial data set
forth below are qualified by reference to, and should be read in conjunction
with, the audited consolidated financial statements 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>
Commencement
of Operations
(January 8, 1998)
Year Ended to
December 31, 1999 December 31, 1998
----------------- -----------------
(in thousands, except per share
amounts)
<S> <C> <C>
Statement of operations data:
Revenues............................... $ 2,985 $ --
Network costs.......................... 2,407 --
Selling, general and administrative
expenses.............................. 32,282 4,552
Management fees to affiliate........... 6,464 2,963
Depreciation and amortization.......... 4,489 46
---------- ----------
Operating loss......................... (42,657) (7,561)
Other expense, net..................... (9,299) --
---------- ----------
Net loss............................... $ (51,956) $ (7,561)
========== ==========
Basic and diluted loss per share....... $ (.52) $ (.31)
========== ==========
Weighted average number of ordinary
shares outstanding.................... 99,056,060 24,444,820
========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of As of
December 31, 1999 December 31, 1998
----------------- -----------------
(in thousands)
<S> <C> <C>
Balance sheet data:
Cash and cash equivalents.................. $ 57,349 $ 1,718
Property and equipment, net................ $ 92,374 $ 3,371
Total assets............................... $177,339 $ 7,870
Long term debt............................. $ 79,922 $ --
Total shareholder's equity (deficit)....... $ 43,614 $(6,012)
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Selected Consolidated Financial Data" and our audited consolidated
financial statements and the related notes thereto which are included elsewhere
in this prospectus. Such "Selected Consolidated Financial Data" and the audited
consolidated financial statements have been prepared using accounting
principles generally accepted in the U.S. 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.
We are a rapidly growing CLEC operating in France and Germany. We offer
traditional fixed wireline retail business telecommunications 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 Internet data centers we are establishing
in France, Germany and the United Kingdom.
CompleTel Europe was incorporated in December 1998, and through a series of
transactions in January 1999, became the holding company for our European
telecommunications businesses which commenced in January 1998, when CompleTel
LLC was formed. We accounted for these transactions as a reorganization of
entities under common control, similar to a pooling of interests. Accordingly,
our historical results of operations are presented as if we had been legally
formed on January 8, 1998 and had performed all CLEC related development
activities in Western Europe since CompleTel LLC's inception.
We currently report all of our historical financial results in U.S. dollars
as our functional currency. We have adopted the euro as our functional currency
effective January 1, 2000, as 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.
Significant milestones
. 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 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 units offering in which we issued 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 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 million in cash.
. In April 1999, we received a $90 million credit facility commitment from
Paribas and Nortel Networks.
. In June 1999, we launched commercial services in France and obtained an
experimental authorization for point-to-multipoint in Marseilles.
. 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 in cash plus approximately
$240,000 in contingent earnout payments.
. In July 1999, we received an extension of the markets for our German
licenses.
21
<PAGE>
. 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 Networks.
. 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 million, which CompleTel LLC immediately
contributed to us and our operating subsidiaries. As a result, CompleTel
Holdings LLC class B interests now represent 5.85% of our outstanding
share capital.
. In January 2000, we executed the (Euro)265 million senior secured credit
facility. To date, we have made no draws under this facility.
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
year ended December 31, 1999, revenues totaled $3.0 million. Since January
1998, we have developed and refined our business plans, procured regulatory and
governmental authorizations for our initial 11 markets, raised capital, hired
management and other key personnel, designed, developed and begun installing
our fiber optic metropolitan area networks and operation support systems,
obtained senior financing commitments and negotiated equipment and facilities
agreements.
Operating expenses
Our primary operating expenses through December 1999 consisted of network
costs, selling, general and administrative expenses, including start-up costs,
management fees to affiliate, and depreciation and amortization expenses.
Network costs
Network costs for the year ended December 31, 1999 totaled $2.4 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.
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 year ended December 31, 1999,
selling, general and administrative expenses totaled $32.3 million compared to
$4.6 million for the comparable period in 1998. This increase was primarily due
to the rapid growth of personnel costs since commencement of operations.
22
<PAGE>
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 36 as
of December 31, 1998 to 374 as of December 31, 1999. On December 31, 1999, we
had a sales force of 108 (including managers and administrators), compared to
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 anticipate incurring amortization of stock-based compensation expense of
approximately $1.4 million under our stock option plan for the three months
ended March 31, 2000. This amount is based on deferred compensation expense
recorded as of December 31, 1999 totaling approximately $26.5 million.
We also anticipate incurring additional stock-based compensation expense of
approximately $38.2 million upon completion of our initial public offering
("IPO") due to the resulting anticipated vesting of certain CompleTel LLC
performance vesting units held by certain of our employees in connection with
what is anticipated to be a qualified public offering. This compensation
expense is based on an assumed IPO price of (Euro)16.50 ($15.91)per share. For
each $1 increase in the anticipated IPO price per share, additional
compensation expense of approximately $7.2 million will be recorded. In
addition, based upon our value as indicated in the IPO, we will record
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 Madison
Dearborn Partners or in May 2005 based on a deemed vesting date. 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 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
assuming the successful completion of our anticipated IPO.
Management fees to affiliate
CompleTel LLC, 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. During 1998,
CompleTel LLC, and its wholly-owned subsidiary, CableTel Management, Inc., a
Colorado corporation, entered into an agreement for CableTel Management, Inc.
to provide management services for CompleTel LLC and all the other companies in
the group. The companies 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. incurs in
rendering services to each of the companies. For the year ended December 31,
1999, and the period from commencement of operations to December 31, 1998, we
recorded $6.5 million and $3.0 million, respectively, of related-party
management fees.
Depreciation and amortization
For the year ended December 31, 1999, we recorded depreciation and
amortization expense of $4.5 million, compared to $46,000 for the similar
period in 1998. 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 $1.4 million of capitalized interest,
of $8.2 million during the year ended December 31, 1999. The interest expense
recorded reflects the accretion of the notes and the amortization of deferred
financing costs. We capitalize a portion of our interest costs as part of the
construction
23
<PAGE>
cost of our networks, in accordance with Statement of Financial Accounting
Standards No. 34 "Capitalization of Interest Costs" ("SFAS 34"). Interest
income for the same period was $2.6 million, which resulted from the investment
of the proceeds from the high-yield notes and the investment of the available
cash from the equity contributions. We did not recognize any significant
amounts of interest expense or interest income during 1998.
In addition to the above expenses, some of our employees have purchased
common units of CompleTel LLC for which CompleTel LLC incurs non-cash
compensation charges. For accounting purposes, we record such non-cash
compensation charges as a deemed capital contribution with an offsetting entry
to deferred compensation. Deferred compensation is amortized to expense over
the vesting period of the common units.
Foreign exchange rates
We are exposed to changes in currency exchange rates because our revenues,
costs, assets and liabilities are, for the most part, denominated in local
currencies. As a result, our financial condition and results of operations, as
reported in dollars as our functional currency through December 31, 1999, may
be affected by changes in the value of the local currencies in which we
transact business. The notes which we issued in February 1999 also expose us to
exchange rate fluctuations as the payment of principal and interest on the
notes will be made in U.S. dollars, and a substantial portion of our future
cash flow used to service these payments will be denominated in local
currencies, including the euro. 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 currency effective January 1, 2000.
Net loss
Our consolidated net loss during the year ended December 31, 1999 and the
period from commencement of operations (January 8, 1998) to December 31, 1998
was $52.0 million and $7.6 million, respectively. The increase was primarily
the result of 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 U.S. Dollars).
<TABLE>
<CAPTION>
Commencement
of Operations
Year (January 8, 1998)
Ended to
December 31, December 31,
1999 1998
------------ -----------------
<S> <C> <C>
Net loss........................................ $(51,956) $(7,561)
Interest expense (net of interest income)....... 5,683 --
Income taxes.................................... -- --
Depreciation and amortization................... 4,489 46
Non-cash compensation expense................... 675 191
Other expense................................... 3,553 --
-------- -------
Adjusted EBITDA................................. $(37,556) $(7,324)
======== =======
</TABLE>
24
<PAGE>
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, 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 in
accordance with U.S. generally accepted accounting principles.
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 in accordance with U.S. generally accepted accounting principles. Cash
from operating activities is net of interest and taxes paid and is a more
comprehensive determination of periodic income on a cash, 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 $57.3 million as of December 31, 1999,
an increase of $55.6 million from $1.7 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
Year Ended (January 8, 1998)
December 31, to December 31,
1999 1998
------------ -----------------
<S> <C> <C>
Cash flows from operating activities........... $(41,313) $5,596
Cash flows from investing activities........... (72,659) (4,368)
Cash flows from financing activities........... 170,721 649
Effect of exchange rates on cash............... (1,118) (159)
-------- ------
Net increase in cash and cash equivalents...... 55,631 1,718
Cash and cash equivalents at beginning of
period........................................ 1,718 --
-------- ------
Cash and cash equivalents at end of period..... $ 57,349 $1,718
======== ======
</TABLE>
Cash flows from operating activities
During the year ended December 31, 1999, we used $41.3 million in operating
activities, a $46.9 million decrease from the $5.6 million generated from
operating activities for the similar period in 1998. This decrease was
primarily related to the substantial organization and start-up costs incurred
during the development of our networks. Our development efforts increased
significantly in the fourth quarter of 1998 and during 1999 upon our receipt of
services licenses in France and Germany.
Cash flows from investing activities
We used approximately $72.7 million of cash in investing activities during
the year ended December 31, 1999, compared to a use of $4.4 million for the
similar period in 1998. The increase was due to increased
25
<PAGE>
capital expenditures primarily related to our network development and office
facilities and equipment. Additionally, during the year ended December 31,
1999, we used $2.1 million and $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 $170.7 million of cash flows from financing activities
during the year ended December 31, 1999, compared to $0.6 million for the
similar period in 1998. The increase resulted in part from increased cash
contributions from our ultimate parent, CompleTel LLC, which totaled
approximately $104.7 million for the year ended December 31, 1999, compared to
$1.5 million for the similar period in 1998. Additionally, in April 1999, we
received from escrow the net proceeds from our units offering totaling
approximately $73.2 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 to fund operating losses. As of December 31, 1999, we had $57.3 million of
cash and short-term investments and net working capital of $20.3 million.
Since January 1998, CompleTel LLC has received $107.9 million in private
equity contributions of which $59.5 million was contributed to our French
operating subsidiary, $40.0 million was contributed to our German operating
subsidiary, $2.1 million was contributed to CompleTel Europe and the remainder
was retained by CompleTel LLC for start up expenditures on behalf of CompleTel
Europe and its subsidiaries. In February 1999, CompleTel Europe and CompleTel
Holdings LLC completed a units offering consisting of senior discount notes and
class B interests in CompleTel Holdings LLC resulting in gross proceeds in
respect of the units of approximately $75.0 million, of which $70.5 million was
allocated to the notes, which represents a substantial discount from the $147.5
million aggregate stated principal amount at maturity of the notes. The
remaining $4.5 million was allocated to the class B interests of CompleTel
Holdings LLC. Cash interest will not accrue on the notes prior to February 15,
2004. At that date, the principal amount of the notes will have increased to
the $147.5 million stated principal amount at an effective annual interest rate
of 15.1%. The $77 million increase in principal amount plus amortization of
deferred financing costs 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 on February 16, 2009.
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
S.A.S., and CompleTel GmbH, 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 specified conditions are satisfied. Following December 31, 2002, up
to (Euro)141 million of the outstanding advances under the euro revolving loan
facility will be converted into a term loan, and any other outstanding advances
will become part of a (Euro)19 million working capital facility. As of the date
of this prospectus, we had no borrowings outstanding under the facility. For a
description of the terms and conditions of the facility, see "Description of
Material Indebtedness-- (Euro)265 Million Senior Secured Credit Facility."
The funds available under the facility 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 our 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
26
<PAGE>
consolidation transactions. The facility also limits the use of proceeds of an
initial public offering, other equity investments, or a high yield issue as it
provides that any such proceeds be held as cash equivalent investments or used
to develop our telecommunications business 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, all advances will 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. We also have guaranteed the payments
under the facility and have agreed to indemnify the banks against certain
losses.
Based on our current plan, 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, funds available to us
under our (Euro)265 million senior secured credit facility, the proceeds from
this offering and additional funds that we intend to raise in the future
through other sources of debt and/or equity financing. We cannot be certain
that we will be successful in obtaining additional financing.
Capital expenditures
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 $101.4 million and $4.4
million, respectively, for property and equipment necessary to deploy networks
in our initial markets. We also used capital during these periods to fund our
operating losses.
Based on our current plans, we expect that we will make aggregate capital
expenditures of approximately $575 million through December 31, 2003, including
approximately $375 million between January 1, 2000 and December 31, 2001, and
$200 million between January 1, 2002 and December 31, 2003, to deploy our
planned 17 city network in France, Germany and the United Kingdom, including
our existing eleven markets and six additional cities, Amiens, Nantes and Rouen
in France, and Hamburg, Mannheim and Stuttgart in Germany. We intend to fund
our capital expenditures and operating losses during this period with cash on
hand, the proceeds from this offering, funds available to us under our credit
facility and/or other funds to be raised from various sources of financing,
which we currently expect will largely consist of debt financing, as market
conditions may permit.
Impact of the year 2000
The "year 2000" problem generally describes the various problems that may
result from the improper processing of dates and date-sensitive calculations by
computers and other equipment as a result of computer hardware and software
using only the last two digits of the year to identify the year in a date
field. If a computer program or other piece of equipment fails to properly
process dates including and after the year 2000, the computer's calculations
may be inaccurate and equipment may malfunction. The failure to process dates
could result in system failures or miscalculations causing disruptions in
operations including, among other things, a temporary inability to process
transactions, send invoices or engage in other routine business activities.
We have completed our initial internal year 2000 conversion and have not
experienced any significant problems. However, until well into the year 2000,
we cannot assure you that all systems will function adequately. Also, we sell
our telecommunications services to companies that may rely upon computerized
systems to make payments for our services, and we interconnect certain portions
of our network and systems with other companies' networks and systems. These
transactions and interactions potentially expose us to year 2000 problems
arising in these other companies' systems. Based on our experience to date, we
do not currently
27
<PAGE>
anticipate significant problems related to the year 2000 conversion in the
future and do not expect to incur additional costs associated with year 2000
issues. However, because we cannot predict with any degree of certainty the
effect of the year 2000 conversion on our customers and vendors, we cannot
guarantee that we will not encounter problems related to the year 2000
conversion in the future which may have a material adverse effect on our
business, financial condition and results of operations.
Euro conversion
Effective January 1, 1999, the euro became the single legal currency of the
eleven 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 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.
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 legacy currency to avoid euro conversion problems. However, to the
extent we have international transactions, we will be exposed to euro-related
risks.
The establishment of the European Monetary Union may have a significant
effect on the economies of the participant countries. While we believe that the
introduction of the euro will eliminate exchange rate risks in respect of the
currencies of those member states that have adopted the euro, which includes
Germany and France, there can be no assurance as to the relative strength of
the euro against other currencies, including the U.S. dollar. Since a
substantial portion of our net sales will be denominated in euro or legacy
currencies of participant countries, we will be exposed to that risk.
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 metropolitan area networks 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. There can
be no assurance 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 licenses in our existing markets in force or we may be in
default under our senior notes indenture and 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
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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.
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. 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. The
Company has evaluated SAB 101 and it believes that there is no effect on the
revenue recognition policies currently in place.
Quantitative and qualitative disclosures about market risk
Investment portfolio and interest rate sensitivity
Our investment policy is limited by the indenture for the senior discount
notes and our senior secured credit facility. We are restricted to investing in
financial instruments with a maturity of one year or less (with certain limited
exceptions). The indenture requires investments that meet high credit quality
standards, such as obligations of the U.S. government securities or any
European Economic Community member government or any agency thereof guaranteed
by the country, certificates of deposits, money market deposits, and commercial
paper with a rating of A-1 or P-1. Under our credit facility, we are required
to enter into an interest rate hedging program with respect to 50% of every
tranche of (Euro)50 million borrowed to mitigate foreign currency exchange rate
risk.
Interest income earned on our investment portfolio is affected by changes in
short-term interest rates. We are thus exposed to market risk related to
changes in market interest rates. To date, we have managed these risks by
monitoring market rates and the duration of our investments.
We do not think we are exposed to significant changes in fair value of our
investment portfolio because of our conservative investment strategy.
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Impact of foreign currency rate changes
We are exposed to changes in currency exchange rates because our revenues,
costs, assets and liabilities are, for the most part, denominated in local
currencies. As a result, our financial condition and results of operations, as
reported in dollars as our functional currency through December 31, 1999, may
be affected by changes in the value of the local currencies in which we
transact business. The senior discount notes which we issued in February 1999
also expose us to exchange rate fluctuations as 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 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.
Our operating subsidiaries' monetary assets and liabilities are subject to
foreign currency exchange risk if purchases of network equipment and services
are denominated in currencies other than the subsidiary's own functional
currency. However, the majority of such purchases to date have been based on
each subsidiary's functional currency.
The spot rates for the euro are shown below expressed in dollar per one
euro.
<TABLE>
<S> <C>
December 31, 1998.................................................. $1.181
December 31, 1999.................................................. $1.007
</TABLE>
We intend to manage exchange rate risk by incurring financing liabilities
denominated in the currency of the county of operations. In addition, we will
continue to evaluate whether to adopt hedging strategies to manage our exposure
to foreign currency exchange rate risk.
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BUSINESS
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 end-users, other telecommunications carriers
and Internet-related providers in large metropolitan areas with limited local
access competition. Using our state-of-the-art, fiber optic, metropolitan area
networks (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 metropolitan area networks in 11
cities in France and Germany and provide Internet-related services in these
cities and the United Kingdom. As of February 25, 2000, we had commercially
launched services in nine cities, Paris, Grenoble, Lyon, Marseille and Lille in
France, and Berlin, Essen, Munich and Nuremberg in Germany. We expect to become
operational in two additional cities, Nice and Toulouse in France, during the
first half of 2000. We plan to use the proceeds from this offering to expand
our metropolitan area networks in our existing cities, deploy networks in an
additional six cities, Amiens, Nantes and Rouen in France and Hamburg, Mannheim
and Stuttgart in Germany, and to accelerate the expansion of our Internet-
related services. We had deployed over 447 route kilometers as of February 25,
2000. We plan to continue to expand our networks and, based on our current
plans and projections, we expect to deploy approximately 1,500 to 1,700
additional kilometers of local networks during the next four years, as follows:
approximately 1,150 to 1,250 kilometers between January 1, 2000 to December 31,
2001, and approximately 350 to 450 kilometers between January 1, 2002 through
December 31, 2003.
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, 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 competitive local exchange
carrier 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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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 as measured by revenues,
estimated to be $24.7 billion in France and $36.2 billion in Germany, in 1998,
according to Tarifica. The size of these telecommunications markets, stated as
a percentage of 1998 gross domestic product (GDP) is 1.7% for both France and
Germany. This is relatively small compared to other continental European
countries and the U.S., suggesting further room for growth. The following
charts set forth telecommunications revenues and GDP for selected continental
European countries.
[CHART]
Top 4 Continental European Countries
In Terms of GDP (1998)
France 1,455
Germany 2,135
Italy 1,185
Spain 581
Top 4 Continental European Countries
In Terms of Telecom Revenues (1998)
France 24.7
Germany 36.2
Italy 24.5
Spain 13.7
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. The following chart sets
forth both historical and projected breakdowns of telecommunications
revenues in France and Germany for the indicated periods.
[CHART]
Telecom Revenues Breakdown
France Germany
------ -------
1998 24.7 1998 36.2
1999 26.4 1999 37.5
2000 28.1 2000 39.5
2001 29.7 2001 42.1
2002 31.3 2002 44.9
2003 32.7 2003 47.9
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. 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,
rising from $360 million and $780 million to $1.1 billion and $2.4
billion during this period respectively, according to Ovum. The growth
prospects of both these markets are set forth below:
[CHART]
Data Revenues
France Germany
1999 1.5 2.6
2000 1.8 2.8
2001 2.1 3.0
2002 2.5 3.2
2003 2.7 3.4
[CHART]
Internet Access Revenues
France Germany
1999 0.4 0.8
2000 0.5 1.0
2001 0.6 1.3
2002 0.8 1.8
2003 1.1 2.4
. 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 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.
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<PAGE>
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.
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
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.
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[Typical Target Customer and MAN Route Map]
35
<PAGE>
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-transmission 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 and Cisco.
. 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 plan to employ 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.
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Network infrastructure
The following diagram shows how the different elements of our network
infrastructure once deployed will link with one another:
[GRAPHIC]
. 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.
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<PAGE>
- 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.
. Switch and Internet data centers. 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. In addition, Internet data
centers are being deployed to support our Internet strategy, leveraging
our carrier-class switch center facilities. Our switching center assets
facilitate the rapid deployment of our Internet data centers.
. 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, which is near our French and European headquarters
in La Defense in Paris. 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, Telecom
Development, Siris and RSLCom. We are in the process of developing
additional physical
38
<PAGE>
interconnections with the incumbent public operators, at both their tandem
switching centers and the end office/serving wire centers in each of our
markets. Similarly, we are interconnecting our networks with Internet
backbone operators and public Internet peering locations with the
intention to form a Tier one Internet traffic aggregation network,
connecting France, Germany, the United Kingdom and the U.S.
. 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. Speed to market is critical in securing
rights-of-way 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.
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, Marseille 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 Networks to supply us equipment, including SDH, voice and
data switching, data routers and customer premise equipment, engineering
services, NOC management, inventory management, equipment installation
and first level maintenance during the initial start up phase of each
market. We selected Nortel Networks to provide the core components of our
metropolitan area networks to ensure compatibility across all of our
networks. In Germany, we also purchase voice switching equipment from
Siemens AG.
Complementary local 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 or 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.
We intend to apply 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,
39
<PAGE>
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. In June 1999, we received from the
Autorite de Regulation des Telecommunications (ART) an experimental point-to-
multipoint wireless license in Marseille, France. We filed for a permanent
point-to-multipoint license for 18 regions in France on January 31, 2000, and,
as a result, our experimental authorization in Marseilles has been extended
through the date that a permanent license is awarded or denied. We expect a
decision on the license within approximately six months from January 31, 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 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. It provides greater speed,
reliability and flexibility than standard modem or ISDN connections over copper
lines.
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.
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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 level backbone between France,
Germany, the United Kingdom and the U.S.
. 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 muli-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 intend to accelerate the upgrade of
each of our switch centers in France and Germany to create Internet data
centers, including large centers in Paris and Munich (SuperPOPs), and smaller
centers in the regional switch centers (MetroPOPs) and, subject to obtaining a
waiver from our banks under our credit facility, we intend to install a center
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,
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.
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. 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 plan to have Cisco SystemsTM, MicrosoftTM
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:
. 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.
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Our products and services include:
<TABLE>
<CAPTION>
Customer Segment Products and Services
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Business, government and
institutional end-users Voice--local and long-distance: Inbound
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;
. These segments are capital-efficient to serve, given their concentration
within any particular target area; and
. These segments generally are more receptive to exploring high-quality
alternatives to the incumbent carriers.
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
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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.
(LINE GRAPH)
Small and Medium-Sized Enterprises Internet Users
France Germany
------ -------
1999 110 270
2000 190 500
2001 300 830
2002 460 1,230
2003 640 1,670
Government end-users
We have identified local government authorities as important potential
customers in view of their need to obtain advanced technology in linking up all
of their municipal offices at competitive prices. Local government authorities,
such as social security administrations and tax authorities, 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 U.S., this 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.
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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
. 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.
Initially, we concentrate our sales and marketing effort on larger
customers. Once we secure these customers' business, we direct our sales and
marketing activities to focus on capturing smaller customers. As networks are
deployed in additional cities, we will expand our focus on national and pan-
European customers. To this end, we have already 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.
As of January 31, 2000, we had 121 employees in sales and marketing,
representing nearly 37% of our operating employees. Our salespeople come from
two primary sources, either directly from other telecom providers or from
related industries. As of February 25, 2000, we had 315 orders for 118,549 line
equivalents of capacity, of which 137 services were installed and the remainder
were pending installation.
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 will become 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
Pricing is one of our ways to differentiate ourselves from the incumbent
operators and to attract customers, although it is only one of our
differentiators alongside consistent, reliable, quality, customer care and
superior product range. We plan generally to price our services to our
customers at a discount to the incumbent operator, offering combined services
discounts to incent customers to buy a portfolio of services, designed to
maximize
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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 of 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.
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 of 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;
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. 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
Networks 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
Competition for the provision of local telecommunications services in Europe
is still in the early stages of development. The markets for public, switched
telecommunications services in France, Germany and many of the other Western
European countries were closed to competition until January 1, 1998. Therefore,
legislators, regulators and courts in those countries have limited experience
in regulating a pro-competitive telecommunications sector. Historically, no
entity other than the incumbent public telecommunications operators had the
right to provide public telephone service or networks in those countries.
Currently, the European Union is actively seeking to stimulate 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. We believe that the
ongoing liberalization of the European Union telecommunications market will
cause more local exchange carriers, including pan-European carriers, to enter
the market. Under the new regulatory structure, existing public
telecommunications operators may 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.
In today's regulatory environment, we will compete with both incumbent
public telecommunications operators, like France Telecom and Deutsche Telekom,
and other local exchange carriers in each market we enter. Based on their
historically exclusive market positions, incumbent public telecommunications
operators generally have several competitive advantages over new competitors,
including:
. expansive economic and human resources;
. close ties to local and national regulatory authorities;
. ubiquitous local and long-distance distribution facilities;
. existing rights-of-way;
. control of or access to telephone numbers; and
. control over local telecommunications connectivity.
We believe that the principal competitive factors affecting our business will
be:
. price;
. customer service;
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. network quality;
. accurate billing; and
. variety of services.
Our ability to compete effectively will depend upon our ability to maintain
high-quality services at competitive prices. 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.
Incumbent carriers
We expect that our principal competitors will be the incumbent public
telecommunications operators in the markets which we serve:
. France Telecom in France, and
. Deutsche Telekom in Germany.
Each market presents a different competitive landscape. In France, France
Telecom has invested heavily in upgrading its network and enjoys 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 will face competition in France from operators of fiber networks such as
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, inluding 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.
We are deploying our networks in recently liberalized Western European
markets and are operating in a fast changing and competitive industry. In the
future we expect that we will need to effectively compete against an increasing
number of telecommunications service providers who may enter our targeted
markets, including among others, a number of publicly traded, European-based
providers, such as Jazztel, Versatel and Thus. We believe that we may encounter
increasing competition from these companies. We cannot assure you that we will
be able to effectively compete with the larger, established telecommunications
providers and the other operators in our markets.
Regulation
Overview
National and local laws and regulations governing the provision of
telecommunications services differ significantly among the countries in which
we intend to operate. The interpretation and enforcement of such laws and
regulations 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 U.S. that
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<PAGE>
originated on our European networks and to transport traffic originating in the
U.S. to our networks or through one of our interconnections.
Deregulation of telecommunications is a relatively new phenomenon in Europe
and there is little history to guide competitive entrants. Relationships
between European Union member governments and the European Union's central
agencies are evolving. The degree to which the European Union
telecommunications market will be subject to national or European Union control
remains to be seen. 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.
Regulatory, judicial, legislative or political considerations may prevent us
from offering our services to residents of Western European countries and 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. 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 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. Greece, Portugal, Ireland, Spain and Luxembourg
have been granted additional implementation periods. 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. Also, the European Commission
has initiated legal action against Belgium, Denmark, Germany, Greece, Italy,
Luxembourg and Portugal for not implementing the directive on full voice
telephony competition adequately.
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:
. 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
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third parties and the use of shared infrastructure for the provision of
services other than public voice telephony.
. The Licensing Directive, which established a common framework for general
authorizations and individual licenses in the field of telecommunication
services. The Licensing Directive is intended to allow telecommunications
operators to benefit from an European Union-wide market for
telecommunications and establish a common framework for national
authorization regimes and seeks to facilitate cross-border networks and
services.
. The Interconnection Directive, which mandates that each Member State
ensure that the historical public telecommunications operators and
operators with significant market power:
. provide interconnection to other operators under terms and conditions
that are cost-oriented, non-discriminatory, objective and transparent;
. publish by July 1, 1997, their "unbundled" interconnection terms and
conditions;
. negotiate access agreements and specific terms of interconnection,
subject to the intervention of the member state's regulatory authority
in case of a breakdown in the negotiations; and
. adopt transparent accounting methods for each cost component.
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 litigation and other
delaying tactics. The Interconnection Directive is expected to be amended to
provide for carrier pre-selection 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.
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
"Telecommunications Ministry", 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
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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.
We also received a point-to-multipoint wireless authorization for our
planned local loop in Marseilles in June 1999. Point-to-multipoint
authorizations are currently available in France only on a limited and
experimental basis. We filed for a permanent point-to-multipoint license on
January 31, 2000 and, as a result, our experimental authorization has been
extended until a decision is made to award or deny our application for
permanent license. We expect that the decision to grant the license will be
made within six months of January 31, 2000.
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 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 France, unbundling of the local loop is an issue which has still to be
settled. In April 1999, ART started a public consultation on the issue of
unbundling the local loop and requested comment on five possible options:
access to the copper wires; access to a permanent virtual circuit; access to
capacity; resale of local traffic; and resale of subscriptions. The results of
the comment period were published in October 1999. Although the issue has not
been settled as of the date of this prospectus, ART could request that
unbundling solutions be rapidly implemented concerning access to France
Telecom's ADSL lines.
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
(RegTP), has been installed.
Under the German regulatory scheme, RegTP 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
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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 and
as of January 2000, to include among others, our additional markets. The
licenses are of unlimited duration. We have not yet obtained licenses for our
planned development in Hamburg, Mannheim and Stuttgart.
We entered into an interconnect agreement with Deutsche Telekom in May 1999,
which was amended in December 1999 and 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 RegTP 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, RegTP
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 RegTP who may order interconnection at specific rates. To
date, interconnection has been the source of major dispute between Deutsche
Telekom and its competitors. Several complaints currently pending before RegTP
and German courts concern the content of the standard interconnection offer of
Deutsche Telekom. Although RegTP 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 RegTP 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 at a single site, 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 a right to revoke the PTO license. To provide international services
in the United Kingdom, we have also obtained an International Simple Voice
Resale License. To provide international facilities, we do not need a separate
license as under the terms of a bill presently before Parliament the PTO
license also will license the operation of international facilities. However,
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.
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.
52
<PAGE>
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 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 January 31, 2000, we had 410 employees. We believe that our future
success will depend on our ability to attract and retain highly skilled,
qualified and experienced employees. Our employees are not covered by any
collective bargaining agreement. 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:
<TABLE>
<CAPTION>
Location Size (sq. meters) Lease Expiration Date
-------- ----------------- ---------------------
<C> <C> <S> <C> <C>
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
</TABLE>
53
<PAGE>
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.
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." We are negotiating an
agreement with the company that filed the opposition. If we are unable to
successfully complete our negotiations we may need to modify our corporate
intellectual property branding strategy. 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.
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 Drentestaete, 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.
54
<PAGE>
MANAGEMENT
CompleTel Europe was incorporated as a European holding company in December
1998 and appointed ING Trust (Netherlands) B.V. (ING Trust) as the sole
managing director. CompleTel Europe and CompleTel LLC are parties to the
management agreement with ING Trust, under which ING Trust has acted as our
sole manager and has managed in the manner directed by the board of directors
of CompleTel LLC since our inception. 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 this offering, we will terminate
the management agreement with ING Trust and Messrs. Dovey, Finnegan and
DeGeorge will resign as members of our Board of Management and will be
appointed as members of our Supervisory Board. We will also appoint 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 will be
supervised by a Supervisory Board. The Supervisory Board will provide 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 will 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 will 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 will be 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 may designate one member as our Chief Executive Officer and one member as
our 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 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.
55
<PAGE>
The general legal authority to represent the Company will be 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 resolve upon a suspension
or dismissal of members of the Board of Management with a majority of two-
thirds of the votes cast representing more than half of the issued capital.
Upon a proposal thereto by the Supervisory Board, the general meeting of
shareholders may resolve upon a suspension or dismissal of 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 members of the Supervisory Board and Board
of Management. For purposes of this prospectus, (i) "directors" includes the
individuals who will become members of our Supervisory Board, and (ii)
"executive officers" includes individuals who will become officers and the
members of the Board of Management, and (iii) "employees" includes employees of
CableTel Management, Inc. ("Management Company"), a wholly owned subsidiary of
CompleTel LLC, who are seconded to CompleTel Europe and its operating
subsidiaries pursuant to certain agreements with the Management Company.
The following tables shows the composition of and position held by each
member of our Supervisory Board and Board of Management as of the closing of
this offering:
Supervisory Board of CompleTel Europe
Our Supervisory Board will consist of seven members. The following persons
have consented to serve on the Supervisory Board:
<TABLE>
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
James E. Dovey............ 56 Supervisory Director and Chairman
James C. Allen............ 53 Supervisory Director
Lawrence F. DeGeorge...... 53 Supervisory Director
Paul J. Finnegan.......... 47 Supervisory Director
Royce J. Holland.......... 49 Supervisory Director
James H. Kirby............ 32 Supervisory Director
James N. Perry, Jr........ 39 Supervisory Director
Board of Management
Our Board of Management will consist of three members, including the
following individual, who has consented to serve as Managing Director, and two
additional individuals who will be appointed upon the closing of this offering:
<CAPTION>
Name Age Position(s)
---- --- -----------
<S> <C> <C>
William H. Pearson........ 44 Manager, President and Chief Executive Officer
</TABLE>
56
<PAGE>
Other Significant Employees
The following list includes 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
Hansjorg Rieder....... 57 Managing Director of CompleTel GmbH
Martin Rushe.......... 31 President of CompleTel UK Limited
Jerome de Vitry....... 38 President of CompleTel S.A.S.
</TABLE>
James E. Dovey was elected a Managing Director of CompleTel Europe in
January 2000 and will resign that position and be elected to the Supervisory
Board as its chairman prior to the consummation of this offering. Mr. Dovey,
one of the co-founders of CompleTel LLC, has over 30 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 U.S. in
late 1992. From 1992 to 1994, Mr. Dovey acted as a private consultant on a
variety of U.S. and international telecommunications and cable television
projects for TCI, U S WEST Inc., and other clients. From 1992 to 1995, Mr.
Dovey served as Deputy Chairman for the United Kingdom communications company,
IVS Cable International, which developed switched voice and data services in
areas such as Oxford, Salisbury, and Andover until the business was sold in
1995. In 1994, Mr. Dovey co-founded SPD CableTel Management, Inc., where he
actively explored various entrepreneurial opportunities in the U.S. for
providing converged cable and telephony services prior to co-founding CompleTel
LLC in January 1998.
James C. Allen will be elected to the Supervisory Board prior to the
consummation of this offering. 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
will resign that position and be elected to the Supervisory Board prior to the
consummation of this offering. 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 publicly traded.
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<PAGE>
Paul J. Finnegan was elected as a Managing Director in January 2000 and will
resign that position and be elected to the Supervisory Board prior to the
consummation of this offering. 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 Chicago-based 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, Madison River Telephone Company, LLC, Reiman Holding
Company, LLC and Wireless One Network, L.P. He is a member of the board of
trustees of The Skyline Fund, a small-cap mutual fund.
Royce J. Holland will be elected to the Supervisory Board prior to
consummation of this offering. 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., and
CSG Systems, which are publicly traded, and Choice One Communications, a
private company.
James H. Kirby will be elected to the Supervisory Board prior to the
consummation of this offering. He also has served as a Director of CompleTel
LLC since May 1998. Mr. Kirby is a Director of Madison Dearborn Partners, Inc.,
a Chicago-based 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
Wireless One Network, L.P., Orblynx, Inc. and Reiman Holding Company, LLC.
James N. Perry, Jr. will be elected to the Supervisory Board prior to the
consummation of this offering. 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 Chicago-based 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 Corporation and Clearnet Communications, each of which is
publicly traded.
William H. Pearson will be elected as the Managing Director, President and
Chief Executive Officer of CompleTel Europe prior to the consummation of this
offering. 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.
Richard N. Clevenger will be appointed Senior Vice President and Chief
Technology Officer of CompleTel Europe prior to the consummation of this
offering. Mr. Clevenger, one of the co-founders of CompleTel LLC,
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<PAGE>
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 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 will be appointed as our Chief Financial Officer prior to the
consummation of this offering. 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 will be appointed as our Vice President of Legal Affairs and
General Counsel prior to the consummation of this offering 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 will be appointed Corporate Controller and Chief Accounting
Officer prior to the consummation of this offering. 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. Mr. Hugo is a certified
public accountant in the state of Colorado.
John T. Puhl has been CompleTel LLC's Chief Information Officer since
September 1998 and will be appointed to the same position with us prior to the
consummation of this offering. 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 has been the President of
CompleTel S.A.S. since March 1999. 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.
Hansjorg Rieder has been with us since January 1999 and was appointed
Managing Director of CompleTel GmbH in April 1999. Prior to joining CompleTel
GmbH, Mr. Rieder was a Managing Director of COLT Telecom GmbH from March 1997
until March 1999. Mr. Rieder was the Chief Executive Officer and a Managing
Director of GLOBEX GmbH and the Chief Executive Officer of Jorg Rieder
Consulting from
59
<PAGE>
January 1993 until March 1997. From April 1972 until December 1992, Mr. Rieder
was a Vice President and Managing Director Germany for Digital Equipment.
Martin Rushe has been with 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.
Committees of the Supervisory Board
We intend to establish three Supervisory Board committees following this
offering, including:
. an audit committee;
. a compensation committee; and
. an executive committee.
The audit committee. The members of the audit committee will be Messrs.
Allen, DeGeorge and Holland. The audit committee will be 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 will
be Messrs. Allen, Finnegan, DeGeorge and Holland. The compensation committee
will be 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 will be 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.
The executive committee. The members of the executive committee will be
Messrs. Dovey, Finnegan and DeGeorge. The executive committee will be
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 will 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 have
agreed to maintain existing levels of 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.
60
<PAGE>
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 $100,000 during such year:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
--------------------
Name and principal Other annual
position Fiscal year Salary ($) Bonus ($) Compensation ($)(1)
- ------------------ ----------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
James E. Dovey............
Chairman of the Board and 1999 $183,750 $183,750 $ --
Chief Executive Officer(2) 1998 175,000 95,000 --
William H. Pearson........
President of European 1999 $183,750 $183,750 $78,576
Operations(3) 1998 175,000 96,250 45,407
Richard N. Clevenger......
Senior Vice President and
Chief Technology 1999 $157,500 $157,500 $33,768
Officer(4) 1998 150,000 82,500 32,987
David E. Lacey............
Senior Vice President and 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 Managing Director of CompleTel Europe. Prior to commencement of this
offering, he will resign as Managing Director and be elected as a member of
the Supervisory Board of CompleTel Europe.
(3) Mr. Pearson currently holds this position with, and is the Chief Executive
Officer of, CompleTel LLC. Prior to the commencement of this offering, he
will be appointed Managing Director, President and Chief Executive Officer
of CompleTel Europe.
(4) Mr. Clevenger currently holds these positions with CompleTel LLC. Prior to
the consummation of this offering, he will be appointed to these same
positions with CompleTel Europe.
(5) Mr. Lacey joined us in December 1998. He currently holds these positions
with CompleTel LLC. Prior to the consummation of this offering, he will be
appointed to these same positions 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, subsequently amended in February 2000, which 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 the 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 we achieve certain performance benchmarks set by the board
during the year. For 1999, CableTel Management, Inc.'s board augmented the
bonus awards for each of these individuals.
Tax equalization. As expatriates, Messrs. Pearson and Clevenger will be
subject to additional taxes and different taxes than if they lived and worked
in the U.S. Consequently, their employment agreements contain
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tax equalization provisions designed to ensure that they will be placed in
substantially the same economic position as if they were employed in the U.S.
Severance. Messrs. 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, Senior Vice President and Chief Financial Officer,
including, the following terms, among others:
Salary. During the course of his employment, Mr. Lacey is to receive an
annual base salary of $170,000, which salary may be adjusted upward by the
board.
Bonus. At the end of each calendar year, beginning in 1999, Mr. Lacey will
be entitled to receive an incentive bonus of up to 50% of his annual salary if
he achieves during the year certain performance benchmarks set by the board.
Severance. Mr. Lacey 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 or disability, for nonperformance, by us, without
cause, or 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 will include
Messrs. Allen DeGeorge, Finnegan and Holland. All of these individually serve
on the Board of CompleTel LLC. Mr. Dovey, who will be Chairman of the
Supervisory Board, and Mr. Pearson, who will be our President and Chief
Executive Officer, are both currently members of CompleTel LLC's board.
Stock option plan
We adopted the CompleTel Europe N.V. 2000 Stock Option Plan (option plan) on
December 10, 1999. 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 are 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.
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 had granted options covering 2,035,230 shares with an option
price of $2.60 per share to 348 employees of affiliated companies. In January
2000, we granted additional options to purchase 433,740 shares at an option
price of $2.60 per share to 70 employees.
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Administration
The option plan is administered by our Board of Management. The Board of
Management is designated by the general meeting of shareholders as the
corporate body authorized to grant options and to issue shares in accordance
with the option plan.
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 the shares are not listed on a
stock exchange, the Board of Managment 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. It is expected that the Board of Management will determine the manner
in which a professional advisor may be engaged to verify the valuation and the
manner in which any dispute concerning fair market value will be resolved. It
is expected that fair market value will be determined no less frequently than
every six months. The option price was determined by the Board of Management by
taking into account the recent sale of a minority interest in CompleTel Europe
and other factors in accordance with the method prescribed by our shareholder.
Vesting
At the time an option is granted, the Board of Management may determine the
vesting or other restrictions on exercise. The options granted in December 1999
are 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 U.S. 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
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be 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 six 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 ten years, is determined when the option is granted.
Options granted in December 1999 have a ten 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. 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. 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, including about 13% of our
current 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.
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PRINCIPAL SHAREHOLDERS
Prior to this offering, all of CompleTel Europe's issued and paid-up shares
were owned by CompleTel Holdings LLC (indirectly through its wholly owned
subsidiary, CompleTel (N.A.) N.V.). CompleTel LLC owns all of the class A
interests of CompleTel Holdings LLC which represent 94.15% of CompleTel
Holdings' total equity. The remaining 5.85% is represented by the non-voting
class B interests included in the units purchased by the holders of the notes.
CompleTel LLC's power to vote and dispose of its equity interests in CompleTel
Holdings LLC is exercised by CompleTel LLC's board of managers, which is
elected by the holders of CompleTel LLC's preferred interests and common
interests. CompleTel Holdings' power to vote and dispose of our outstanding
capital stock is exercised by CompleTel Holdings LLC's board of managers, which
is elected by CompleTel LLC as the owner of all of the voting interests in
CompleTel Holdings LLC. CompleTel LLC's board of managers and CompleTel
Holdings' board of managers have the same composition. Thus, the holders of
preferred and common interests in CompleTel LLC could be deemed to be
beneficial owners of the equity interests of CompleTel Holdings LLC owned by
CompleTel LLC and the capital stock of CompleTel Europe indirectly owned by
CompleTel Holdings LLC. None of the holders of the class B interests of
CompleTel Holdings hold interests representing more than 5% of the outstanding
common equity interests of CompleTel Holdings.
The following table sets forth information regarding the beneficial
ownership of our equity securities as of February 29, 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").
Information with respect to ownership of CompleTel Europe shares is based on
ownership of CompleTel LLC interests and is presented on a fully diluted basis
giving effect to the mandatory conversion of all outstanding preferred
interests upon consummation of this offering.
<TABLE>
<CAPTION>
CompleTel Europe N.V.
-------------------------------------
Percentage of shares
------------------------
Prior to After
Name of beneficial owner Shares Owned Offering Offering
------------------------ ------------ ---------- ----------
<S> <C> <C> <C>
Directors and Named Executive
Officers:
James E. Dovey(1)................. 6,296,809 5.0% 4.1%
William H. Pearson(2)............. 6,323,976 5.0 4.1
Richard N. Clevenger(3)........... 5,402,482 4.3 3.5
David E. Lacey(4)................. 1,083,946 0.9 0.7
James C. Allen(5)................. 793,945 0.6 0.5
Royce J. Holland(6)............... 793,945 0.6 0.5
Lawrence F. DeGeorge(7)(9)........ 25,167,493 19.9 16.9
Paul J. Finnegan.................. * *
James H. Kirby.................... * *
James N. Perry, Jr................ * *
All directors and executive
officers as a group (13
persons)......................... 46,230,805 36.6 30.7
5% Owners:
Madison Dearborn Partners(8)...... 60,931,365 48.3 40.6
DeGeorge Telecom Holdings Limited
Partnership(9)................... 25,167,493 19.9 16.9
</TABLE>
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- --------
* Less than 1%
(1) These shares are held indirectly by Mr. Dovey, Dovey Company LLC and Dovey
Family Partners LLP through their ownership interests in CompleTel LLC. Mr.
Dovey has sole voting power for each of these entities. Mr. Dovey's address
is 6300 S. Syracuse Way, Suite 355, Englewood, Colorado 80111.
(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. Mr. Pearson's address is
Immeuble Artois, 44 rue Washington, 75008 Paris.
(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. Mr.
Clevenger's address is Immeuble Artois, 44 rue Washington, 75008 Paris.
(4) Mr. Lacey's address is 6300 S. Syracuse Way, Suite 355, Englewood, Colorado
80111.
(5) These shares are held indirectly by Mr. Allen through his ownership
interests in CompleTel LLC.
(6) These shares are held indirectly by Mr. Holland through his ownership
interests in CompleTel LLC.
(7) Mr. DeGeorge is the Chairman and Chief Executive Officer of LPL Investment
Group, Inc., which controls DeGeorge Telecom Holdings Limited Partnership,
(8) These shares are held indirectly by Madison Dearborn Capital Partners II,
L.P. through its ownership interests in CompleTel LLC. Madison Dearborn
Partners has agreed to purchase shares in this offering at the public
offering price for an aggregate amount of $20 million. Messrs. Finnegan and
Perry are managing directors of 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.
(9) These shares are held by DeGeorge Telecom Holdings Limited Partnership
through its ownership interests in CompleTel LLC and CompleTel Holdings
LLC. LPL Telecom Europe, L.P., an affiliate of DeGeorge Telecom Holdings
Limited Partnership, has agreed to purchase shares in this offering at the
public offering price for an aggregate amount of $13 million. 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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RELATED PARTY TRANSACTIONS
January 1999 Equity contribution
In January 1999, in connection with a corporate restructuring, CompleTel LLC
contributed approximately $58 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 million was a receivable, and
$51.8 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 will become a Supervisory Director of Completel Europe, and Messrs.
Pearson, 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 Managing Directors, purchased 4,000
units in the offering on the same terms as the other purchasers.
In connection with the issuance of the class B interests of CompleTel
Holdings LLC, 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.
Pursuant to the subscription agreement, the Company has agreed that all
future transactions between the Company and its officers, directors, principal
shareholders or their respective affiliates, will be on terms no less favorable
to the Company 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 million. As a result of this transaction,
the corresponding percentage of class B interests was reduced from 7.0% to
5.85%. 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 will become 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
Messrs. Pearson, Clevenger and Lacey, each of whom will be an executive officer
of CompleTel Europe, 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.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
CompleTel Europe was incorporated under Dutch law on December 14, 1998, as a
public limited company (naamloze vennootschap, or N.V.). Its corporate seat and
registered office is in Amsterdam, The Netherlands and it is registered at the
Trade Register of the Chamber of Commerce and Industries for Amsterdam under
No. 34108119 and is known at the Dutch Ministry of Justice under number NV
1.055.197.
Set out below, is a description of the material provisions of our Articles
of Association as we will amend them prior to the consummation of this offering
and of relevant provisions of Dutch law. The full Dutch text of our current
Articles of Association is available at our registered office and an English
translation has previously been filed with the Securities and Exchange
Commission. An English translation of our amended Articles of Association has
been filed as an exhibit to the registration statement of which this prospectus
is part. For purposes of this discussion only, "we" and "our" refer to
CompleTel Europe only and "share" and "shares" refer to both ordinary and
preference shares.
Share capital structure
Pursuant to our amended Articles of Association, our authorized share
capital is (Euro)62,500,000 consisting of 625,000,000 ordinary shares, each
with a nominal value per share of (Euro).10. As of the date of this prospectus,
the issued share capital is (Euro)12,613,306 consisting of 126,133,060 ordinary
shares and no preference shares. At the completion of this offering, the total
authorized share capital of the Company will be increased to five times the
amount of ordinary shares issued and outstanding at that date which will then
be divided equally between preference shares and ordinary shares.
Shares
The shares are issued in registered form only. Share certificates may be
issued in respect of ordinary shares only.
We maintain a shareholders' register for the outstanding registered shares,
which is available for inspection by our shareholders at our registered office
and at such other place as our Board of Management may determine at its
discretion. A right of pledge or a right of usufruct may be created on the
shares. The Board of Management shall, upon receiving notification thereof,
note the establishment of such restricted right to a share in the shareholders'
register.
Shareholder meetings and voting rights
All shareholders and other persons entitled to vote have the right to attend
general meetings of shareholders, either in person or represented by a person
holding a written proxy, to address the meeting and to exercise voting rights,
subject to the provisions of the Articles of Association. We will hold annual
meetings of shareholders within six months after the close of our financial
year, in The Netherlands, in Amsterdam, Schiphol (Haarlemmermeer) or The Hague.
Special meetings of shareholders may be held as often as our Board of
Management or our Supervisory Board deems necessary. Special meetings of
shareholders must be held upon the written request of holders of shares or
other persons entitled to attend these meetings jointly representing at least
10% of the total outstanding share capital which must be delivered to our Board
of Management or our Supervisory Board specifying in detail the business to be
dealt with.
We must give notice by mail to registered holders of ordinary and preference
shares of each meeting of shareholders. Such notice shall be given no later
than the fifteenth day prior to the day of the meeting and shall state the
business to be considered and that the agenda is open to inspection by the
shareholders at our offices and, if our ordinary shares are listed on a stock
exchange, also at the offices of our paying agent for such stock exchange.
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SICOVAM will provide notice of general meetings of shareholders to, and
compile voting instructions from, holders of ordinary shares held directly or
inderectly through SICOVAM. DTC will provide notice of general meetings of
shareholders to holders of ordinary shares held directly or indirectly through
DTC and Cede & Co., the nominee of DTC, will compile voting instructions, in
order for holders of ordinary shares held directly or inderectly through
SICOVAM to attend general meetings of shareholders in person, such holders must
withdraw their ordinary shares from SICOVAM and have such ordinary shares
registered directly in their name or in the name of their nominee. In order for
holders of ordinary shares held directly or indirectly through DTC to attend
general meetings of shareholders in person, such holders need not withdraw such
shares from DTC but must follow rules and procedures established by Cede & Co.
Each ordinary share carries the right to cast one vote. Unless otherwise
required by our Articles of Association or Dutch law, resolutions of general
meetings of shareholders require the approval of a majority of the votes cast
at a meeting at which at least one third of the outstanding share capital is
present or represented. Under Dutch law, there are no restrictions on the
rights of holders of shares who are not resident in The Netherlands to hold or
vote their shares.
Issue of shares; pre-emptive rights
Our general meeting of shareholders, or our Board of Management if so
designated by the general meeting of shareholders, has the power to cause us to
issue shares and determine the terms and conditions thereof. If our Board of
Management had been designated by the general meeting of shareholders as
described in the previous sentence, a resolution by our Board of Management
requires the approval of our Supervisory Board. Effective prior to the closing
of this offering, our general meeting of shareholders will designate our Board
of Management for a period of five years (the maximum permitted by Dutch law)
to issue additional shares.
In respect of the issue of shares, each existing shareholder will have pre-
emptive rights in proportion to its existing shareholding, except for shares
that are issued to our employees or of an affiliated company, to a foundation
(stichting) or similar entity that will hold the shares on behalf of such
employees, or to a person who exercises a previously acquired right to
subscribe for shares. This pre-emptive right shall not apply in respect of
shares issued in consideration for a contribution in kind. Our general meeting
of shareholders or our Board of Management if so designated by the general
meeting of shareholders in accordance with our Articles of Association, is
authorized to restrict or exclude the pre-emptive rights. Effective prior to
the closing of this offering, our general meeting of shareholders will
designate our Board of Management for a period of five years (the maximum
permitted by Dutch law) to restrict or exclude the pre-emptive rights.
Amendment of the articles of association
A resolution of the general meeting of shareholders to amend the Articles of
Association may only be taken at the proposal of the Board of Management, which
proposal requires the approval of the Supervisory Board. The complete proposal
for the amendment shall be made available, at no cost, for inspection by the
shareholders and the other persons entitled to attend general meetings of
shareholders at our registered office as from the day of the notice convening
such meeting until the end of the meeting.
Annual accounts and profits distribution
Our financial year is concurrent with the calendar year. Annually, within
five months after the expiry of our financial year, unless this period is
extended by a maximum of six months by the general meeting of shareholders on
account of special circumstances, our Board of Management will draw up the
annual accounts and make them available for inspection by the shareholders at
our offices. Our Board of Management, subject to the approval of our
Supervisory Board, shall determine the amounts of the profits that we reserve
on the basis of the adopted profit and loss account and the allocation of
distributable profits. From the distributable profits remaining after
reservation, we will first pay the holders of preference shares, if any, their
floating
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dividend at EURIBOR plus two and then we will pay any remaining distributable
profits to the holders of ordinary shares. We may only make distributions to
our shareholders and to others entitled to receive part of the distributable
profits if this payment does not reduce the shareholders equity below the sum
of the called and paid-up share capital and any reserves required to be
maintained by Dutch law or the Articles of Association. Our Board of Management
may, subject to the requirements of Dutch law and the approval of our
Supervisory Board, make interim dividends payable.
Dissolution and liquidation
A resolution of the general meeting of shareholders to dissolve the Company
may only be taken at the proposal of the Board of Management, which proposal
shall require the approval of the Supervisory Board, with a majority of no less
than three-fourths of the votes cast. The balance of the liquidation shall be
distributed to the holders of outstanding preference shares, if any, up to the
amount paid on such shares and the remaining balance shall be distributed to
the holders of ordinary shares in proportion to each shareholder's nominal
possession of said shares.
Discharge and indemnification of the members of the Board of Management and
Supervisory Board
Adoption of the annual accounts by a general meeting of shareholders shall
discharge the members of the Board of Management for their management and the
members of the Supervisory Board for their supervision, insofar such management
and such supervision is apparent from the annual accounts, unless an explicit
reservation is made by the general meeting of shareholders and subject to
certain exceptions under Dutch law, including exceptions relating to the
liability of the Board of Management and the Supervisory Board upon our
bankruptcy and to general principles of reasonableness and fairness. Pursuant
to our Articles of Association, we have indemnified the members of the Board of
Management and the Supervisory Board against any liabilities resulting from
proceedings against such member in connection with such member's actions as a
member of the Board of Management or the Supervisory Board, as the case may be,
if such member acted in good faith and in a manner he believed to be in our
best interests.
Repurchase of shares
We may acquire shares, subject to certain provisions of Dutch law and of our
Articles of Association, for no consideration or under universal title or if:
(a) the distributable reserves are at least equal to the price of the
acquisition, (b) the nominal amount of the shares in our capital to be
acquired, already held or held in pledge by us or by a subsidiary of us does
not exceed one-tenth of the issued capital, and (c) the authorization for such
acquisition has been granted by our general meeting of shareholders. Effective
prior to the closing of this offering, our general meeting of shareholders
authorized our Board of Management for a period of eighteen months (the maximum
permitted by Dutch law) to repurchase shares. We have no current intent to
repurchase shares.
Reduction of share capital
Our general meeting of shareholders may, subject to certain provisions of
Dutch law and of our Articles of Association, at the proposal of our Board of
Management and subject to the approval of our Supervisory Board, resolve on
reduction of the issued capital by canceling shares or by reducing the nominal
amount of the shares by means of an amendment of our Articles of Association. A
resolution in respect of such capital reduction shall require a majority of at
least two-thirds of the votes cast, if less than half of the issued share
capital is represented at the general meeting of shareholders.
Disclosure of holdings
Under the Dutch Act on disclosure of holdings in listed companies (Wet
melding zeggenschap in ter beurze genoteerde vennootschappen 1996), holders and
certain beneficial owners of an interest in the voting rights and/or our
capital, must promptly notify us and the Securities Board of The Netherlands
(Stichting Toezicht Effectenverkeer) if their voting rights or capital
interests reaches, exceeds or falls below the range of
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5%-10%, 10%-25%, 25%-50%, 50%-66 2/3% or over 66 2/3%. Failure to comply
constitutes a criminal offense and could result in criminal as well as civil
and administrative sanctions, including suspension of voting rights. We must,
in turn, inform the Conseil des Marches Financiers of all such notifications
provided to us by shareholders and beneficial owners.
Description of equity registration and other rights
We have entered into an equity registration rights agreement, dated February
16, 1999, which provides registration rights under the U.S. Securities Act of
1933 to the holders of class B interests of CompleTel Holdings LLC, which is an
intermediate holding company that indirectly owns 100% of CompleTel Europe or
holders of our ordinary shares (or any American Depositary Receipts or similar
depositary receipts issued upon deposit thereof) issued in respect of the class
B interests.
The equity registration rights agreement provides the holders of the class B
interests of CompleTel Holdings LLC with the right to demand registration of
such securities or ordinary shares of CompleTel Europe issued in respect of the
class B interests at any time after we engage in an initial public equity
offering, we are subject to a change of control, certain liquidation events
happen with respect to CompleTel Holdings LLC, or February 16, 2004.
Holders of securities subject to the equity registration rights agreement
will also have the right to include such securities in registration statements
under the Securities Act covering equity securities of CompleTel Europe filed
for either their own accounts or for the account of any of their respective
securityholders for sale on the same terms and conditions as the securities of
those companies or any other selling securityholder included in such
registration statements. Holders of securities subject to the equity
registration rights agreement will not have such "piggyback registration"
rights in respect of an initial public equity offering in which no shareholder
of CompleTel Europe is a participant or in respect of registration statements
relating to employee benefit plans or business combination transactions.
CompleTel LLC and its equity investors have agreed not to allow CompleTel
Holdings LLC or CompleTel Europe to make a public offering of any class of
capital stock or other equity interests unless, prior to commencing such public
offering, any necessary changes are made to provide that class B interests in
CompleTel Holdings are convertible into such class of capital stock or other
equity interests of CompleTel Holdings or CompleTel Europe, as applicable, on a
share-for-share basis and that rights, conditions and privileges attaching to
such class of capital stock or other equity interests are not adverse to
holders of the class B Interests as compared with the terms of class A
interests (except with respect to voting rights). CompleTel LLC has also agreed
not to make, and not to allow any of its direct or indirect subsidiaries other
than CompleTel Holdings LLC or CompleTel Europe to make, a public offering of
any class of capital stock for so long as any securities registrable under the
equity registration rights agreement are outstanding.
Description of private equity investors' registration rights
We have entered into a registration rights agreement, dated May 18, 1998, as
amended November 23, 1999, which provides registration rights under the U.S.
Securities Act of 1933 to the holders of CompleTel LLC interests.
Madison Dearborn Partners, LPL Investment Group and Meritage Investment
Partners are entitled to demand up to three registrations of their CompleTel
LLC interests at any time after an initial public offering of CompleTel LLC and
the holders of at least 10% of the outstanding CompleTel LLC preferred
interests may request unlimited short-term registrations. In addition, the
holders of CompleTel LLC interests are entitled to "piggyback" on primary or
secondary registered public offerings of CompleTel LLC securities. The
agreement gives the CompleTel LLC holders the right to cause us to give them
equivalent registration rights on any of our ordinary shares the CompleTel LLC
holders acquire in respect of their CompleTel LLC interests.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
14% Senior Discount Notes
The Notes
CompleTel Europe issued $147.5 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.
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 guarantee
Except for the parent guarantee 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. The credit facility described below ranks
senior 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 that are not
subject to transfer restrictions. 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.
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,
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. 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 (Euro)265 million senior secured credit
facility. The borrowers are CompleTel ECC B.V., our principal French operating
companies, CompleTel S.A.S. and CompleTel Services S.A.S., and our German
operating company, CompleTel GmbH.
Use of proceeds
The credit facility requires us to use the proceeds from the facility to
develop our business in seven markets in France, Paris, Lyon, Marseille, Lille,
Toulouse, Grenoble and Nice, and four markets in Germany, Berlin, Munich,
Nuremberg and Essen, although we may substitute up to two cities upon certain
conditions. However, under our current business plan, we intend to use the
proceeds of this offering to complete the deployment of and to operate our
networks in those 11 markets and we intend to use the facility proceeds to
develop our business in additional markets. We will need to obtain waivers from
the credit facility banks or negotiate an amendment to the facility to
implement all aspects of our business plan.
Availability tests
The facility consists of a term loan facility in the amount of (Euro)105
million, available to be drawn up to December 31, 2000 and repayable beginning
2003, and a revolving loan facility in the amount of (Euro)160 million,
available to be drawn from May 31, 2000, to December 31, 2002. After December
31, 2002, outstanding advances up to (Euro)141 million under the revolving loan
facility will first be converted into a term loan, and other outstanding
advances will become part of a (Euro)19 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;
. the perfection of the security interests; and
. the satisfaction of the business plan in all material respects, including
full satisfaction of revenue, EBITDA and MAN deployment targets.
The amount outstanding under the facility cannot exceed certain limits that
increase with time such that the entire (Euro)165 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.
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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 a
margin and 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; guarantee
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 guarantees;
. disposing assets;
. make acquisitions or effect merger and consolidated transactions; and
. making investments.
The facility also places limits on our use of proceeds of an initial public
offering, including this offering, 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 (Euro)5 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.
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;
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. 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:
. 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.
We cannot assure you that we will be successful in meeting subsequent
drawdown conditions. Our inability to draw on the facility could cause us to
suffer a funding shortfall that would prevent us from deploying our networks in
our markets in France and Germany and that could materially adversely affect
our business and prospects.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the shares and
no prediction can be made of the effect, if any, that the sale or availability
for sale of shares will have on the market price of the shares. Sales of
substantial amounts of such securities in the public market, or the perception
that such sales could occur, could adversely affect the market price of the
shares and could impair our future ability to raise capital through an offering
of its equity securities.
Upon consummation of this offering, we will have outstanding 153,333,060
shares, assuming no exercise of the over-allotment option. The shares sold in
this offering will be freely tradable in the U.S. by persons other than us or
our "affiliates" as that term is defined in SEC Rule 144, which is discussed
below. All of our issued and outstanding shares held by CompleTel LLC, are
"restricted securities" within the meaning of Rule 144 and may be sold in the
public market only if registered or sold under an exemption from registration
under the Securities Act, including the exemption provided by Rule 144.
We have entered into an equity registration rights agreement, dated February
16, 1999, which provides registration rights under the Securities Act of 1933
to the holders of our shares, or any American Depositary Receipts or similar
depositary receipts issued upon deposit thereof, issuable to the holders of
class B interests of CompleTel Holdings LLC (the "registrable shares"), an
intermediate holding company that indirectly owns 100% of CompleTel Europe. The
equity registration rights agreement provides the holders of the registrable
shares with the right to demand registration of such securities at any time
after we complete an initial public offering and also provides piggyback
registration rights. CompleTel LLC entered into a registration rights
agreement, dated May 18, 1998 and amended November 23, 1999, which provides
demand and piggyback registration rights to the holders of CompleTel LLC
interests. Under the agreement, the CompleTel LLC holders have the right to
cause us to give them equivalent registration rights on any of our ordinary
shares the CompleTel LLC holders acquire in respect of their CompleTel LLC
interests. See "Description of Capital Stock--Description of equity
registration and other rights" and "--Description of private equity investor
registration rights" for further details concerning the registration rights.
We and each of the following persons have agreed not to sell or dispose of
shares or securities convertible into shares for 180 days commencing on the
date of this prospectus without the consent of the joint global coordinators:
. CompleTel LLC, CompleTel Holdings LLC, CompleTel (N.A.) N.V. and
CompleTel Europe N.V.
. Madison Dearborn Partners, LPL Investment Group, Meritage Investment
Partners and their affiliates
. Members of our Supervisory Board and Board of Management and our
significant employees
The 180 day lock-up period also applies to any shares purchased in this
offering by any of the persons listed above.
In general, under Rule 144 of the Securities Act, any of our affiliates, or
a person or persons whose shares are aggregated who has beneficially owned
restricted securities for at least one year (including the holding period of
any prior owner except an affiliate) is entitled to sell in any three-month
period a number of shares that does not exceed the greater of (1) 1% of the
number of shares then outstanding, or approximately shares immediately
after this offering; or (2) the average weekly trading volume of the shares on
the Nasdaq National Market during the four calendar weeks immediately
preceding. Sales under Rule 144 are also subject to requirements relating to
manner of sale, notice and availability of current public information about us.
Under Rule 144(k), a person or persons whose shares are aggregated who has not
been one of our affiliates at any time during the 90 days immediately preceding
the sale and who has beneficially owned his or her shares for at least two
years is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
In general, under Rule 701 of the Securities Act, any of our
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employees, consultants or advisors who purchases shares from us pursuant to
Rule 701 in connection with a compensatory stock or option plan or other
written agreement is eligible to resell, unless contractually restricted, such
shares 90 days after the effective date of this offering in reliance on Rule
144, but without compliance with certain restrictions, including the holding
period, contained in Rule 144.
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TAXATION
The following discussions are the opinions of, respectively, Stibbe Simont
Monahan Duhot 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 acquisition, ownership and disposition of the shares. These
opinions do not, however, address the income taxes imposed by any political
subdivision of The Netherlands or the U.S. 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 acquiring, owning and disposing of the shares.
Netherlands Taxation
The following is the opinion of Stibbe Simont Monahan Duhot regarding the
material Dutch tax consequences to certain holders of an investment in the
shares. The description is not to be read as extending by implication to
matters not specifically referred to herein.
Dutch Taxation of Holders of Shares Who are Resident in The Netherlands
The summary of certain Dutch taxes set forth in this section is only
intended for the following investors:
. Individuals who are resident or deemed to be resident in The Netherlands
for purposes of Dutch taxation, excluding (i) individuals who invest in
shares that form part of a substantial interest in our company or (ii)
individuals who are, or who are deemed to be, employees, directors or
board members of ours or individuals who are, or are deemed to be,
employees, directors or board members of companies related to us ("Dutch
Individuals"); and
. Corporate entities, which term includes associations that are taxable as
corporate entities, that are resident or deemed to be resident in The
Netherlands for purposes of Dutch taxation excluding corporate entities
that are (i) not subject to Dutch corporate income tax, or (ii) exempt
from such corporate income tax, including but not limited to pension
funds (pensioenfondsen) as defined under Dutch tax law, or (iii)
investment institutions (beleggingsinstellingen) as defined under Dutch
tax law ("Dutch Corporate Entities").
Generally, a holder (individual or corporate entity) of shares will not
have a substantial interest if the holder (alone or together with certain
related persons) does not own or have certain rights over, directly or
indirectly:
. shares representing 5% or more of our total issued and outstanding
capital (or the issued and outstanding capital of any class of our
shares), or
. rights to acquire shares, whether or not already issued, that represent
at any time (and from time to time) 5% or more of our total issued and
outstanding capital (or the issued and outstanding capital of any class
of our shares), or
. certain profit participating certificates that relate to 5% or more of
our annual profit and/or to 5% or more of our liquidation proceeds or
rights to acquire such profit participating certificates.
A deemed substantial interest is present if (part of) a substantial
interest has been disposed of, or is deemed to have been disposed of, on a
non-recognition basis.
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Individual and Corporate Income Tax
Dutch Individuals not engaged or deemed to be engaged in an enterprise: As a
general rule, a Dutch Individual who holds shares that are not attributable to
an enterprise carried on by him or in which he has an interest (a "Dutch
Private Individual") is subject to income tax at progressive rates on income
derived or deemed to be derived from the shares.
Capital gains realized on the disposal of the shares by a Dutch Private
Individual are generally exempt from Dutch income tax on the understanding that
under certain exceptional circumstances, part of the proceeds derived upon
disposal of the shares may be treated as income derived from such shares.
Dutch Individuals engaged or deemed to be engaged in an enterprise and Dutch
Corporate Entities: Any benefits derived or deemed to be derived from shares
that are attributable to an enterprise carried on by a Dutch Individual or to
an enterprise in which the individual has an interest, are generally subject to
income tax in the individual's hands. Any benefits derived or deemed to be
derived from the shares that are held by a Dutch Corporate Entity are generally
subject to corporate income tax in its hands.
Withholding Tax
Any proceeds from the shares generally are subject to a withholding tax
imposed by The Netherlands at a rate of 25%. Dutch Individuals and Dutch
Corporate Entities generally can credit the withholding tax against their
income tax or corporate income tax liability and are generally entitled to a
refund of dividend withholding tax insofar as the withholding tax exceeds their
final income tax or corporate income tax liability.
Net Wealth Tax
A Dutch Individual is subject to Dutch net wealth tax at a rate of 0.7% on
the basis of the individual's world-wide net wealth at January 1 of each year,
which net wealth includes the fair market value of the individual's shares.
Gift, Estate and Inheritance Taxes
Gift tax will arise in The Netherlands with respect to an acquisition or
deemed acquisition of shares by way of a gift by an individual who is resident
or deemed to be resident in The Netherlands, or an entity that is resident or
deemed to be resident in The Netherlands. Inheritance tax will arise in The
Netherlands with respect to an acquisition or deemed acquisition of shares on
the death of an individual who is resident or deemed to be resident in The
Netherlands.
For purposes of Dutch gift and inheritance taxes, an individual who holds
Dutch nationality will be deemed to be resident in The Netherlands if such
individual has been resident in The Netherlands at any time during the ten
years preceding the date of the gift or the individual's death. For purposes of
Dutch gift tax, an individual not holding Dutch nationality will be deemed to
be resident in The Netherlands if such individual has been resident in The
Netherlands at any time during the 12 months preceding the date of the gift.
Dutch Taxation of Holders of Shares Who are Not Resident in The Netherlands
This section describes certain Dutch tax consequences for a person who is
neither a resident nor deemed to be a resident of The Netherlands for purposes
of Dutch taxation.
Withholding Tax
Dividends distributed by us generally are subject to a withholding tax
imposed by The Netherlands at a rate of 25%. The term "dividends" for this
purpose includes, but is not limited to:
. distributions in cash or in kind, deemed and constructive distributions
and repayments of paid-in capital not recognized as such for Netherlands
dividend withholding tax purposes;
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. liquidation proceeds, proceeds of a redemption of shares or, generally,
consideration for our repurchase of shares in excess of the average paid-
in capital recognized for Netherlands dividend withholding tax purposes;
. the par value of shares issued to a holder of shares or an increase of
the par value of shares, as the case may be, to the extent that it does
not appear that a contribution to capital recognized for Netherlands
dividend withholding tax purposes, was made or will be made; and
. partial repayment of paid-in capital, recognized for Netherlands dividend
withholding tax purposes, if and to the extent that there are net
profits, within the meaning of the Dutch Dividend Withholding Tax Act,
unless the general meeting of our shareholders has previously resolved to
make such repayment and provided that the par value of the shares
concerned has been reduced by a corresponding amount by changing our
Articles of Association.
As a result of contributions in shares to our paid-in capital, a portion of
such paid-in capital may not be recognized for Netherlands dividend withholding
tax purposes. If a holder of shares is resident in a country with which The
Netherlands has concluded a convention to avoid double taxation that is in
effect, such holder may, depending on the terms of such double taxation
convention, be eligible for a full or partial exemption from, or refund of,
Netherlands dividend withholding tax.
Under the double taxation convention in effect between The Netherlands and
the U.S. (the "Treaty"), dividends paid by us to a resident of the U.S., as
defined for purposes of the Treaty (other than an exempt organization or exempt
pension organization), who is the beneficial owner of the dividends, are
generally eligible for a reduction of the 25% Netherlands withholding tax to
15% or, in the case of certain U.S. corporate shareholders owning directly at
least 10% of our voting power, the Treaty reduces the 25% Netherlands
withholding tax to 5%. Such reductions will not apply if such resident carries
on a business in The Netherlands through a permanent establishment or performs
independent personal services from a fixed base situated in The Netherlands and
the holding of shares forms part of the business property of such permanent
establishment or pertains to such fixed base. The Treaty provides for a
complete exemption for dividends received by exempt pension organizations and
exempt organizations, as defined therein. Except in the case of exempt
organizations, the reduced dividend withholding rate (or exemption from
withholding) can be applied at source upon payment of the dividends, provided
that the proper forms have been filed in advance of the payment. Absent the
filing of such forms, we generally would be required to withhold the dividend
withholding tax at the rate of 25%, in which case a refund may be obtained of
any excess withholding amount by filing the appropriate forms within the term
set therefor. Exempt organizations remain subject to the statutory withholding
rate of 25% and are required to file for a refund of such withholding. A holder
of shares other than an individual will not be eligible for the benefits of the
Treaty if such holder of shares does not satisfy one or more of the tests set
forth in the limitation on benefits provision of Article 26 of the Treaty.
Taxes on Income and Capital Gains
A holder of shares will not be subject to any Netherlands taxes on income or
capital gains in respect of dividends distributed by us (other than the
dividend withholding tax described above) or in respect of capital gains
realized on the disposition of shares, provided that
. such holder is neither resident nor deemed resident of The Netherlands;
. such holder does not have a business 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 business or
part of a business, as the case may be, the shares are attributable;
. such holder does not have a substantial interest or a deemed substantial
interest in us, as defined above in "Dutch Taxation of Holders of Shares
Who are Resident in The Netherlands," or if such holder does have such an
interest, it forms part of the assets of a business; and
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. such holder is not entitled to a share in the profits of a business that
is effectively managed in The Netherlands, other than by way of
securities or through an employment contract, the shares being
attributable to such business.
A holder of shares who meets the conditions set forth in this section under
the first two bulleted points above, but who has a substantial interest or a
deemed substantial interest that does not form part of the assets of a
business, is generally subject to Netherlands income tax in respect of
dividends distributed by us or capital gains realized on the disposition of
shares (and income from and capital gains made on debt issued by us), at a rate
of 25%, if such holder is an individual, or at a rate of 35%, if such holder is
not an individual. Such holder is generally entitled to a credit for
Netherlands dividend withholding tax withheld against Netherlands income tax,
if any.
If such holder is resident of a country with which The Netherlands has
concluded a convention to avoid double taxation, such holder may, depending on
the terms of such double taxation convention, be eligible for an exemption from
Netherlands income tax on capital gains realized upon the disposition of
shares, or to a full or partial exemption from Netherlands income tax on
dividends distributed by us.
Under the Treaty, capital gains realized by such holder upon the disposition
of shares, provided that such holder is a resident (as defined in the Treaty)
of the U.S., are, with certain exceptions, generally exempt from Netherlands
tax on capital gains.
Under the Treaty, dividends received from us by such holder who is the
beneficial owner of the dividends and a resident of the U.S. (other than an
exempt organization or an exempt pension organization) are generally eligible
for a reduction of Netherlands income tax liability to 15%. In the case of
certain U.S. corporate shareholders owning at least 10% directly of our voting
power, the Treaty reduces this rate to 5%. The Treaty provides for a complete
exemption of Netherlands income tax for dividends received by exempt
organizations or exempt pension organizations as defined therein and subject to
the conditions mentioned therein.
As indicated above, a holder of shares will not be eligible for the benefits
of the Treaty if (i) such resident carries on a business in The Netherlands
through a permanent establishment or performs independent personal services
from a fixed base situated in The Netherlands and the holding of shares forms
part of the business property of such permanent establishment or pertains to
such fixed base or (ii) such holder, other than an individual, does not satisfy
one or more of the tests set forth in the limitation on benefits provision of
Article 26 of the Treaty.
Net Wealth Tax
A holder of shares will not be subject to Netherlands net wealth tax in
respect of the shares, provided that such holder is not an individual, or, if
the holder is an individual, provided that the conditions mentioned under the
first two and the last bulleted points of the section "Taxes on Income and
Capital Gains" above are met.
Gift, Estate and Inheritance Taxes
No gift, estate or inheritance taxes will arise in The Netherlands with
respect to an acquisition of shares by way of a gift by, or on the death of a
holder of shares who is neither resident nor deemed to be resident in The
Netherlands, unless:
. (i) such holder has at the time of the gift or had at the time of the
holder's death, a business or an interest in a business that is or was,
in whole or in part, carried on through a permanent establishment or a
permanent representative in The Netherlands and to which business or part
of a business, as the case may be, the shares are or were attributable or
(ii) such holder is entitled to a share in the profits of a business that
is effectively managed in The Netherlands, other than by way of
securities or through an employment contract, the shares being
attributable to such business; or
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. in the case of a gift of shares made by an individual who at the time of
the gift was neither resident nor deemed to be a resident in The
Netherlands, such individual dies within 180 days after the date of the
gift, while being resident or deemed to be resident in The Netherlands.
For purposes of Netherlands gift and inheritance tax, an individual who
holds Dutch nationality will be deemed to be resident in The Netherlands if he
has been resident in The Netherlands at any time during the ten years
preceding the date of the gift or his death.
For purposes of Netherlands gift tax, an individual not holding Dutch
nationality will be deemed to be resident in The Netherlands if he has been
resident in The Netherlands at any time during the twelve months preceding the
date of the gift.
Other Taxes and Duties
No Netherlands registration tax, transfer tax, stamp duty or any other
similar documentary or duty will be payable by our investors in respect of or
in connection with the subscription, issue, placement, allotment or delivery
of the shares. Netherlands capital tax will be payable by us at the rate of
0.9% of any contribution or deemed contribution to our share capital.
Proposed New Legislation
On September 14, 1999, a legislative proposal on income taxation was
submitted to the Lower House of the Dutch Parliament. The proposal will make
certain amendments to the income taxation corporate income taxation, dividend
withholding taxation and net wealth taxation and is therefore relevant both
for individual and corporate holders of shares, whether or not resident in The
Netherlands. Amongst others, it is proposed to abolish the net wealth tax and
to tax certain shareholders on deemed investment income (set at a fixed
percentage) instead of actual investment income. The proposal is intended to
by the Dutch government to become effective on January 1, 2001. If enacted,
this proposal would substantially change the taxation of investment income by
The Netherlands. Currently, it is uncertain whether or in what form the
proposal will be enacted. In view of this uncertainty, this proposal is not
included in the above Dutch tax summary.
U.S. Federal Income Tax
The following is the opinion of Holme Roberts & Owen LLP regarding the
material U.S. federal income tax consequences to U.S. Shareholders of an
investment in the shares. To the extent the following summarizes the Dutch
taxation rules on the reduction of the amount of dividend withholding tax to
be paid over to the Dutch Tax Administration, it is based on the opinion of
Stibbe Simont Monahan Duhot.
This opinion does not discuss every aspect of taxation that may be relevant
to a particular taxpayer under special circumstances or who is subject to
special treatment under applicable law and is not intended to be applicable in
all respects to all categories of investors. For example, certain types of
investors, such as
.insurance companies,
.tax-exempt entities,
.financial institutions,
.regulated investment companies,
.dealers in securities,
.persons who hold shares as part of a hedging, straddle, constructive
sale, or conversion transaction,
.persons who hold shares through partnerships or other pass-through
entities,
.persons whose functional currency is not the U.S. dollar, and
.U.S. persons owning (directly, indirectly, or constructively) 10% or
more of the shares,
may be subject to different U.S. tax rules not discussed below.
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For purposes of this summary a "U.S. Shareholder" is a holder of shares
that is an individual citizen or resident of the U.S., a corporation organized
under the laws of the U.S. or any state of the U.S., an estate the income of
which is subject to U.S. federal income taxation regardless of its source, or
a trust if (i) a U.S. court is able to exercise primary supervision over the
administration of the trust, and (ii) one or more U.S. persons have the
authority to control all substantial decisions of the trust.
Taxes on Income
The gross amount of any distribution, including the amount of any Dutch
withholding tax thereon, actually or constructively received by a U.S.
Shareholder with respect to the shares will be includible in the gross income
of the U.S. Shareholder as ordinary income to the extent of our current or
accumulated earnings and profits as determined under U.S. federal income tax
principles. Dividends paid on shares generally will constitute income from
sources outside the U.S. and thus will not be eligible for the dividends
received deduction (which is generally allowed to U.S. corporate shareholders
on dividends paid by another 10% owned non-U.S. corporation out of U.S.-source
income).
A distribution in excess of our current or accumulated earnings and profits
will be treated first as a nontaxable return of capital to the extent of the
U.S. Shareholder's adjusted tax basis in its shares, and any distribution in
excess of that basis will constitute gain. Any such gain will be capital gain
from sources within the U.S. if the shares are held as capital assets and will
be long-term capital gain, taxable to individuals at a maximum rate of 20%, if
the shares have been held for more than one year when the distribution is
received.
The amount of any distribution paid in euros will be the dollar value of
the euros on the date of distribution, regardless of whether the U.S.
Shareholder converts the payment into dollars. This dollar value will be the
U.S. shareholder's U.S. tax basis in euros. Gain or loss, if any, recognized
by a U.S. Shareholder on the subsequent sale, conversion or disposition of
euros will be ordinary income or loss. Such gain or loss generally will be
income or loss from sources within the U.S. for foreign tax credit limitation
purposes.
Subject to certain conditions and limitations, tax withheld in The
Netherlands in accordance with the Treaty will be treated as a foreign tax
that U.S. Shareholders may elect either to deduct in computing their U.S.
federal taxable income or to credit against their U.S. federal income tax
liability. Amounts paid in respect of dividends on shares generally will be
treated for U.S. foreign tax credit purposes as "passive income" or in the
case of certain holders, "financial services income." If tax is withheld at a
rate in excess of the applicable Treaty rate, the excess withholding will not
be eligible for credit against the U.S. Shareholder's U.S. federal income tax
liability.
Dutch withholding tax may not be creditable against the U.S. Shareholder's
U.S. federal income tax liability, however, to the extent we are allowed to
reduce the amount of dividend withholding tax paid over to the Dutch Tax
Administration by crediting withholding tax imposed on certain dividends paid
to us. We will endeavor to provide to U.S. Shareholders the information they
will need to calculate their foreign tax credit.
Sale or Other Disposition of Shares
A U.S. Shareholder generally will recognize gain or loss for U.S. federal
income tax purposes upon the sale or exchange of shares in an amount equal to
the difference between the amount realized from such sale or exchange and the
U.S. Shareholder's tax basis for such shares. Such gain or loss will be a
capital gain or loss if the shares are held as a capital asset. Any such gain
or loss generally will be treated as U.S.-source.
Passive Foreign Investment Company
A company is considered a passive foreign investment company ("PFIC") for
any taxable year if either:
. 75% or more of its gross income is passive income; or
. 50% or more of the value of its assets is attributable to assets that
produce or are held for the production of passive income.
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Whether we are a PFIC is a factual determination that must be made annually
and thus may change. If we were determined to be a PFIC for a tax year during
the U.S. Shareholder's holding period, any gain from the sale or exchange of
shares by a U.S. Shareholder would be allocated ratably to each year in the
holder's holding period and would be treated as ordinary income. The amount
allocated to each pre-PFIC year and to the year of disposition would be treated
as income arising in the year of disposition. U.S. federal income tax would be
imposed on the amount allocated to each year beginning with the first year in
the U.S. Shareholder's holding period in which we were a PFIC and ending with
the year preceding the year of disposition at the highest rate in effect for
that year. In addition, interest would be charged at the rate applicable to
underpayments on the tax payable in respect of the amount so allocated. The
same rules would apply to "excess distributions," which are defined generally
as distributions exceeding 125% of the average annual distribution made by us
over the shorter of the holder's holding period or the three preceding years.
We will evaluate our PFIC status on an annual basis and will inform U.S.
Shareholders if we determine that we are a PFIC.
We were a PFIC in 1998 and 1999, and there is a possibility that we will be
a PFIC in 2000 or in future years. We intend to conduct our investment and
business activities in a manner to avoid PFIC status in 2000 and in future
years, although we can provide no assurance in this regard. In the event we
become a PFIC, the tax consequences described above may be avoided if the U.S.
Shareholder is eligible for and timely makes either (i) a qualified electing
fund ("QEF") election for the first tax year in the U.S. Shareholder's holding
period in which we were a PFIC or (ii) an election to mark our stock to market.
If a QEF election is made, a U.S. Shareholder would include in income its pro
rata share of our ordinary earnings and net capital gain for years in which we
are a PFIC (regardless of whether amounts are distributed to an electing U.S.
Shareholder). If a U.S. shareholder elects to mark shares to market for the
first tax year in the U.S. Shareholder's holding period in which we are a PFIC,
any difference between the shares' fair market value and the U.S. Shareholder's
adjusted tax basis at the end of a taxable year is accounted for by either an
inclusion in ordinary income or a deduction, subject to certain limitations,
from ordinary income (the "mark-to-market rule"). A U.S. Shareholder electing
to mark shares to market must increase its basis in the shares by the amount
included in income under the mark-to-market rule and decrease its basis by the
amount of deductions allowed under the mark-to-market rule. If we become a
PFIC, we will provide information necessary for our U.S. Shareholders to make a
QEF election and elect to mark our shares to market. Prospective purchasers are
urged to consult their tax advisors regarding the consequences of an investment
in a PFIC.
A U.S. Shareholder who owns shares during any years that we are a PFIC must
file Internal Revenue Service Form 8621.
Foreign Personal Holding Company Classification
We could be classified as a foreign personal holding company ("FPHC") if in
any taxable year :
(i) five or fewer individuals who are U.S. citizens or residents own
(directly or constructively through certain attribution rules) more
than 50% of the total voting power of all classes of our stock entitled
to vote or the total value of our stock, and
(ii) at least 60% (50%, in certain cases) of our gross income consists of
"foreign personal holding company income," which generally includes
passive income such as dividends, interest, gains, rent and royalties
(the "income test").
Classification as a FPHC would in general require each U.S. Shareholder who
held shares on the last day of the taxable year to include in gross income as a
dividend such shareholder's pro rata portion of our undistributed foreign
personal holding company income.
After giving effect to applicable ownership attribution rules, five or fewer
U.S. individuals are treated as owning more than 50% of the total voting power
of all classes of our stock. In addition, there is a possibility that we will
satisfy the income test in 2000 or in future years, and thus we may be a FPHC
in 2000 or in future
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years. We intend to conduct our investment and business activities in a manner
to avoid FPHC status in 2000 and in future years, although we can provide no
assurance in this regard. This is a factual determination that must be made
annually, and thus our status as a FPHC is subject to change. Nevertheless, in
the event we are a FPHC, we do not expect to have any undistributed foreign
personal holding company income in 2000 or future years in which we might be a
FPHC, and therefore U.S. Shareholders should not have additional income
inclusions as a result of our being a FPHC.
Back-up Withholding
A U.S. Shareholder of shares may be subject to back-up withholding at a rate
of 31% with respect to dividends on, or the proceeds of a sale or other
disposition of, such shares unless such U.S. Shareholder:
(i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with
applicable backup withholding rules.
Any amounts withheld under the back-up withholding rules from a payment to a
U.S. Shareholder generally may be claimed as a credit against the U.S.
Shareholder's U.S. federal income tax liability provided that the required
information is furnished to the Internal Revenue Service.
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UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated as of , 2000, each of the underwriters named below, for whom Salomon
Brothers International Limited, Goldman Sachs International, Paribas and
Merrill Lynch International are acting as representatives, has severally agreed
to purchase, and we have agreed to sell to such underwriter, the number of
shares set forth opposite the name of such underwriter.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Salomon Brothers International Limited....................
Goldman Sachs International...............................
Paribas...................................................
Merrill Lynch International...............................
---
Total...................................................
===
</TABLE>
This global offering consists of (i) a public offering of shares in the
United States and an institutional offering of shares in Canada, (ii) an
institutional offering of shares outside the United States and Canada, and
(iii) a retail offering of shares in France. Salomon Brothers International
Limited and Goldman Sachs International are acting as the joint global
coordinators and joint bookrunners for the offerings. All sales in the United
States will be through U.S. registered broker-dealer affiliates of the
underwriters. BNP Paribas Group is the joint advertising name of Paribas and
Banque Nationale de Paris, which currently owns 100% of the share capital of
Paribas. For the purposes of this offering, the BNP Paribas Group will act
through Paribas in respect of the underwriting of shares offered hereby.
The underwriting agreement provides that the obligations of the underwriters
to purchase the shares are subject to approval of certain legal matters by
counsel and to certain other conditions. The underwriters are obligated to
purchase all the shares pursuant to the underwriting agreement (other than
those covered by the overallotment option described below) if they purchase any
of them. The underwriters expect that delivery of the shares will be made
against payment therefor on or about the date specified in the last paragraph
of the cover page of the final prospectus, which is the business day
following the date of the final prospectus.
The underwriters propose to offer some of the shares directly to the public
at the public offering price set forth on the cover page of this prospectus and
some of the shares to certain dealers at the public offering price less a
concession not exceeding (Euro) per share for shares offered outside the U.S
and Canada ($ per share for shares offered in the U.S. and Canada). The
underwriters may allow, and such dealers may reallow, a concession not
exceeding (Euro) per share for shares offered outside the U.S. and Canada
($ per share for shares offered in the U.S. and Canada) on sales to certain
other dealers. If all the shares are not sold at the public offering price, the
representatives may change the public offering price and other selling terms.
The representatives have advised us that the underwriters do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
We have granted the underwriters an option, exercisable for 30 days from the
date of this prospectus, to purchase up to an aggregate of 4,080,000 additional
shares at the public offering price, less the underwriting discount, if the
underwriters sell more than the total set forth in the table above. To the
extent that such option is exercised, each underwriter, will be obligated,
subject to certain conditions, to purchase an additional number of shares
proportionate to such underwriter's initial commitment.
The underwriters will enter into an agreement in which they agree to
restrictions on where and to whom they and any dealer purchasing from them may
offer shares.
At our request the underwriters have reserved approximately 2.0 million
shares for sale to our directors, officers and employees and persons otherwise
associated with us.
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Madison Dearborn Partners has agreed to purchase shares in this offering at
the price to public specified on the cover of this prospectus for an aggregate
amount of $20 million. LPL Telecom Europe, L.P., an affiliate of DeGeorge
Telecom Holdings Limited Partnership, has agreed to purchase shares in this
offering at the price to public specified on the cover of this prospectus for
an aggregate amount of $13 million. Each of Madison Dearborn Partners and
DeGeorge Telecom Holdings Limited Partnership and their respective affiliates
has agreed not to sell or dispose of any of such shares for a period of 180
days commencing on the date of this prospectus without the consent of the joint
global coordinators. The underwriters will not receive any discount or
commission in connection with these purchases. See "Principal Shareholders."
We and each of the following persons have agreed that for 180 days
commencing on the date of this prospectus each of us will not, without the
prior written consent of joint global coordinators, offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, or announce the
offering of, any shares or any securities convertible into or exchangeable for
shares or representing beneficial interests in shares.
. CompleTel LLC, CompleTel Holdings LLC, CompleTel (N.A.) N.V. and
CompleTel Europe
. Madison Dearborn Partners, LPL Investment Group, Meritage Investment
Partners and their affiliates
. Members of our Supervisory Board and Board of Management and our
significant employees
The 180 day lock-up period also applies to any shares purchased in this
offering by any of the persons listed above. The joint global coordinators in
their sole discretion may release any of the shares subject to the lockup at
any time without notice. The joint global coordinators have advised us that
they do not presently have any intention to release prematurely any of the
shares that are subject to the lock-up agreement. Notwithstanding the
foregoing, the lock-up agreements will permit the dissolution of CompleTel
Holdings LLC and the related transactions described under "Prospectus Summary--
CompleTel Europe N.V. Corporate Organizational Chart."
Prior to the global offering, there has been no public market for the
shares. Consequently, the public offering price for the shares will be
determined through negotiations between us and the representatives. Among the
factors considered in determining the public offering price are our record of
operations, our current financial condition, our future prospects, our markets,
the economic conditions in and future prospects in the telecommunications
industry, our management and currently prevailing general conditions in the
equity securities markets, including current market valuations of publicly
traded companies considered comparable to us. There can be no assurance,
however, that the prices at which the shares will sell in the public market
after this offering will not be lower than the price at which they are sold by
the underwriters or that an active trading market in the shares will develop
and continue after this offering.
We have applied to have the shares approved for quotation on the Nasdaq
National Market under the symbol "CLTL" and we have applied to have the shares
approved for listing on the Premier Marche of the ParisBourse under the symbol
"CTL".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with the global offering. These
amounts are shown assuming no exercise and full exercise of the underwriters'
option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by CompleTel
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share (U.S. and Canada)...................... $ $
Per share (outside the U.S. and Canada).......... (Euro) (Euro)
------- -------
Total.......................................... (Euro) (Euro)
======= =======
</TABLE>
In connection with the global offering, the joint global coordinators or
their agents or affiliates, on behalf of the underwriters, may purchase and
sell shares in the open market. These transactions may include overallotment,
covering transactions and stabilizing transactions. Overallotment involves
syndicate sales of
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shares in excess of the number of shares to be purchased by the underwriters in
the global offering, which creates a syndicate short position. Syndicate
covering transactions involve purchases of the shares in the open market after
distribution has been completed in order to cover syndicate short positions.
Stabilizing transactions consist of certain bids or purchases of shares made
for the purpose of preventing or retarding a decline in the market price of the
shares while the offering is in progress. The underwriters also may impose a
penalty bid. Penalty bids permit the underwriters to reclaim a selling
concession from an underwriter when the joint global coordinators in covering
syndicate short positions or making stabilizing purchases, repurchases shares
originally sold by that underwriter.
Any of these activities may cause the price of the shares to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. Subject to compliance with applicable laws, these transactions
may be effected on the Nasdaq National Market, the Premier Marche of the
ParisBourse, in the over-the-counter market or otherwise and, if commenced, may
be discontinued at any time.
Each underwriter has represented and agreed that:
. it has not offered or sold, and will not offer or sell, any ordinary
shares to any person in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995,
. it has complied, and will comply with, all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the ordinary shares in, from or otherwise involving the
United Kingdom, and
. it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of the ordinary shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act of 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended) or is a person to
whom the document may otherwise lawfully be issued or passed on.
Each of the underwriters has represented and agreed that it has only offered
and sold and will only offer and sell the shares in the Federal Republic of
Germany in accordance with the provisions of the Securities Sales Prospectus
Act of December 13, 1990, as amended (Wertpapier-Verkaufsprospektgesetz) and
any other laws applicable in the Federal Republic of Germany governing the
issue, sale and offering of securities. Further, any resale of the shares in
the Federal Republic of Germany may only be made in accordance with the
provisions of the Securities Sales Prospectus Act and any other laws applicable
in the Federal Republic of Germany governing the sale and offering of
securities.
Each underwriter has represented and agreed that:
. the sale of shares in the Republic of Italy shall be effected in
accordance with all Italian securities, tax and other applicable laws and
regulations, and
. it will not offer, sell or deliver any shares or distribute copies of
this prospectus or any other document relating to the shares in the
Republic of Italy unless such offer, sale or delivery of the shares or
distribution of copies of this prospectus or any other document relating
to the shares in the Republic of Italy is:
. made by an investment firm, bank or financial intermediary permitted
to conduct such activities in the Republic of Italy in accordance
with Legislative Decree No. 385 dated September 1, 1993 ("Decree No.
385"), Legislative Decree No. 58 dated February 24, 1998, Commissione
Nazionale per le Societa e la Borsa Regulation No. 11971 dated May
14, 1999 and any other applicable laws and regulations,
. in compliance with Article 129 of Decree No. 385 and the implementing
instructions of the Bank of Italy, pursuant to which the issue,
trading or placement of securities in Italy is subject prior to
notification to the Bank of Italy, unless an exemption applies, and
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. in compliance with any other applicable notification requirement or
limitation which may be imposed by Commissione Nazionale per le
Societa e la Borsa or the Bank of Italy or any other Italian
regulatory authority.
No action has been or will be taken in any jurisdiction other than the
United States and France that would permit a public offering of the shares or
the possession, circulation or distribution of this prospectus in any
jurisdiction where action for that purpose is required. Accordingly, the shares
may not be offered or sold, directly or indirectly, and neither this prospectus
nor any other offering material or advertisements in connection with the shares
may be distributed or published in or from any country or jurisdiction except
under circumstances that will result in compliance with any applicable rules
and regulations of any such country or jurisdiction.
We estimate that the total expenses of the global offering will be
approximately $4.50 million ((Euro) 4.67 million). We have agreed to reimburse
the underwriters for certain expenses incurred in connection with the global
offering.
Goldman Sachs International and Paribas are the lead arrangers under our
credit facility for which they have received customary fees. The
representatives or their affiliates may, from time to time, engage in other
transactions with and perform other services for us in the ordinary course of
business.
We have agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the U.S. Securities Act of 1933, as
amended, or contribute to payments the underwriters may be required to make in
respect of any of those liabilities.
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SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES
We are incorporated under the laws of The Netherlands and certain members of
our Supervisory Board, our Board of Management and certain of the experts named
herein are residents of The Netherlands or other countries other than the U.S.
Substantially all of our assets and the assets of such persons are located
outside the U.S. As a result, it may not be possible for investors to effect
service of process within the U.S. upon us or such persons, or to enforce
against us or such persons in courts in the U.S. judgements of such courts
predicated upon the civil liability provisions of U.S. securities laws. We have
been advised by our legal counsel in The Netherlands, Stibbe Simont Monahan
Duhot, that because there is no convention on reciprocal recognition and
enforcement of judgements in civil and commercial matters between the U.S. and
The Netherlands, a final judgment rendered by a U.S. court will not
automatically be enforced by the courts in The Netherlands. In order to obtain
a judgment that is enforceable in The Netherlands, the relevant claim may have
to be relitigated before a Dutch court of competent jurisdiction. However, a
final judgment for the payment of money obtained in a U.S. court, which is not
subject to appeal or any other means of contestation and is enforceable in the
U.S., would in principle be upheld by a Netherlands court of competent
jurisdiction when asked to render a judgment in accordance with such final
judgment by a U.S. court, without substantive re-examination of the merits of
the subject matter thereof; provided that such judgment has been rendered by a
court of competent jurisdiction, in accordance with rules of proper procedure,
that it has not been rendered in proceedings of a penal or revenue nature and
that its content and possible enforcement are not contrary to public policy or
public order of The Netherlands. Notwithstanding the foregoing, there can be no
assurance that U.S. investors will be able to enforce against us, or members of
our Supervisory Board or Board of Management or certain experts named herein
who are residents of The Netherlands or other countries outside the U.S., any
judgments in civil and commercial matters, including judgments under the
federal securities laws. In addition, there is doubt as to whether a
Netherlands court would impose civil liability on us or on the members of our
Supervisory Board or Board of Management in an original action predicated
solely upon the federal securities laws of the U.S. brought in a court of
competent jurisdiction in the Netherlands against us or such members. In
addition, Dutch law does not recognize a shareholder's right to bring a
derivative action on behalf of a corporation.
LEGAL MATTERS
Holme Roberts & Owen LLP, Denver, Colorado, U.S.A., have advised us on
certain U.S. securities law matters in connection with this offering. Shearman
& Sterling, Paris, France have advised us on certain French securities law
matters in connection with this offering. Various legal matters relating to
Dutch law will be passed upon for us by Stibbe Simont Monahan Duhot P.C., New
York. De Brauw Blackstone Westbroek P.C., special Dutch counsel to the
underwriters, will pass for the underwriters upon certain matters of Dutch law.
Cahill Gordon & Reindel, U.S. counsel to the underwriters, will pass for the
underwriters upon certain matters of U.S. law. Attorneys with the firm of Holme
Roberts & Owen LLP have indicated their intent to purchase shares in this
offering in an aggregate amount of up to $350,000.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and 1998 and
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.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the U.S. Securities and Exchange Commission a
registration statement on Form F-1 under the Securities Act of 1933 about the
securities offered hereby. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. For further information with respect to us and the shares,
please refer to the registration statement, including the exhibits and
schedules thereto, which may be inspected at, and copies thereof may be
obtained at prescribed rates from, the public reference facilities of the
Commission at the addresses set forth below.
As a result of the registration under the Securities Act of our senior
discount notes, we are subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith,
and will file reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information and the
registration statement and exhibits and schedules thereto may be inspected
without charge at, and copies thereof may be obtained at prescribed rates from
the 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 at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, U.S.A. and 7 World Trade Center, Suite 1300, New York, New York 10048,
U.S.A. The public may obtain information on the operation of the Commission's
public reference facilities by calling the Commission in the U.S. at 1-800-SEC-
0330. The Commission also maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. When the
shares begin trading on the Nasdaq National Market, 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.
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.
SHARE CERTIFICATES AND TRANSFER
The shares will be issued in registered form only. Share registers will be
maintained in New York, New York by Citibank, N.A., the New York Transfer Agent
and Registrar (the "New York Registry"), and in Amsterdam, The Netherlands by
Netherlands Management Company B.V., the Dutch Transfer Agent and Registrar
(the "Dutch Registry").
Shares of New York Registry are registered with the New York Transfer Agent
and Registrar. Holders of shares of New York Registry may elect to hold their
shares through The Depository Trust Company ("DTC"), in which case such shares
will be registered with the New York Transfer Agent and Registrar in the name
of Cede & Co., the nominee of DTC.
Shares of Dutch Registry are registered with the Dutch Transfer Agent and
Registrar. Holders of Shares of Dutch Registry may elect to hold their shares
directly through SICOVAM, or through Euroclear or Clearstream (formerly
Cedelbank). Shares held through SICOVAM will be registered with the Dutch
Transfer Agent and Registrar in the name of SICOVAM and will be represented by
certificates held by Netherlands Management Company B.V. (the "Dutch
Custodian") on behalf of SICOVAM. Shares held through Clearstream and Euroclear
must be held indirectly on the Dutch Registry through SICOVAM.
The shares have been approved for quotation on the Nasdaq National Market;
however, only shares of New York Registry may be traded on Nasdaq National
Market. The shares also have been listed on the Premier Marche of the
ParisBourse; however, only shares held through SICOVAM may be traded on such
exchange. Any holders who remove shares from SICOVAM for the purpose of
attending general meetings of shareholders
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<PAGE>
in person (see "Description of Capital Stock--Shareholder meetings and voting
rights") will not be able to trade such shares on the Premier Marche without
redepositing shares with SICOVAM.
Certificates of New York Registry may be transferred and exchanged at the
office of the New York Transfer Agent and Registrar and shares of New York
Registry may be exchanged through such office for shares of Dutch Registry.
Certificates of Dutch Registry may be transferred and exchanged on our books at
the office of the Dutch Transfer Agent and Registrar and shares of Dutch
Registry may be exchanged through such office for certificates of New York
Registry. Transfers of shares within any of DTC, SICOVAM, Euroclear or
Clearstream, or between any of SICOVAM, Euroclear or Clearstream will be made
by book-entry transfer in accordance with their respective rules and
procedures. Transfers of shares between DTC and any of SICOVAM, Euroclear or
Clearstream will be made by the relevant clearing systems and by the New York
and Dutch Transfer Agents and Registrars in accordance with the procedures
described below.
Requests to exchange shares of New York Registry for shares of Dutch
Registry should be presented to the New York Transfer Agent and Registrar. Upon
a request to the New York Transfer Agent and Registrar to exchange shares of
New York Registry for shares of Dutch Registry, the New York Transfer Agent and
Registrar will cancel certificates representing the appropriate number of
shares of New York Registry and appropriately adjust the New York register for
such shares and will then instruct the Dutch Transfer Agent and Registrar to
issue an equal number of shares of Dutch Registry and to deliver a certificate
of Dutch Registry for such shares to the appropriate registered owner and to
adjust the Dutch register accordingly. If the transferee elects to hold shares
through SICOVAM, the Dutch Transfer Agent and Registrar will deliver the shares
to the Dutch Custodian. Thereupon, the Dutch Custodian will notify SICOVAM of
the increase of the number of shares held through SICOVAM and instruct SICOVAM
to credit to the appropriate SICOVAM account.
Requests to exchange shares of Dutch Registry for shares of New York
Registry should be presented to the Dutch Transfer Agent and Registar. Upon a
request of the Dutch Custodian to exchange shares of Dutch Registry for shares
of New York Registry, the Dutch Transfer Agent and Registrar will cancel
certificates representing the appropriate number of shares of Dutch Registry
and appropriately adjust its register and will instruct the New York Transfer
Agent and Registrar to issue an equal number of shares of New York Registry to
the appropriate registered owner. If the transferor holds the shares through
SICOVAM, Euroclear or Clearstream, the Dutch Custodian will confirm to SICOVAM
the decrease of the number of shares held through SICOVAM. Holders through
Euroclear or Clearstream should submit instructions in accordance with,
respectively, Euroclear's or Clearstream's rules and procedures. Upon receipt
of such issuance instructions from the Dutch Registrar, the New York Transfer
Agent and Registrar will issue and register the issuance of the applicable
number of shares of New York Registry, and will deliver a certificate for New
York Registry shares to the designated recipient. If the transferee elects to
hold in book entry form through DTC, the New York Transfer Agent and Registrar
will notify DTC of the increase of the number of shares held through DTC and
instruct DTC to credit the shares of New York Registry credited to the
appropriate DTC account. Under Dutch law, the transfer of shares between the
Dutch Registry and the New York Registry requires a written instrument of
transfer and written acknowledgment by us of such transfer. A holder who has
elected to hold through DTC but wishes to sell his or her shares on the Premier
Marche, or a holder who has elected to hold through SICOVAM but wishes to sell
his or her shares on the Nasdaq National Market will need to arrange for an
exchange of shares from the New York Registry to the Dutch Registry.
Shareholders will be charged a fee of up to $5.00 per 100 shares or portion
thereof by the New York Transfer Agent and Registrar for the issuance or
cancellation of shares of New York Registry in connection with exchanges
between the two Registries.
The shares have been accepted for clearance through Clearstream and
Euroclear under common code number . The International Securities
Identification Number (ISIN) for the shares is , the CUSIP number assigned
to our shares is .
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<PAGE>
MARKET INFORMATION
General
We have applied to have the shares approved for listing on the Premier
Marche of the ParisBourseSBF S.A. ("ParisBourse"). We have applied to have the
shares approved for quotation on Nasdaq National Market.
The Paris Stock Exchange
Official trading of listed securities on the Premier Marche of the
ParisBourse is transacted through investment service providers that are members
of the ParisBourse and takes place continuously on each business day from 9:00
a.m. through 5:00 p.m. (Paris time), with a pre-opening session from 7:45 a.m.
through 9:00 a.m. (Paris time) during which transactions are recorded but not
executed. Any trade effected after the close of a stock exchange session is
recorded on the next trading day, at the closing price for the relevant
security at the end of the previous day's session.
The ParisBourse is a self-regulatory organization that oversees the
operation of the Premier Marche and other regulated markets, including the
admission of financial instruments. It is responsible for supervision of
trading in listed securities on French stock exchanges and publishes a daily
Official Price List that includes price information concerning listed
securities. The ParisBourse has introduced continuous trading during trading
hours by computer for most listed securities.
Trading in securities listed on the Premier Marche may be suspended by the
ParisBourse if quoted prices exceed certain price limits defined by its
regulations. In particular, if the quoted price of a Continu A security varies
by more than 10 percent from the previous day's closing price, ParisBourse may
suspend trading in that security for up to 15 minutes. Further suspensions for
up to 15 minutes are also possible if the price again varies by more than five
percent. The ParisBourse may also suspend trading of a security listed on the
Premier Marche in certain other limited circumstance, including, for example,
the occurrence of unusual trading activity in such security. In addition, in
exceptional circumstances, the Conseil des Marches Financiers may also suspend
trading.
Trades of securities listed on the Premier Marche of the ParisBourse are
settled in either of two ways: in the cash settlement market (marche au
comptant) or in the monthly settlement market (marche a reglement mensuel). Our
shares are settled in the monthly settlement market. In the monthly settlement
market, the purchaser may elect to settle on the third trading day following
the trade (reglement immediat or immediate settlement) or decide on the
determination date (date de liquidation, which is the sixth trading day prior
to the end of the month) either (i) to settle the trade no later than on the
last trading day of such month or (ii) upon payment of an additional fee, to
extend to the determination date of the following month the option either to
settle no later than the last trading day of such month or to postpone further
the selection of a settlement date until the next determination date (a
procedure known as a report). Such purchaser may decide to renew its option on
each subsequent determination date subject to payment of an additional fee. The
transfer of ownership (vis-a-vis third parties) of equity securities traded on
the ParisBourse occurs at the time of registration of the securities in the
appropriate shareholder's account. In accordance with French securities
regulations, any sale of securities executed on the monthly settlement market
during the month of a dividend payment date is deemed to occur after payment of
the dividend to the seller, and the account of the purchaser (having purchased
the securities prior to the date of the dividend payment) is credited with an
amount equal to the dividend paid and the seller's account is credited with the
dividend and debited by the same amount.
93
<PAGE>
GLOSSARY OF TERMS
ATM (asynchronous transfer An international standard for high-speed
mode)....................... 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 A transmission technology enabling high-speed
line)....................... 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).
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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.
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.
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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.
A private data communications network linking a
LAN (local area network)..... 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.
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 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.
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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.
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.
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Private automated branch A switching system within an office building
exchange.................... 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 SDH is a set of standards for optical
hierarchy).................. 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 A transport and switching method that depends
mode)....................... 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 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.
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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 Private networking involves securely
network).................... 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
I. COMPLETEL EUROPE N.V.
Report of Independent Public Accountants............................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998........... F-3
Consolidated Statements of Operations for the year ended December 31,
1999 and for the Period from Commencement of Operations (January 8,
1998) to December 31, 1998............................................ F-4
Consolidated Statements of Shareholder's Equity (Deficit) for the year
ended December 31, 1999 and for the Period from Commencement of
Operations (January 8, 1998) to December 31, 1998 .................... F-5
Consolidated Statements of Cash Flows for the year ended December 31,
1999 and for the Period from Commencement of Operations (January 8,
1998) to December 31, 1998............................................ F-6
Notes to Consolidated Financial Statements............................. F-7
II. ACCES ET SOLUTIONS INTERNET S.A.R.L.
Report of Independent Public Accountants............................... F-22
Balance Sheet as of December 31, 1998.................................. F-23
Statement of Operations for the year ended December 31, 1998........... F-24
Statement of Cash Flows for the year ended December 31, 1998........... F-25
Notes to Financial Statements.......................................... F-26
</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, shareholder's 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our 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 the commencement of operations (January 8, 1998) to December
31, 1998, in conformity with United States generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 2, 2000.
F-2
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in thousands of U.S. Dollars, except share and per share amounts)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 57,349 $ 1,718
Receivables........................................ 14,886 527
Affiliate receivables.............................. 306 --
Prepaid expenses and other current assets.......... 1,564 179
-------- --------
Total current assets............................. 74,105 2,424
-------- --------
LONG-TERM ASSETS:
Property and equipment, net........................ 92,374 3,371
Licenses and other intangibles, net................ 4,938 950
Deferred financing costs, net...................... 5,103 869
Other long-term assets............................. 819 256
-------- --------
Total long-term assets........................... 103,234 5,446
-------- --------
TOTAL ASSETS......................................... $177,339 $ 7,870
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Construction payables.............................. $ 28,711 $ --
Trade accounts payable............................. 9,891 1,959
Accrued liabilities................................ 12,656 1,453
Affiliate payables................................. 2,545 10,470
-------- --------
Total current liabilities........................ 53,803 13,882
-------- --------
LONG-TERM DEBT....................................... 79,922 --
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDER'S EQUITY (DEFICIT):
Ordinary shares, nominal value (translated from
Euro .10 per share), 625,000,000 shares
authorized; 126,133,060 and 24,444,820 shares
issued and outstanding at December 31, 1999 and
1998, respectively................................ 14,171 2,853
Additional paid-in capital......................... 124,166 2,195
Deferred compensation.............................. (28,495) (540)
Other cumulative comprehensive loss................ (3,912) (160)
Accumulated deficit................................ (62,316) (10,360)
-------- --------
TOTAL SHAREHOLDER'S EQUITY (DEFICIT)................. 43,614 (6,012)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
(DEFICIT)........................................... $177,339 $ 7,870
======== ========
</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 U.S. Dollars, except share and per share amounts)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
Commencement
of
Operations
Year (January 8,
Ended 1998) to
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
REVENUES............................................ $ 2,985 $ --
OPERATING EXPENSES:
Network costs..................................... 2,407 --
Selling, general and administrative............... 32,282 4,552
Management fees to affiliate...................... 6,464 2,963
Depreciation and amortization..................... 4,489 46
---------- ----------
Total operating expenses........................ 45,642 7,561
---------- ----------
OPERATING LOSS...................................... (42,657) (7,561)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income................................... 2,553 --
Interest expense, net of capitalized interest..... (8,236) --
Foreign exchange loss and other expense........... (3,616) --
---------- ----------
Total other income (expense).................... (9,299) --
---------- ----------
NET LOSS BEFORE INCOME TAXES........................ (51,956) (7,561)
INCOME TAX PROVISION................................ -- --
---------- ----------
NET LOSS............................................ $(51,956) $(7,561)
========== ==========
BASIC AND DILUTED LOSS PER ORDINARY SHARE........... $ (.52) $ (.31)
========== ==========
WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES
OUTSTANDING........................................ 99,056,060 24,444,820
========== ==========
</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 SHAREHOLDER'S EQUITY (DEFICIT)
(Stated in thousands of U.S. Dollars, except share and per share amounts)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
Other
Ordinary Shares Additional Cumulative Total
------------------- Paid-in Deferred Comprehensive Accumulated Comprehensive
Number Amount Capital Compensation Loss Deficit Loss Total
----------- ------- ---------- ------------ ------------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 8,
1998................... -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Deemed issuance of
ordinary shares, net
of $54 subscription
receivable on January
8, 1998............... 24,444,820 2,799 -- -- -- (2,799) -- --
Cash contributions by
Parent................ -- -- 1,464 -- -- -- -- 1,464
Payment on subscription
receivable on December
14, 1998.............. -- 54 -- -- -- -- -- 54
Deemed contributions by
Parent related to al-
location of
non-cash compensation
charges............... -- -- 731 (604) -- -- -- 127
Amortization of allo-
cated
deferred compensation
charges............... -- -- -- 64 -- -- -- 64
Cumulative translation
adjustment............ -- -- -- -- (160) -- (160) (160)
Net loss............... -- -- -- -- -- (7,561) (7,561) (7,561)
----------- ------- -------- -------- ------- -------- -------- --------
BALANCE, December 31,
1998................... 24,444,820 $ 2,853 $ 2,195 $ (540) $ (160) $(10,360) $ (7,721) $ (6,012)
========
Issuance of ordinary
shares in connection
with corporate reorga-
nization.............. 73,537,325 8,392 49,653 -- -- -- -- 58,045
Issuance of ordinary
shares in connection
with the Units Offer-
ing................... 7,375,000 825 3,653 -- -- -- -- 4,478
Issuance of ordinary
shares in connection
with capital
contributions......... 20,775,915 2,101 40,035 -- -- -- -- 42,136
Deemed contributions by
Parent related to al-
location of
non-cash compensation
charges............... -- -- 2,130 (2,130) -- -- -- --
Issuance of stock op-
tions in December
1999.................. -- -- 26,500 (26,500) -- -- -- --
Amortization of allo-
cated
deferred compensation
charges............... -- -- -- 675 -- -- -- 675
Cumulative translation
adjustment............ -- -- -- -- (3,752) -- (3,752) (3,752)
Net loss............... -- -- -- -- -- (51,956) (51,956) (51,956)
----------- ------- -------- -------- ------- -------- -------- --------
BALANCE, December 31,
1999................... 126,133,060 $14,171 $124,166 $(28,495) $(3,912) $(62,316) $(55,708) $ 43,614
=========== ======= ======== ======== ======= ======== ======== ========
</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 U.S. Dollars)
(After Corporate Reorganization--See Note 1)
<TABLE>
<CAPTION>
Commencement of
Operations
Year (January 8,
Ended 1998) to
December 31, December 31,
1999 1998
------------ ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................ $(51,956) $(7,561)
Adjustments to reconcile net loss to cash flows
from operating activities--
Depreciation and amortization................. 4,489 46
Non-cash compensation expense................. 675 191
Accretion of senior notes..................... 7,948 --
Amortization of deferred financing costs...... 236 --
Changes in assets and liabilities--
Increase in receivables..................... (15,181) (527)
Increase in prepaid expenses and other
current assets............................. (1,470) (179)
Increase in other long-term assets.......... (607) (256)
Increase in trade accounts payable.......... 10,164 1,959
Increase in accrued liabilities............. 11,950 1,453
Increase (decrease) in net affiliate
payables/receivables....................... (7,561) 10,470
-------- -------
Net cash flows from operating activities.. (41,313) 5,596
-------- -------
INVESTING ACTIVITIES:
Expenditures for property and equipment......... (97,055) (3,418)
Increase in construction payables............... 28,711 --
Purchase of licenses and other intangibles...... (4,315) (950)
Offering proceeds and investment earnings placed
in escrow...................................... (73,198) --
Proceeds from escrowed offering and investment
earnings....................................... 73,198 --
-------- -------
Net cash flows from investing activities.. (72,659) (4,368)
-------- -------
FINANCING ACTIVITIES:
Gross proceeds from senior notes offering....... 70,532 --
Proceeds from issuance of ordinary shares and
subsequent capital contributions............... 104,659 1,518
Deferred financing costs........................ (4,470) (869)
-------- -------
Net cash flows from financing activities.. 170,721 649
-------- -------
Effect of exchange rates on cash................ (1,118) (159)
-------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 55,631 1,718
CASH AND CASH EQUIVALENTS, beginning of period.... 1,718 --
-------- -------
CASH AND CASH EQUIVALENTS, end of period.......... $ 57,349 $ 1,718
======== =======
</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 million (see Note 4).
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 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 $4.5 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
F-7
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $54,000, which was paid on December 14, 1998. Furthermore, the
accompanying consolidated financial statements have been prepared as though
CompleTel Europe had performed all competitive local exchange carrier ("CLEC")
related development activities in Western Europe since the inception of Parent.
The accompanying consolidated financial statements of CompleTel Europe include
its direct and indirect wholly-owned subsidiaries consisting of BVI, BVII,
CompleTel France, CompleTel Germany, CompleTel UK, CompleTel ECC and CompleTel
SPC.
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. 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.
F-8
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-9
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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:
<TABLE>
<CAPTION>
Estimated
Useful Life
-------------
<S> <C>
Network equipment.............................................. 3 to 8 years
Office furniture and equipment................................. 5 years
Computer equipment and software................................ 3 to 5 years
Leasehold improvements......................................... 9 to 12 years
Buildings...................................................... 20 years
</TABLE>
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Network equipment.................................. $39,955 $ --
Office furniture and equipment..................... 1,445 129
Computer equipment and software.................... 5,116 608
Leasehold improvements............................. 1,855 24
Buildings.......................................... 206 --
------- ------
Property and equipment, in service................. 48,577 761
Less: accumulated depreciation..................... (4,171) (46)
------- ------
Property and equipment, in service, net............ 44,406 715
Construction in progress........................... 47,968 2,656
------- ------
Property and equipment, net........................ $92,374 $3,371
======= ======
</TABLE>
The Company capitalized approximately $1.4 million and $0 of interest for
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 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.
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
shareholder's 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
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 shareholder's 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.
The Company adopted the euro as its functional currency effective January 1,
2000.
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.
F-12
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
(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 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 $6.5 million and $3 million, respectively
for billings under the Management Agreements.
(4) INDEBTEDNESS
Senior Discount Notes
In February 1999, the Company 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
F-13
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
"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>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
14% Senior Discount Notes, face amount $147.5
million, due 2009, effective interest rate of
15.1%........................................... $79,922 $ --
======= =====
</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>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
December 31, 2000.................................. $ 6,161 $ 855
December 31, 2001.................................. 6,113 966
December 31, 2002.................................. 5,998 974
December 31, 2003.................................. 5,766 955
December 31, 2004.................................. 5,679 948
Thereafter......................................... 16,726 4,975
------- ------
Total............................................ $46,443 $9,673
======= ======
</TABLE>
Total rent expense for the period from commencement of operations (January
8, 1998) through December 31, 1998 was approximately $120,000 and for the year
ended December 31, 1999 was approximately $1.5 million.
F-14
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 a fixed wireline license and service license for network
deployment and the provision of services in 10 regions 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.
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%.
F-15
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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%.......... $20,556 $ 2,520
Stock-based compensation................... (267) (64)
Other...................................... 80 --
Valuation allowance........................ (20,369) (2,456)
------- -------
Total income tax benefit................. $ -- $ --
======= =======
</TABLE>
Deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets--
Operating loss carryforwards..................... $19,625 $ 1,205
Capitalized start-up costs....................... 932 1,214
Net unrealized foreign exchange loss............. 611 20
Depreciation and amortization.................... 1,648 16
Other............................................ 9 1
------- -------
Total deferred tax assets........................ 22,825 2,456
Less valuation allowance......................... (22,825) (2,456)
------- -------
Net deferred taxes............................... $ -- $ --
======= =======
</TABLE>
(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.
F-16
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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................. $ -- $ -- $ -- $ -- $ --
Depreciation............. 46 -- -- -- 46
Management Fee Expense... (2,661) -- -- (302) (2,963)
Net Loss................. (5,949) (300) (400) (912) (7,561)
Total Assets............. 6,180 19 21 1,650 7,870
Expenditures for Long-
Lived Assets............ 3,647 19 21 681 4,368
</TABLE>
As of December 31, 1999 and for the year ended December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
CompleTel CompleTel CompleTel Corporate
SAS GmbH UK Ltd. and Other Consolidated
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 1,986 $ -- $ 999 $ -- $ 2,985
Depreciation............ 3,445 671 72 301 4,489
Management Fee Expense.. 5,297 557 208 402 6,464
Net Loss................ (34,684) (8,181) (1,548) (7,543) (51,956)
Total Assets............ 81,250 68,000 1,732 26,357 177,339
Expenditures for Long-
Lived Assets........... 71,850 28,628 892 -- 101,370
</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 $2.7 million and
$604,000, respectively. This deferred compensation is being amortized over the
four year vesting period. Amortization of deferred compensation expense totaled
approximately $675,000 and $64,000 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.
F-17
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $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 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 $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 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 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, 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 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 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.
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.
F-18
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
(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 $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.
F-19
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<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.................. $ (51,956) $ (52,053) $ (7,561) $ (7,699)
=========== =========== =========== ===========
Basic and diluted loss per
ordinary share........... $ (.52) $ (.53) $ (.31) $ (.31)
=========== =========== =========== ===========
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.
This agreement terminates, supersedes and replaces, without penalty, the
original commitment from Paribas for $90 million in senior credit (see Note 4).
Additionally, the commitment with Nortel Networks for $20 million 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
F-20
<PAGE>
COMPLETEL EUROPE N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
F-21
<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
___________________________
Pierre Jouanne
Paris, France,
June 24, 1999
F-22
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L.
BALANCE SHEET
DECEMBER 31, 1998
(Stated in thousands of U.S. Dollars)
<TABLE>
<S> <C>
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
====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-23
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Stated in thousands of U.S. Dollars)
<TABLE>
<S> <C>
REVENUES................................................................ $1,020
OPERATING EXPENSES:
Network costs and cost of goods sold.................................. 324
Selling, general and administrative................................... 551
Depreciation and amortization......................................... 35
------
Total operating expenses............................................ 910
------
OPERATING RESULT........................................................ 110
OTHER INCOME (EXPENSE):
Interest income....................................................... 2
Interest expense...................................................... (2)
------
Total other income (expense)........................................ --
------
NET RESULT BEFORE INCOME TAXES.......................................... 110
INCOME TAX PROVISION.................................................... (48)
------
NET PROFIT.............................................................. $ 62
======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-24
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Stated in thousands of U.S. Dollars)
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net profit.............................................................. $ 62
Add--
Depreciation and amortization......................................... 60
Increase in receivables................................................. (76)
Inventory............................................................... (4)
Increase in trade accounts payable...................................... 16
Increase in accrued liabilities......................................... 16
Increase in prepaid expenses............................................ (5)
Increase in deferred income............................................. 158
----
Net increase in working capital......................................... 105
----
Net cash provided by operating activities............................. 227
----
INVESTING ACTIVITIES:
Purchase of property and equipment...................................... (54)
Purchase of licenses and other intangibles.............................. (3)
Purchase of financial assets............................................ (6)
----
Net cash used by investing activities................................. (63)
----
FINANCING ACTIVITIES:
Loan.................................................................... 34
Loan repayment.......................................................... (6)
----
Net cash provided by financing activities............................. 28
----
Effect of exchange rates on cash flow................................... 10
----
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 202
CASH AND CASH EQUIVALENTS, opening........................................ 9
----
CASH AND CASH EQUIVALENTS, closing........................................ $211
====
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-25
<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" or the "Company") 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 that 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.
(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.
F-26
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 forecasted useful life.
<TABLE>
<S> <C>
. Machinery and equipment 3 years
. Miscellaneous fixtures and fittings 5 years
. Office equipment Between 3 and 5 years
</TABLE>
As of December 31, 1998, the breakdown of fixed assets is as follows:
<TABLE>
<CAPTION>
Gross Value Accumulated Depreciation Net Book Value
----------- ------------------------ --------------
(USD'000) (USD'000) (USD'000)
<S> <C> <C> <C>
Tangible.................... 135 65 70
Intangible.................. 4 2 2
Financial................... 15 -- 15
</TABLE>
(5) FINANCIAL ASSETS
Financial assets include the acquisition cost of securities acquired by the
Company to the extent that the amount of the equity investments represent at
least 10% of the capital of the target companies.
No dividends have been distributed on these investments.
A provision for depreciation is set aside when the value-in-use of the
securities is less than their historical value.
(6) INVENTORIES
Inventories are valued using the "first in-first out" method.
The gross value of goods and supplies includes the purchase price and
associated costs.
A reserve for depreciation of inventories is booked to the extent that the
gross value calculated according to the method indicated above is superior to
the current purchase price and associated costs.
(7) RECEIVABLES
Receivables are valued at their face value.
As of December 31, 1998, accounts receivable were as follows:
<TABLE>
<CAPTION>
A/R (Gross) Reserve A/R (Net)
----------- --------- ---------
(USD'000) (USD'000) (USD'000)
<S> <C> <C>
466 66 400
</TABLE>
(8) RESERVES FOR CONTINGENCIES AND LOSSES
A reserve for contingency loss amounting to USD 8,000 has been provided in
order to cover the possible consequences of a legal dispute between the Company
and one of its customers, ISICOM. This provision corresponds to the maximum
costs which the Company would be required to bear in this matter (USD 44,000)
less an accrued contingent gain (USD 36,000) representing the insurance cover
with respect to the matter in litigation.
F-27
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In addition, a reserve for contingency loss has been accrued for an amount
of USD 19,000 with respect to social security charges concerning trainees,
those not having been filed to the French tax administration.
(9) CHANGE IN METHODS
No change in method took place with respect to the methods used in the
previous period.
(10) SHARE CAPITAL
The share capital of the Company is FRF 125,000 (USD 25,000) and is made up
of 125 shares each with a par value of FRF 1,000 (approximately USD 200). It
can be broken down as follows as of December 31, 1998, prior to takeover by
CompleTel SAS in March 1999:
<TABLE>
<CAPTION>
Number of shares % shares
---------------- --------
<S> <C> <C>
Mr. Michel Cerdini................................. 40 32.00%
Mr. Samuel Triolet................................. 30 24.00%
Ms. Christiane Cerdini............................. 20 16.00%
Ms. Pascale Cerdini................................ 10 8.00%
Mr. Patrick Kuchard................................ 10 8.00%
Mr. Philippe Duby.................................. 10 8.00%
Mr. Jean Daniel Pauget............................. 2 1.60%
Mr. Marc Jouineau.................................. 3 2.40%
--- ------
Total............................................ 125 100.00%
=== ======
</TABLE>
(11) CASH AND CASH EQUIVALENTS
There are no restrictions on the bank balances of USD 211,000 as of December
31, 1998.
(12) REVENUE RECOGNITION
Customers are invoiced as they are connected. They are invoiced for periods
of 3, 6 or 12 months. The Company defers revenue on that part of turnover
properly relating to the period post balance sheet date.
(13) DEBT FINANCING ARRANGEMENTS
The Company 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.
F-28
<PAGE>
ACCES ET SOLUTIONS INTERNET S.A.R.L.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(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
Common Translation
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-29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
27,200,000 Ordinary Shares
CompleTel Europe N.V.
[LOGO OF COMPLETEL]
------------
PROSPECTUS
, 2000
------------
Salomon Smith Barney
Goldman, Sachs & Co.
BNP Paribas Group
Merrill Lynch & Co.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
offered hereby, other than underwriting discounts and commissions. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... 139,394
National Association of Securities Dealers, Inc. filing fee....... 30,500
Nasdaq National Market listing fee................................ 95,000
Printing expenses................................................. 1,000,000
Legal fees and expenses........................................... 1,800,000
Accounting fees and expenses...................................... 500,000
Blue Sky filing fees and expenses................................. 20,000*
Miscellaneous expenses............................................ 25,000*
---------
Total........................................................... 3,609,894*
=========
</TABLE>
--------
* Estimated
Item 14. Indemnification of Officers and Directors
The Registrant's Articles of Association include provisions to indemnify the
members of the Supervisory Board and the Board of Management against any
liabilities resulting from proceedings against such member in connection with
such member's actions as a member of the Supervisory Board or the Board of
Management, as the case may be, if such member acted in good faith and in a
manner he believed to be in the Registrant's best interests.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the Registrant
and its directors and officers, and by the Registrant of the underwriters, for
certain liabilities arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
The following information relates to securities issued or sold by the
Registrant since its inception. During that time, the Registrant has issued
unregistered securities in the transactions described below. Share amounts have
not been adjusted to reflect the 5-for-1 stock split that we recently
completed.
On December 14, 1998, in connection with the formation of CompleTel Europe,
it issued 4,888,964 ordinary shares to CompleTel LLC for cash consideration of
approximately $54,000.
In February 1999, in connection with equity investments in CompleTel LLC and
a restructuring transaction, CompleTel Europe issued 14,707,465 ordinary shares
to CompleTel (N.A.) N.V. for all of the outstanding capital stock of CompleTel
Holdings I B.V., valued at approximately $58.0 million.
The above described transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act, as transactions
not involving a public offering.
On February 16, 1999, CompleTel Europe and its indirect parent, CompleTel
Holdings LLC, completed a private offering of 147,500 dollar denominated units.
Each unit consisted of one $1,000 principal amount of
II-1
<PAGE>
14% senior discount notes of CompleTel Europe due 2009 and 10 non-voting class
B membership interests of CompleTel Holdings, which indirectly represented 10
shares of CompleTel Europe. The Company received approximately $72.6 million of
net proceeds, after deducting underwriting discounts and commissions of
approximately $2.4 million from the issuance of the units. The units were
issued to (i) "qualified institutional buyers" (as defined in Rule 144A of the
Securities Act), (ii) other institutional "accredited investors" (as defined in
Rule 501(a) of the Securities Act), and (iii) outside the U.S. in compliance
with Regulation S under the Securities Act, and therefore, the issuance of the
units was exempt from registration under the Securities Act. Salomon Smith
Barney, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley &
Co. Incorporated, TD Securities and Paribas Corporation were the initial
purchasers of the units. The units were separated into the Class B interests
and the notes on November 12, 1999 when the exchange of the notes for the
Company's series B notes was completed pursuant to a registration statement
filed with the Securities and Exchange Commission.
In January 2000, in connection with equity investments in CompleTel LLC,
CompleTel Europe issued 4,155,183 ordinary shares to CompleTel (N.A.) N.V. for
cash consideration of approximately $2.1 million and all of the outstanding
class B shares of CompleTel Holdings I B.V., valued at approximately $42
million. These transactions were exempt from registration under the Securities
Act pursuant to Section 4(2) of the Securities Act, as transactions not
involving a public offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1(1) Form of Underwriting Agreement
3.1(2) Articles of Association of CompleTel Europe N.V.
3.2(1) Amended Articles of Association of CompleTel Europe N.V.
4.1(1) Specimen stock certificate for shares of CompleTel Europe N.V.
5.1 Form of opinion of Stibbe Simont Monahan Duhot regarding legality
of securities being registered
8.1 Form of opinion of Holme Roberts & Owen LLP regarding certain U.S.
federal income tax matters
8.2 Form of opinion of Stibbe Simont Monahan Duhot regarding certain
Netherlands tax matters
10.1(5) (Euro)265 Million Senior Secured Credit Facility dated January 6,
2000, among Goldman Sachs International and Paribas Corporation,
as co-arrangers, and other banks
10.2(5) Purchase Agreement dated August 4, 1999, between CompleTel GmbH
and Siemens AG.
10.3(2) Supply Agreement dated January 8, 1999, between CompleTel SAS and
Matra Nortel Communications
10.4(2) Arrete dated November 17, 1988 authorizing CompleTel SARL to set
up and operate a telecommunications network open to the public and
to supply the public with the telephone service, as published
December 13, 1998
10.5(2) License dated January 11, 1999 granted by the Secretary of State
for Trade and Industry to CompleTel UK Limited under Section 7 of
the Telecommunications Act 1984
10.6(3) German License Certificate Class 3 for the Operation and
Performance of Public Telecommunications German license
certificate Class 3 for the Operation and Performance of Public
Telecommunications Services by the Licensee or Others dated March
8, 1999
10.7(3) German License Certificate Class 4 for the Operations of Voice
Telephone Service on the Basis of a Self-Operated
Telecommunications Network dated March 8, 1999
10.8(4) Extension of Class 3 German License
10.9(4) Extension of Class 4 German License
10.10(5) CompleTel Europe N.V. 2000 Stock Option Plan
10.11(2) Employment Agreement by and between CableTel Management, Inc. and
William H. Pearson, dated as of May 18, 1998
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.12(2) Employment Agreement by and between CableTel Management, Inc. and
Richard N. Clevenger, dated as of May 18, 1998
10.13(2) Employment Agreement by and between CableTel Management, Inc. and
David Lacey dated as of December 16, 1998
10.14(2) Employment Agreement by and between CableTel Management, Inc. and
James E. Dovey dated as of May 18, 1999
10.15(2) Amended and Restated CompleTel LLC Guaranty Agreement, dated as of
July 14, 1999 by CompleTel LLC in favor of the noteholders
10.16(2) Equity Registration Rights Agreement dated as of February 16, 1999
among CompleTel (N.A.) N.V., CompleTel Europe N.V., the
Shareholders named therein, the initial purchasers and U.S. Bank
Trust National Association, as Transfer Agent
10.17(1) First Amendment to CompleTel Europe N.V. 2000 Stock Option Plan
10.18 Second Amended and Restated Registration Agreement dated as of
November 23, 1999 by and among CompleTel LLC and the Holders named
therein
21.1(6) Subsidiaries of CompleTel Europe N.V.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Barbier Frinault & Associes Arthur Andersen
23.3(1) Consent of Stibbe Simont Monahan Duhot (included as part of
Exhibit 5.1)
23.4(1) Consent of Holme Roberts & Owen LLP (included as part of Exhibit
8.1)
23.5(1) Consent of Stibbe Simont Monahan Duhot (included as part of
Exhibit 8.2)
23.6(6) Consent of Persons about to become Directors of CompleTel Europe
N.V.
24.1(6) Powers of Attorney
27.1 Financial Data Schedule
</TABLE>
- --------
(1) To be filed by amendment.
(2) Previously filed as an exhibit to the Registrant's Registration Statement
on Form S-4, file number 333-82305, filed with the Securities and Exchange
Commission on July 2, 1999 and incorporated herein by reference.
(3) Previously filed as an exhibit to Amendment No. 1 to the Registrant's
Registration Statement on Form S-4, file number 333-82305, filed with the
Securities and Exchange Commission on August 27, 1999 and incorporated
herein by reference.
(4) Previously filed as an exhibit to Amendment No. 2 to the Registrant's
Registration Statement on Form S-4, file number 333-82305 filed with the
Securities and Exchange Commission on September 14, 1999 and incorporated
herein by reference.
(5) Previously filed as an exhibit to the Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-4, file number 333-82305,
filed with the Securities and Exchange Commission on January 31, 2000 and
incorporated herein by reference.
(6) Previously filed as an exhibit to the Registrant's Registration Statement
on Form F-1, file number 333-30834, filed with the Securities and Exchange
Commission on February 22, 2000.
(b) Financial Statement Schedules:
Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its articles of
II-3
<PAGE>
association or Dutch law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Denver, Colorado, on the 6th day of March, 2000.
COMPLETEL EUROPE N.V.
/s/ James E. Dovey
By: _________________________________
James E. Dovey
Managing Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James E. Dovey Managing Director March 6, 2000
______________________________________ (Principal Executive
James E. Dovey Officer)
* Managing Director March 6, 2000
______________________________________ (Principal Executive
Lawrence F. DeGeorge Officer)
* Managing Director March 6, 2000
______________________________________ (Principal Executive
Paul J. Finnegan Officer)
* Managing Director March 6, 2000
______________________________________ (Principal Executive
ING Trust (Netherlands) B.V. Officer)
By: P.C.E. van Witteveen
General Proxy Holder
and
P. Maletic
Special Proxy Holder
* Principal Financial March 6, 2000
______________________________________ Officer
David E. Lacey
* Principal Accounting March 6, 2000
______________________________________ Officer
John M. Hugo
/s/ James E. Dovey Authorized Representative March 6, 2000
______________________________________ in the United States
James E. Dovey
/s/ James E. Dovey Managing Director March 6, 2000
______________________________________
*James E. Dove
Attorney-in-fact
</TABLE>
II-5
<PAGE>
Exhibit 5.1
______, 2000
[Form of opinion of Stibbe Simont Monahan Duhot regarding legality of
securities being registered]
[Subject to review by Stibbe Opinion Committee]
Completel Europe N.V.
Kruisweg 609
2132 NA Hooddorp
The Netherlands
Ladies and Gentlemen:
We have acted as legal counsel in the Netherlands to Completel Europe N.V., a
public limited liability company under the laws of The Netherlands (the
"Company"), in connection with the filing by the Company under the Securities
Act of 1933, as amended, of a registration statement on Form F-1, as amended the
date hereof (the "Registration Statement") with the United States Securities and
Exchange Commission. The Registration Statement relates to the offering by the
Company of 27,200,000 ordinary shares of the Company (the "New Shares") and of
4,080,000 ordinary shares of the Company pursuant to an overallotment option
granted to the underwriters (the "Additional Shares") (the New Shares and the
Additional Shares jointly the "Offer Shares").
In rendering this opinion we have examined and relied upon the following
documents:
(1) a form of the Underwriting Agreement among the Company and the Underwriters
as defined therein dated [ ];
(2) the Registration Statement;
(3) an excerpt dated the date hereof of the registration of the Company in the
Trade Register of the Chamber of Commerce of Amsterdam, The Netherlands (the
"Excerpt");
(4) a copy of the Deed of Incorporation of the Company (the "Deed of
Incorporation"), executed on December 14, 1998;
(5) the current articles of association (statuten) of the Company in force on
the date hereof (the "Articles");
(6) the proposed amendment of the Articles as included in a draft dated
March [ ], 2000;
<PAGE>
(7) a company certificate of even date attached hereto as Annex 1 (the
-------
"Company Certificate");
and such other documents and such treaties, laws, rules, regulations, and the
like, as we have deemed necessary as a basis for the opinions hereinafter
expressed.
We have assumed:
(i) the genuineness of all signatures;
(ii) the authenticity of all the agreements, certificates, and other documents
submitted to us as originals;
(iii) the conformity to the originals of all documents submitted to us as
copies;
(iv) that the document referred to under (1) above will be duly and validly
signed and executed by all parties thereto prior to the issuance of the
Offer Shares, substantially in the form as examined by us as draft;
(v) that a ministerial declaration of non-objection will be received with
respect to the document referred to under (6) above and that such document
will be duly and validly executed through a notarial deed prior to the
issuance of the Offer Shares, substantially in the form as examined by us
as draft;
(vi) that the resolution to the issue the Offer Shares shall have been validly
passed prior to the issuance of the Offer Shares; and
(vii) that the contents of the Excerpt and the Company Certificate are true and
complete as of the date hereof.
Based on the foregoing and subject to any factual matters or documents not
disclosed to us in the course of our investigation, and subject to the
qualifications and limitations stated hereafter, we are of the opinion that:
The Offer Shares, when duly issued, delivered and paid in accordance with the
provisions of the Underwriting Agreement, will be duly and validly issued, fully
paid and non-assessable.
We express no opinion on any law other than the law of The Netherlands as it
currently stands and has been interpreted in published case law of the courts of
The Netherlands as per the date hereof. We express no opinion on any laws of the
European Communities (insofar as not implemented in The Netherlands in statutes
or other regulations of general application).
<PAGE>
In rendering the opinions expressed herein, we have, with your approval, relied
without independent investigation as to all matters governed by or involving
conclusions under the federal law of the United States of America and the law of
the State of New York, upon the opinion (including the qualifications,
assumptions and limitations expressed therein) of Holme, Roberts & Owen L.L.P.,
United States counsel to the Company, of even date herewith.
This opinion is strictly limited to the matters stated herein and may not be
read as extending by implication to any matters not specifically referred to.
Nothing in this opinion should be taken as expressing an opinion in respect of
any representations or warranties, or other information, or any other document
examined in connection with this opinion except as expressly confirmed herein.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the captions "Legal Matters" and
"Service of Process and Enforcement of Civil Liabilities" contained in the
prospectus which is included in the Registration Statement.
Yours sincerely,
Stibble Simont Monahan Duhot P.C.
<PAGE>
Exhibit 8.1
[Form of opinion of Holme Roberts & Owen LLP regarding certain U.S. federal
income tax matters]
_________, 2000
CompleTel Europe N.V.
Kruisweg 609
2132 NA Hooddorp
The Netherlands
Re: Offering of Ordinary Shares of CompleTel Europe N.V.
Ladies and Gentlemen:
We have acted as special United States tax counsel to CompleTel Europe N.V., a
Netherlands company (the "Company"), in connection with the offering by the
Company of its ordinary shares (the "Offering") pursuant to the prospectus (the
"Prospectus") included in the registration statement on Form F-1, File No. 333-
30834, filed with the United States Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Registration Statement").
We have prepared the discussion included in the Prospectus under the caption
"Taxation - U.S. Federal Income Tax" (the "Discussion"). The Discussion is our
opinion of the material United States federal income tax consequences expected
to result to the holders of the Company's ordinary shares acquired in the
Offering (the "Shares"), subject to the conditions, limitations, and assumptions
described therein.
Our opinion 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. Our opinion also is based on the facts and
agreements contained in (i) the Registration Statement, (ii) the offering
documents, which consist of (A) the Prospectus, and (B) the form of underwriting
agreement among the Company and Salomon Brothers International Limited, Goldman
Sachs International, Merrill, Lynch, Pierce, Fenner & Smith Incorporated, and
Paribas Corporation, as representatives of the several underwriters (the
"Offering Documents") and (iii) certain representations from you, in a
representation letter dated ________ ___, 2000, with respect to factual matters
(the "Representations"), which Representations we have not independently
verified.
<PAGE>
CompleTel Europe N.V.
_________, 2000
Page 2
The 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
therein will have on, any particular U.S. Shareholder, and it does not address
foreign, state, or local tax consequences. The discussion does not cover the tax
consequences that might be applicable to U.S. Shareholders that are subject to
special rules under the Code (including insurance companies, tax-exempt
entities, financial institutions, regulated investment companies, dealers in
securities, persons who hold shares as part of a hedging, straddle, constructive
sale or conversion transaction, persons who hold shares through partnerships or
other pass-through entities, persons whose functional currency is not the U.S.
dollar, and U.S. persons owning (directly, indirectly, or constructively) 10% or
more of the shares.
Our opinion may change if (i) the applicable law changes, (ii) any of the facts
with respect to the Shares, as included in the Registration Statement or the
Offering Documents, change, or if the representations made by you are
inaccurate, incomplete, or change, (iii) if the conduct of the parties is
materially inconsistent with the facts reflected in the Registration Statement,
Offering Documents or the Representations or (iv) any of the assumptions we have
made herein are not correct.
Our opinion represents only our legal judgment based on current law and the
facts as described above. Our opinion has no binding effect on the Internal
Revenue Service or the courts. The Internal Revenue Service may take a position
contrary to our opinion, and if the matter is litigated, a court may reach a
decision contrary to the opinion.
We hereby consent to the filing of this opinion letter with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to being
named in the Prospectus.
Very truly yours,
<PAGE>
Exhibit 8.2
[Form of opinion of Stibbe Simont Monahan Duhot regarding certain Netherlands
tax matters]
[Subject to review by Stibbe Opinion Committee]
---------------------------------------------
_______, 2000
CompleTel Europe N.V.
Kruisweg 609
2132 NA Hooddorp
The Netherlands
Re: Offering of Ordinary Shares/Form F-1 Registration Statement
Ladies and Gentlemen:
We have acted as special Netherlands tax counsel to CompleTel Europe N.V., a
Netherlands company (the "Company"), for the purpose of rendering a tax opinion
in connection with the public offering by the Company of its ordinary shares
(the "Offering") pursuant to the prospectus (the "Prospectus") included in the
registration statement on Form F-1 File No. 333-30834 filed with the United
States Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Registration Statement").
In rendering our opinion we have examined and relied upon the (i) Registration
Statement and (ii) the offering documents, which consist of (a) the Prospectus
and (b) the draft form of underwriting agreement (the "Underwriting Agreement")
among the Company and Salomon Brothers International Limited, Goldman Sachs
International, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Paribas
Corporation, as representatives of several Underwriters (the "Offering
Documents"). We assume that the Offering Documents will be properly executed
in the form submitted to and examined by us and referred to herein and will be
valid and binding when executed.
We have prepared the discussion in the Prospectus under the caption
"Taxation-Netherlands Taxation" (the "Discussion"), which only addresses certain
Dutch tax aspects applicable to certain Dutch resident and non-Dutch resident
holders of ordinary shares. Subject to any factual matters, documents or events
not disclosed to us, it is our opinion that the Discussion fairly describes the
expected material Dutch tax consequences of the Offering for certain Dutch
residents and non-Dutch resident holders of the ordinary shares, subject to the
conditions, limitations and assumptions described therein. This opinion does not
constitute an opinion on the Netherlands tax consequences of the Underwriting
Agreement.
This Opinion is limited to the tax laws of the Netherlands and we have not
investigated the laws of any jurisdiction but the Netherlands as they presently
stand and as officially published and do
<PAGE>
not express an opinion of the laws of any jurisdiction other than the
Netherlands. This opinion speaks as of its date. No obligation is assumed to
up-date this opinion or to inform any person of any changes of law or other
matters coming to our knowledge occurring after the date hereof which may affect
this opinion in any respect. Our opinion has no binding effect on the Dutch tax
authorities and/or Dutch courts. The Dutch tax authorities may take a position
contrary to our opinion and if the matter is litigated, a court may reach a
decision contrary to our opinion.
Our opinion may change if (i) applicable law changes (which may have retroactive
effect), (ii) any of the facts with respect to the Offering are inaccurate,
incomplete or change, or (iii) the conduct of the parties with respect to the
Offering is materially inconsistent with the facts reflected in the Offering
Documents.
We hereby consent to the filing of this opinion letter with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name in the Prospectus.
Yours sincerely,
STIBBE SIMONT MONAHAN DUHOT P.C.
2
<PAGE>
Exhibit 10.18
SECOND AMENDED AND RESTATED REGISTRATION AGREEMENT
--------------------------------------------------
THIS SECOND AMENDED AND RESTATED REGISTRATION AGREEMENT (this "Agreement")
---------
is made as of November 23, 1999, by and among CompleTel LLC (formerly known as
CableTel Europe LLC), a Delaware limited liability company (the "Company"),
-------
Madison Dearborn Capital Partners II, L.P. ("MDCP"), DeGeorge Holdings Limited
----
Partnership ("DeGeorge Holdings"), Meritage Private Equity Fund, L.P.
-----------------
("Meritage"), James C. Allen ("Allen"), Royce J. Holland ("Holland"), George T.
-------- ----- -------
Laub ("Laub"), Reed E. Hundt ("Hundt"), Emile Karafiol ("Karafiol"), William S.
---- ----- --------
Kirsch ("Kirsch"), Northwestern University ("Northwestern"), Silver Cross
------ ------------
Investors LLC ("SCI"), Dovey Company LLC ("Dovey LLC"), William H. Pearson
--- ---------
("Pearson"), Haj LLC ("Pearson LLC #2"), Clevenger Company LLC ("Clevenger
------- -------------- ---------
LLC"), David E. Lacey ("Lacey"), and the other holders of Registrable Securities
- --- -----
listed on the signature pages attached hereto. MDCP, DeGeorge Holdings,
Meritage, Allen, Holland, Laub, Hundt, Karafiol, Kirsch, Northwestern, and SCI
are referred to herein collectively as the "Investors" and individually as an
---------
"Investor." Capitalized terms used but not otherwise defined herein have the
--------
meanings set forth in paragraph 8 hereof.
As of May 18, 1998, the Company and MDCP, Lawrence F. DeGeorge
("DeGeorge"), James E. Dovey ("Dovey"), Pearson, and Richard N. Clevenger
-------- -----
("Clevenger") entered into a Registration Agreement (the "Prior Agreement"). As
--------- ---------------
of January 28, 1999, the parties (other than Meritage, Pearson LLC #2, Karafiol,
Kirsch, Northwestern, and SCI) entered into a First Amended and Restated
Registration Agreement (the "First Amended Agreement"), amending and restating
-----------------------
the Prior Agreement in its entirety. The parties hereto desire that, effective
as of the date hereof, the First Amended Agreement shall be amended and revised
in its entirety as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises made herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Demand Registrations.
--------------------
(a) Requests for Registration. At any time after the date hereof and prior
-------------------------
to the Company's Initial Public Offering, the holders of a majority of the
Purchaser Registrable Securities then outstanding may request registration under
the Securities Act of all or any portion of their Registrable Securities on Form
S-1 or any similar long-form registration (a "Long-Form Registration"). After
----------------------
the Company's Initial Public Offering, (i) the holders of a majority of the MDCP
Registrable Securities then outstanding may request up to two Long-Form
Registrations, (ii) the holders of a majority of the DeGeorge Registrable
Securities then outstanding may request one Long- Form Registration, (iii) the
holders of at least 10% of the Purchaser Registrable Securities then outstanding
may request registration under the Securities Act of all or any portion of their
Registrable Securities on Form S-3 or any similar short-form registration
("Short-Form
----------
<PAGE>
Registrations") if available, and (iv) the holders of a majority of the Meritage
- -------------
Registrable Securities then outstanding may request one Short-Form Registration,
if available; provided that the aggregate offering value of the Registrable
--------
Securities requested to be registered in any registration under this paragraph
1(a) (any "Demand Registration") must equal at least $30 million if the
-------------------
registration is the Company's Initial Public Offering, at least $15 million in
any other Long-Form Registration, and at least $5 million in any Short-Form
Registration; and provided further that the right of the holders of Meritage
--------------------
Registrable Securities under clause (iv) above will terminate at such time as
Meritage and its affiliates cease to hold in the aggregate at least 50% of the
Meritage Registrable Securities held by Meritage on the date hereof.
All requests for Demand Registrations shall be made by giving written
notice to the Company (the "Demand Notice"). Each Demand Notice shall specify
-------------
the approximate number of Registrable Securities requested to be registered and
the anticipated per share price range for such offering. Within ten days after
receipt of any Demand Notice, the Company shall give written notice of such
requested registration to all other holders of Registrable Securities and,
subject to the provisions of paragraph 1(d) below, shall include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 15 days after the receipt
of the Company's notice.
(b) Expenses; Withdrawal. The Company shall pay all Registration Expenses
--------------------
of all holders of Registrable Securities in all Demand Registrations. A
registration shall not count as one of the permitted Long-Form Registrations
(or, in the case of a Short-Form Registration requested by the holders of
Meritage Registrable Securities, as the one permitted Short-Form Registration
under Section 1(a)(iv)) until both (i) it has become effective and (ii) the
----------------
holders of Registrable Securities initially requesting such registration are
able to register and sell at least 90% of the Registrable Securities requested
to be included in such registration; provided that the Company shall in any
--------
event pay all Registration Expenses in connection with any registration
initiated as a Demand Registration whether or not it has become effective and
whether or not such registration has counted as one of the permitted Long-Form
Registrations (or, if applicable, as the one permitted Short-Form Registration
under Section 1(a)(iv)). All Long-Form Registrations shall be underwritten
----------------
registrations unless otherwise requested by the holders of a majority of the
Registrable Securities included in the applicable Long-Form Registration.
(c) Short-Form Registrations. Demand Registrations shall be Short-Form
------------------------
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Securities Exchange Act, the Company shall use its best efforts to make
Short-Form Registrations on Form S-3 (or any successor form) available for the
sale of Registrable Securities.
(d) Priority on Demand Registrations. The Company shall not include in any
--------------------------------
Demand Registration any securities which are not Registrable Securities without
the prior written consent of the holders of a majority of the Registrable
Securities included in such registration. If a Demand Registration is an
underwritten offering and the managing underwriters advise the Company
-2-
<PAGE>
in writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in an orderly manner in such offering within a price range
acceptable to the holders of a majority of the Registrable Securities initially
requesting registration, the Company shall include in such registration the
number which can be so sold in the following order of priorities: (i) first, the
Purchaser Registrable Securities requested to be included in such registration,
pro rata among the holders of such Purchaser Registrable Securities on the basis
of the number of shares owned by each such holder, (ii) second, the other
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
shares owned by each such holder, and (ii) third, other securities requested to
be included in such registration.
(e) Restrictions on Long-Form Registrations. The Company shall not be
---------------------------------------
obligated to effect any Demand Registration which is a Long-Form Registration
within 180 days after the effective date of a previous Demand Registration
which was a Long-Form Registration or a previous registration in which the
holders of Registrable Securities were given piggyback rights pursuant to
paragraph 2 and in which such holders were able to register and sell at least
90% of the number of Registrable Securities requested to be included therein.
The Company may preempt any request for a Demand Registration in order to effect
an underwritten primary registration on behalf of the Company, provided that (i)
--------
such preempting underwritten primary registration must become effective within
90 days after the date such preempted Demand Registration is requested, (ii) the
holders of Registrable Securities initially requesting the preempted Demand
Registration must have piggyback rights pursuant to paragraph 2 with respect to
the preempting primary registration and must be able to register and sell
pursuant to such piggyback rights in such primary registration at least 90% of
the Registrable Securities initially requested to be included in the preempted
Demand Registration, (iii) the Company shall pay all Registration Expenses in
connection with any such preempting primary registration, and (iv) the preempted
Demand Registration shall not count as one of the permitted Demand Registrations
hereunder. The Company may preempt a Demand Registration hereunder only once in
any 12-month period. The Company may postpone for up to 180 days the filing or
the effectiveness of a registration statement for a Demand Registration if the
Company's board of directors determines in its reasonable good faith judgment
that such Demand Registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company or any of its direct or
indirect subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer,
reorganization or similar transaction; provided that in such event, the holders
--------
of Registrable Securities initially requesting such Demand Registration shall be
entitled to withdraw such request and, if such request is withdrawn, such Demand
Registration shall not count as one of the permitted Demand Registrations
hereunder and the Company shall pay all Registration Expenses in connection with
such withdrawn registration. The Company may delay a Demand Registration
hereunder only once in any twelve-month period.
-3-
<PAGE>
(f) Selection of Underwriters. Subject to the approval rights granted to
-------------------------
the holders of Purchaser Registrable Securities under the Equity Purchase
Agreement, the Board shall select the investment banker(s) and manager(s) to
administer the offering.
(g) Other Registration Rights. Except as provided in this Agreement, the
-------------------------
Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, without the prior written
consent of the holders of a majority of the Purchaser Registrable Securities
(or, if none, the Registrable Securities) then outstanding; provided that the
--------
Company may grant rights to other Persons to participate in Piggyback
Registrations so long as such rights are subordinate to the rights of the
holders of Registrable Securities with respect to such Piggyback Registrations;
and provided further that the Company may grant rights to other Persons to
- --------------------
request registrations so long as the holders of Registrable Securities are
entitled to participate in any such registrations with such Persons pro rata on
the basis of the number of shares owned by each such holder.
2. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. Whenever the Company proposes to register any of
------------------
its securities under the Securities Act (other than pursuant to a Demand
Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
----------------------
shall give prompt written notice (in any event within three business days after
its receipt of notice of any exercise of demand registration rights other than
under this Agreement) to all holders of Registrable Securities of its intention
to effect such a registration and shall, subject to the provisions of paragraph
2(c) below, include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
20 days after the receipt of the Company's notice.
(b) Piggyback Expenses. The Registration Expenses of the holders of
------------------
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback Registration is an
---------------------------------
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price range
acceptable to the Company, the Company shall include in such registration (i)
first, the securities the Company proposes to sell, (ii) second, the Purchaser
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Purchaser Registrable Securities on the basis of the
number of shares owned by each such holder, (iii) third, the other Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Registrable Securities on the basis of the number of shares
owned by each such holder, and (iv) fourth, other securities requested to be
included in such registration.
-4-
<PAGE>
(d) Priority on Secondary Registrations. If a Piggyback Registration is an
-----------------------------------
underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders initially requesting
such registration, the Company shall include in such registration (i) first, the
securities requested to be included therein by the holders requesting such
registration and the Registrable Securities requested to be included in such
registration, pro rata among the holders of any such securities on the basis of
the number of securities so requested to be included therein owned by each such
holder, and (ii) second, other securities requested to be included in such
registration.
(e) Selection of Underwriters. If any Piggyback Registration is an
-------------------------
underwritten offering, subject to the approval rights granted to the holders of
Purchaser Registrable Securities under the Equity Purchase Agreement, the Board
shall select the investment banker(s) and manager(s) to administer the offering.
(f) Other Registrations. If the Company has previously filed a registration
-------------------
statement with respect to Registrable Securities pursuant to paragraph 1 or
pursuant to this paragraph 2, and if such previous registration has not been
withdrawn or abandoned, the Company shall not file or cause to be effected any
other registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least 180 days has elapsed from the effective date of such previous
registration.
3. Holdback Agreements.
-------------------
(a) Holders of Registrable Securities. Each holder of Registrable
---------------------------------
Securities shall not effect any public sale or distribution (including sales
pursuant to Rule 144) of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 180-day period beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
in which Registrable Securities are included (in each case, except as part of
such underwritten registration), unless in each case the underwriters managing
the registered public offering otherwise agree.
(b) The Company. The Company (i) shall not effect any public sale or
-----------
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 180-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to registrations
on Form S-8 or any successor form), unless the underwriters managing the
registered public offering otherwise agree, and (ii) shall cause each holder of
its Common Stock, or any securities convertible into or exchangeable or
exercisable for Common Stock, purchased from the Company at any time after the
date of
-5-
<PAGE>
this Agreement (other than in a registered public offering or pursuant to Rule
144) to agree not to effect any public sale or distribution (including sales
pursuant to Rule 144) of any such securities during such period (except as part
of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable Securities
-----------------------
have requested that any Registrable Securities be registered pursuant to this
Agreement, the Company shall use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof, and pursuant thereto the Company shall as expeditiously
as possible:
(a) prepare and file with the Securities and Exchange Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall furnish to the counsel selected by the
holders of a majority of the Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
shall be subject to the review and comment of such counsel);
(b) notify each holder of Registrable Securities of the effectiveness of
each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each preliminary
prospectus) and such other documents as such seller may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
seller;
(d) use its best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions as any seller
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
-6-
<PAGE>
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event as a result of which the prospectus included
in such registration statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company shall prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are then listed and,
if not so listed, to be listed on the Nasdaq and, if listed on the Nasdaq, use
its best efforts to secure designation of all such Registrable Securities
covered by such registration statement as a Nasdaq "national market system
security" within the meaning of Rule 11Aa2-1 of the Securities and Exchange
Commission or, failing that, to secure Nasdaq authorization for such Registrable
Securities and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register as such with respect to such Registrable
Securities with the National Association of Securities Dealers (the "NASD");
----
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting agreements
in customary form) and take all such other actions as the holders of a majority
of the Registrable Securities being sold or the underwriters, if any, reasonably
request in order to expedite or facilitate the disposition of such Registrable
Securities (including effecting a stock split, a combination of shares, or other
recapitalization);
(i) make available for inspection by any seller of Registrable Securities,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities and Exchange Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months beginning with the first day of
the Company's first full calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder;
-7-
<PAGE>
(k) permit any holder of Registrable Securities which holder, in its sole
and exclusive judgment, might be deemed to be an underwriter or a controlling
person of the Company, to participate in the preparation of such registration or
comparable statement and to require the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Common Stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order;
(m) obtain a cold comfort letter from the Company's independent public
accountants in customary form and covering the matters customarily covered by
cold comfort letters as the holders of a majority of the Registrable Securities
being sold reasonably request; and
(n) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of the Registrable Securities.
5. Registration Expenses.
---------------------
(a) Expenses. All expenses incident to the Company's performance of or
--------
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, fees and disbursements
of custodians, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), shall be borne as provided in this
---------------------
Agreement, except that the Company shall, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on the Nasdaq.
(b) Reimbursement of Counsel. In connection with each Demand Registration
------------------------
and each Piggyback Registration, the Company shall reimburse the holders of
Registrable Securities included in such registration (i) for the reasonable fees
and disbursements (not to exceed $20,000 for any one registration) of one
counsel chosen by the holders of a majority of the Purchaser Registrable
Securities (or, if none, Registrable Securities) included in such registration
and (ii) for the reasonable fees and disbursements (not to exceed $5,000 per
additional counsel for any one registration) of each additional counsel retained
by any holder of Registrable Securities solely for
-8-
<PAGE>
the purpose of rendering a legal opinion to underwriters on behalf of such
holder in connection with any underwritten Demand Registration or Piggyback
Registration.
(c) Payment of Certain Expenses by Holders of Registrable Securities.
----------------------------------------------------------------
Underwriting discounts and commissions and transfer taxes relating to the
Registrable Securities included in any registration hereunder, and all fees and
expenses of counsel for any holder of Registrable Securities (other than fees
and expenses to be reimbursed by the Company as set forth in paragraph (b)
above) shall be borne and paid by the holders of such Registrable Securities.
6. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law, each
holder of Registrable Securities, its officers and directors and each Person
that controls such holder (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company shall indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be limited
to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification
-9-
<PAGE>
(provided that the failure to give prompt notice shall not impair any Person's
right to indemnification hereunder to the extent such failure has not prejudiced
the indemnifying party) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party shall not
be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent shall not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement shall remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities. The Company also
agrees to make such provisions, as are reasonably requested by any indemnified
party, for contribution to such party in the event the Company's indemnification
is unavailable for any reason such that such provisions provide the same
obligations and benefits to the indemnified party as those which would have been
applicable had the indemnification provisions in paragraphs 6(a) and (b) been
available taking into account all of the limitations set forth in paragraphs
6(a) and (b).
7. Participation in Underwritten Registrations. No Person may participate
-------------------------------------------
in any registration hereunder which is underwritten unless such Person (i)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements; provided that no
holder of Registrable Securities included in any underwritten registration shall
be required to make any representations or warranties to the Company or the
underwriters (other than representations and warranties regarding such holder
and such holder's intended method of distribution) or to undertake any
indemnification obligations to the Company with respect thereto, except as
otherwise provided in paragraph 6(b) hereof, or to the underwriters with respect
thereto, except to the extent of the indemnification being given to the Company
and its controlling persons in paragraph 6(a) hereof.
8. Definitions.
-----------
"Agreement" has the meaning set forth with respect thereto in the preamble.
---------
"Allen" has the meaning set forth with respect thereto in the preamble.
-----
-10-
<PAGE>
"Board" means the board of managers of the Company or, if the Company is
-----
hereafter converted into a corporation or other entity form, the board of
directors or comparable governing body of the Company.
"Clevenger" has the meaning set forth with respect thereto in the preamble.
---------
"Clevenger LLC" has the meaning set forth with respect thereto in the
-------------
preamble.
"Common Stock" means the Common Units and, in the event the Company has
------------
hereafter converted into a corporation or other entity form, the common stock or
other comparable common equity securities of the Company.
"Common Units" means the Common Units of the Company, having the rights and
------------
preferences set forth with respect thereto in the LLC Agreement.
"Company" has the meaning set forth with respect thereto in the preamble.
-------
"DeGeorge" has the meaning set forth with respect thereto in the preamble.
--------
"DeGeorge Holdings" has the meaning set forth with respect thereto in the
-----------------
preamble.
"DeGeorge Registrable Securities" means Registrable Securities derived from
-------------------------------
or relating to the Preferred Units issued to DeGeorge under the Equity Purchase
Agreement.
"Demand Notice" has the meaning set forth with respect thereto in Section
-------------
1(a).
"Demand Registration" has the meaning set forth with respect thereto in
-------------------
Section 1(a).
"Dovey" has the meaning set forth with respect thereto in the preamble.
-----
"Dovey LLC" has the meaning set forth with respect thereto in the preamble.
---------
"Equity Purchase Agreement" means that certain Second Amended and Restated
-------------------------
Equity Purchase Agreement dated as of the date hereof, by and between the
Company, the Investors, and the other Persons listed on the signature pages
thereto, as amended from time to time in accordance with its terms.
"Executive Securities Agreements" has the meaning set forth with respect
-------------------------------
thereto in the Equity Purchase Agreement.
"First Amended Agreement" has the meaning set forth with respect thereto in
-----------------------
the preamble.
-11-
<PAGE>
"Holland" has the meaning set forth with respect thereto in the preamble.
-------
"Hundt" has the meaning set forth with respect thereto in the preamble.
-----
"Investor" and "Investors" have the meaning set forth with respect thereto
-------- ---------
in the preamble.
"Initial Public Offering" means a sale of Common Stock to the public
-----------------------
registered under the Securities Act on Form S-1 or any similar form.
"Karafiol" has the meaning set forth with respect thereto in the preamble.
--------
"Kirsch" has the meaning set forth with respect thereto in the preamble.
------
"Lacey" has the meaning set forth with respect thereto in the preamble.
-----
"Laub" has the meaning set forth with respect thereto in the preamble.
----
"LLC Agreement" means that certain limited liability company agreement
-------------
governing the affairs of the Company, by and among the Investors and the other
holders of unit membership interests in the Company, as amended from time to
time in accordance with its terms.
"Long-Form Registration" has the meaning set forth with respect thereto in
----------------------
Section 1(a).
"MDCP" has the meaning set forth with respect thereto in the preamble.
----
"MDCP Registrable Securities" means Registrable Securities derived from or
---------------------------
relating to the Preferred Units issued to MDCP under the Equity Purchase
Agreement.
"Meritage" has the meaning set forth with respect thereto in the preamble.
--------
"Meritage Registrable Securities" means Registrable Securities derived from
-------------------------------
or relating to the Preferred Units issued to Meritage under the Equity Purchase
Agreement.
"NASD" has the meaning set forth with respect thereto in Section 4(f).
----
"Northwestern" has the meaning set forth with respect thereto in the
------------
preamble.
"Pearson" has the meaning set forth with respect thereto in the preamble.
-------
"Pearson LLC #2" has the meaning set forth with respect thereto in the
--------------
preamble.
-12-
<PAGE>
"Performance Vesting Agreement" means that certain Second Amended and
-----------------------------
Restated Performance Vesting Agreement dated as of the date hereof, by and
between the Company, the Investors, and the other Persons listed on the
signature pages thereto, as amended from time to time in accordance with its
terms.
"Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Piggyback Registration" has the meaning set forth with respect thereto in
----------------------
Section 2(a).
"Preferred Units" means the Preferred Units of the Company, having the
---------------
rights and preferences set forth with respect thereto in the LLC Agreement.
"Prior Agreement" has the meaning set forth with respect thereto in the
---------------
preamble.
"Purchaser Registrable Securities" means Registrable Securities derived
--------------------------------
from or relating to the Preferred Units issued to the Investors and the other
purchasers under the Equity Purchase Agreement.
"Registrable Securities" means (i) any Common Stock issued upon conversion
----------------------
of any Preferred Units issued under the Equity Purchase Agreement, (ii) any
Common Stock issued under the Executive Securities Agreements (other than any
Un-Performance-Vested Securities), (iii) any Common Stock issued or issuable
with respect to the securities referred to in clauses (i) and (ii) by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization, or upon
conversion or exercise of any such securities, and (iv) any other Common Stock
of the Company (other than any Un-Performance-Vested Securities) held by any
holder of Registrable Securities; provided that with respect to any Registrable
--------
Securities, such securities shall cease to be Registrable Securities when they
have been (A) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them, (B) distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 under the
Securities Act (or any similar rule promulgated by the Securities and Exchange
Commission then in force), (C) distributed to a partner of MDCP or Meritage and
become eligible to be sold by such partner pursuant to Rule 144(k) of the
Securities Act (or any similar rule promulgated by the Securities and Exchange
Commission then in force), or (D) repurchased or otherwise acquired by the
Company (or its assignees) or forfeited pursuant to the terms of the Performance
Vesting Agreement. For purposes of this Agreement, a Person shall be deemed to
be the holder of Registrable Securities, and the Registrable Securities shall be
deemed to be outstanding and in existence, whenever such Person has the right to
acquire such Registrable Securities upon conversion of preferred stock,
Preferred Units, or similar securities held by such Person, whether or not such
acquisition has actually been effected, and such Person shall be entitled to
exercise the rights of a holder of such Registrable Securities hereunder.
-13-
<PAGE>
"Registration Expenses" has the meaning set forth with respect thereto in
---------------------
Section 5(a).
"SCI" has the meaning set forth with respect thereto in the preamble.
---
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time.
"Securityholders Agreement" means that certain Second Amended and Restated
-------------------------
Securityholders Agreement dated as of the date hereof, by and between the
Company and certain of its securityholders, as amended from time to time in
accordance with its terms.
"Short-Form Registrations" has the meaning set forth with respect thereto
------------------------
in Section 1(a).
"Subsidiary Initial Public Offering" has the meaning set forth with respect
----------------------------------
thereto in Section 9(b)(ii).
"Un-Performance-Vested Securities" means any Company securities which are
--------------------------------
subject to performance vesting, but have not yet performance vested, pursuant to
the provisions of the Performance Vesting Agreement.
9. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company shall not hereafter enter into
--------------------------
any agreement with respect to its securities which is inconsistent with or
violates the rights granted to the holders of Registrable Securities in this
Agreement.
(b) Adjustments Affecting Registrable Securities; Applicability of Rights
---------------------------------------------------------------------
to Subsidiaries of the Company.
- ------------------------------
(i) The Company shall not take any action, or permit any change to
occur, with respect to its securities which would materially and adversely
affect the ability of the holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this
Agreement or which would materially and adversely affect the marketability
of such Registrable Securities in any such registration (including, without
limitation, effecting a stock split or a combination of shares).
(ii) In the event that (A) any direct or indirect subsidiary of the
Company proposes to sell any of its common equity securities to the public
in a registered offering on Form S-1 under the Securities Act (or any
similar form) (a "Subsidiary Initial Public Offering"), or (B) the holders
----------------------------------
of a majority of the Purchaser Registrable Securities then outstanding
request a Subsidiary Initial Public Offering, then each holder of
Registrable Securities shall vote all such holder's Registrable Securities
and any other voting securities of the Company or its subsidiaries over
which such holder has voting control and shall take
-14-
<PAGE>
all other necessary or desirable actions within such holder's control
(whether in such holder's capacity as a securityholder, director,
representative, member of a board committee, officer of the Company or
otherwise, and including, without limitation, attendance at meetings in
person or by proxy for purposes of obtaining a quorum and execution of
written consents in lieu of meetings), and the Company shall take all
necessary or desirable actions within its control (including, without
limitation, calling special board and securityholder meetings and voting
the securities of its direct and indirect subsidiaries), in each case in
the manner determined by the holders of a majority of the Purchaser
Registrable Securities, so that each of the holders of Registrable
Securities shall be able to exercise and obtain the benefit of its rights
hereunder (including Demand Registration and Piggyback Registration rights)
with respect to such subsidiary (including with respect to such Subsidiary
Initial Public Offering and other registered public offerings of such
subsidiary's common equity securities) as if such subsidiary were the
Company.
(c) Remedies. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and the holders of a majority of the Purchaser
Registrable Securities then outstanding; provided that if any such amendment or
--------
waiver would adversely affect any holder of Registrable Securities relative to
the holders of Registrable Securities voting in favor of such amendment or
waiver, such amendment or waiver shall also require the approval of the holders
of a majority of the Registrable Securities held by all holders so adversely
affected; and provided further that if any such amendment or waiver is to a
--------------------
provision in this Agreement that requires a specific vote to take an action
thereunder or to take an action with respect to the matters described therein,
such amendment or waiver shall not be effective unless such vote is obtained
with respect to such amendment or waiver.
(e) Successors and Assigns. All covenants and agreements in this Agreement
----------------------
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of purchasers
or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
-15-
<PAGE>
(f) Severability. Whenever possible, each provision of this Agreement shall
------------
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Agreement. Any management or other key employee of the Company or its
subsidiaries who purchases securities pursuant to an Executive Securities
Agreement may at any time after the date hereof, with the written approval of
the Company, become a party to this Agreement by executing a counterpart to this
Agreement agreeing to be bound by the provisions hereof as if such Person were
an original signatory hereto (which joinder shall not constitute an amendment,
modification, or waiver hereof).
(h) Descriptive Headings; Interpretation; No Strict Construction. The
------------------------------------------------------------
descriptive headings of this Agreement are inserted for convenience only and do
not constitute a substantive part of this Agreement. Whenever required by the
context, any pronoun used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular forms of nouns, pronouns,
and verbs shall include the plural and vice versa. Reference to any agreement,
document, or instrument means such agreement, document, or instrument as amended
or otherwise modified from time to time in accordance with the terms thereof,
and if applicable hereof. The use of the words "include" or "including" in this
Agreement shall be by way of example rather than by limitation. The use of the
words "or," "either" or "any" shall not be exclusive. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. If an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
(i) Governing Law. All issues and questions concerning the construction,
-------------
validity, interpretation and enforcement of this Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of Delaware, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
(j) Notices. All notices, demands or other communications to be given or
-------
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when (a) delivered personally to
the recipient, (b) telecopied to the recipient (with hard copy sent to the
recipient by reputable overnight courier service (charges prepaid) that same
day) if telecopied before 5:00 p.m. Chicago, Illinois time on a business day,
and otherwise on the next business day, or (c) one business day after being sent
to the recipient by reputable overnight courier service (charges prepaid). Such
notices, demands and other
-16-
<PAGE>
communications shall be sent to the Company at the address set forth below and
to any holder of Registrable Securities at such address as indicated by the
Company's records, or at such address or to the attention of such other person
as the recipient party has specified by prior written notice to the sending
party. The Company's address is:
6300 Syracuse Way, Suite 355
Englewood, Colorado 80111
Attention: Chief Executive Officer
Telephone: (303) 741-4788
Telecopy: (303) 741-4823
(k) Business Days. If any time period for giving notice or taking action
-------------
hereunder expires on a day which is a Saturday, Sunday or legal holiday in the
State of Colorado, the Republic of France, or the jurisdiction in which the
Company's principal office is located, the time period shall automatically be
extended to the business day immediately following such Saturday, Sunday or
legal holiday.
(l) Delivery by Facsimile. This Agreement, the agreements referred to
---------------------
herein, and each other agreement or instrument entered into in connection
herewith or therewith or contemplated hereby or thereby, and any amendments
hereto or thereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall reexecute original forms thereof and deliver them to all
other parties. No party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation or enforceability of a
contract and each such party forever waives any such defense.
(m) Effectiveness of Agreement. This Agreement shall be valid, binding, and
--------------------------
effective against each holder of Registrable Securities when it has been signed
by such holder. Pursuant to Section 9(d) of the First Amended Agreement, this
Agreement amending and restating the First Amended Agreement shall be valid,
binding, and effective against all holders of Registrable Securities when it has
been signed by the holders of a majority of the Purchaser Registrable
Securities.
* * * * *
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Registration Agreement as of the date first written above.
COMPLETEL, LLC
By /s/ James E. Dovey
--------------------------------------------
James E. Dovey, its Chairman and CEO
DEGEORGE HOLDINGS LIMITED PARTNERSHIP
By LPL Investment Group, Inc., its general partner
By /s/ Lawrence F. DeGeorge
------------------------------------------
Lawrence F. DeGeorge, its Chairman
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
By Madison Dearborn Partners II, L.P., its general partner
By Madison Dearborn Partners, Inc., its general partner
By /s/ Paul J. Finnegan
------------------------------------------
Its Managing Director
------------------------------------------
MERITAGE PRIVATE EQUITY FUND, L.P.
By Meritage Investment Partners, LLC, its general partner
By: /s/ Laura J. Beller
-------------------------------------------
Managing Member
/s/ James C. Allen
---------------------------------------------
James C. Allen
/s/ Royce J. Holland
---------------------------------------------
Royce J. Holland
(Signature page for Second Amended and Restated Registration Agreement)
<PAGE>
/s/ George T. Laub
---------------------------------------------
George T. Laub
/s/ Reed E. Hundt
----------------------------------------------
Reed E. Hundt
DOVEY FAMILY PARTNERS LLLP
By /s/ James E. Dovey
-----------------------------------------
James E. Dovey, its general partner
DOVEY COMPANY LLC
By /s/ James E. Dovey
-----------------------------------------
James E. Dovey, its manager
/s/ James E. Dovey
---------------------------------------------
James E. Dovey
/s/ William H. Pearson
---------------------------------------------
William H. Pearson
/s/ Richard N. Clevenger
---------------------------------------------
Richard N. Clevenger
/s/ David E. Lacey
---------------------------------------------
David E. Lacey
(Signature page for Second Amended and Restated Registration Agreement)
<PAGE>
HAJ PEARSON LLC
By /s/ William H. Pearson
-----------------------------------------
William H. Pearson, its manager
HAJ LLC
By /s/ William H. Pearson
-----------------------------------------
William H. Pearson, its manager
CLEVENGER COMPANY LLC
By /s/ Richard N. Clevenger
-----------------------------------------
Richard N. Clevenger, its manager
CLEVENGER FAMILY LLLP
By /s/ Richard N. Clevenger
-----------------------------------------
Richard N. Clevenger, its general partner
(Signature page for Second Amended and Restated Registration Agreement)
<PAGE>
/s/ Emile Karafiol
---------------------------------------------
Emile Karafiol
/s/ William S. Kirsch
---------------------------------------------
William S. Kirsch
NORTHWESTERN UNIVERSITY
By /s/ David L. Wagner
------------------------------------------
Its VP and CIO
------------------------------------------
SILVER CROSS INVESTORS LLC
By /s/ Jeffrey W. Richards
------------------------------------------
Its Manager
------------------------------------------
(Signature page for Second Amended and Restated Registration Agreement)
<PAGE>
OTHER MEMBERS (SIGNATURES OF WHOM
ARE NOT INCLUDED) WHO ARE PARTY TO
THIS AGREEMENT PURSUANT TO THEIR
EXECUTIVE SECURITIES AGREEMENTS
(AND/OR JOINDER AGREEMENTS ENTERED
INTO IN CONNECTION THEREWITH):
----------------------------------------------------------
Richard Folliot John Hugo
Anna Lascar Hughes Le Masne
Jean-Marie Le Monze Gerd Menhorn
Charles Menatti Martin Rushe
John Seder Jean Rodriguez
Alexandre Westphalen Gerhard Burtscher
Nicolas Pitance Jean Francois Bouchaud
Claude LeMaire Ralf Heydtmann
Michel Picariello D. Werner Grum
Frank Lauterslager Wolfgang Brauneis
John Puhl Peter Chalupny
Harold F. Carey, Jr. Anton Matos
Guy Gensollen Michael Hulm
Pierre Wattelier Markus Lackermaier
Hansjorg Rieder
Jean-Francois Golhen
Jerome de Vitry
Martine Clarkson
Chantal Lebon
Marie LeCocq
Anne-Catherine Nicosia
Valerie Hotte
Marie-Christine Boudin
Van-Linh Siharath
Isabelle Dubien
Nadege Griffit
Gregory Burlinchon
Cecile Affret
Jean Rodriguez
Catherine Grosjean
Kathleen Hanlon
(Signature page for Second Amended and Restated Registration Agreement)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made part of this
registration statement.
Denver, Colorado, Arthur Andersen, LLP
March 2, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made part of this
registration statement.
Paris, France, Barbier Frinault & Associes
March 2, 2000. Arthur Andersen
/s/ Pierre Jouanne
-------------------
Pierre Jouanne
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 SEP-30-1999
<PERIOD-START> JAN-08-1998 JAN-01-2000
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 1,718,000 58,880,000
<SECURITIES> 0 0
<RECEIVABLES> 527,000 8,387,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,424,000 75,820,000
<PP&E> 3,417,000 56,518,000
<DEPRECIATION> (46,000) (1,773,000)
<TOTAL-ASSETS> 7,870,000 139,595,000
<CURRENT-LIABILITIES> 13,882,000 37,017,000
<BONDS> 0 77,129,000
0 0
0 0
<COMMON> 78,000 337,000
<OTHER-SE> (6,090,000) 25,112,000
<TOTAL-LIABILITY-AND-EQUITY> 7,870,000 139,595,000
<SALES> 0 1,376,000
<TOTAL-REVENUES> 0 1,376,000
<CGS> 0 1,435,000
<TOTAL-COSTS> 7,561,000 27,005,000
<OTHER-EXPENSES> 0 253,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 6,080,000
<INCOME-PRETAX> (7,561,000) (29,739,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,561,000) (29,739,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,561,000) (29,739,000)
<EPS-BASIC> (1.55) (1.55)
<EPS-DILUTED> (1.55) (1.55)
</TABLE>
