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OFFERS TO PURCHASE AND
CONSENT SOLICITATIONS STATEMENT
CARRIER1 FINANCE LIMITED
OFFERS TO PURCHASE FOR CASH AND SOLICITS CONSENTS
IN RESPECT OF ANY AND ALL OUTSTANDING
13 1/4% SENIOR EURO NOTES DUE 2009
13 1/4% SENIOR DOLLAR NOTES DUE 2009
ISSUED BY
CARRIER1 INTERNATIONAL S.A.
THE OFFERS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON WEDNESDAY,
DECEMBER 5, 2001, UNLESS EXTENDED (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE
"EXPIRATION DATE"). TENDERS OF NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO
THE EXPIRATION DATE.
CARRIER1 FINANCE LIMITED, A LIMITED COMPANY INCORPORATED UNDER THE LAWS OF
JERSEY, CHANNEL ISLANDS (THE "COMPANY") AND A WHOLLY OWNED SUBSIDIARY OF
CARRIER1 INTERNATIONAL S.A., A COMPANY INCORPORATED UNDER THE LAWS OF LUXEMBOURG
("CARRIER1"), HEREBY OFFERS (SUCH OFFERS, THE "OFFERS" AND EACH, AN "OFFER") TO
PURCHASE FOR CASH, UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF SUCH OFFERS,
ANY AND ALL OF CARRIER1'S OUTSTANDING 13 1/4% SENIOR EURO NOTES DUE 2009 (THE
"EURO NOTES") AND 13 1/4% SENIOR DOLLAR NOTES DUE 2009 (THE "DOLLAR NOTES" AND,
TOGETHER WITH THE EURO NOTES, THE "NOTES") FROM EACH HOLDER THEREOF (EACH, A
"HOLDER" AND, COLLECTIVELY, THE "HOLDERS").
AS PART OF THE OFFERS, THE COMPANY, ON BEHALF OF CARRIER1, HEREBY SOLICITS
CONSENTS (THE "CONSENTS") OF HOLDERS OF THE NOTES TO CERTAIN PROPOSED AMENDMENTS
(THE "PROPOSED AMENDMENTS") TO TWO INDENTURES, EACH DATED AS OF FEBRUARY 19,
1999 (THE "INDENTURES" AND EACH, AN "INDENTURE"), BETWEEN CARRIER1 AND THE CHASE
MANHATTAN BANK (THE "TRUSTEE"), PURSUANT TO WHICH THE NOTES WERE ISSUED, WHICH
AMENDMENTS WOULD, AMONG OTHER THINGS, ELIMINATE OR SUBSTANTIALLY MODIFY CERTAIN
OF THE RESTRICTIVE COVENANTS CONTAINED IN THE INDENTURES.
THE CONSIDERATION FOR NOTES TENDERED (THE "PURCHASE PRICE") PURSUANT TO THE
OFFERS SHALL BE:
- WITH RESPECT TO THE EURO NOTES, E182.50 PER E1,000 PRINCIPAL AMOUNT OF
EURO NOTES; AND
- WITH RESPECT TO THE DOLLAR NOTES, US$182.50 PER US$1,000 PRINCIPAL AMOUNT
OF DOLLAR NOTES.
IN ADDITION, TENDERING HOLDERS WHOSE NOTES ARE ACCEPTED FOR PURCHASE WILL
RECEIVE ACCRUED AND UNPAID INTEREST ON SUCH NOTES UP TO, BUT NOT INCLUDING, THE
PAYMENT DATE (AS DEFINED HEREIN).
(CONTINUED ON FOLLOWING PAGE)
------------------------
THE DEALER MANAGER FOR THE OFFERS IS:
MORGAN STANLEY
November 6, 2001
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(COVER PAGE CONTINUED)
Each Offer is made upon the terms and subject to the conditions set forth in
this Offers to Purchase and Consent Solicitations Statement (such Statement, as
it may be amended from time to time, and together with the documents
incorporated by reference, the "Statement") and in the accompanying Consent and
Letter of Transmittal.
Each of the Offers is subject to the satisfaction of certain conditions,
including the valid tender of not less than a majority in aggregate principal
amount of each of the Euro Notes and the Dollar Notes outstanding on the
Expiration Date (the "Minimum Tender Condition") and the execution of the
Supplemental Indentures (as defined herein) providing for the Proposed
Amendments (the "Supplemental Indenture Condition"). See "The Offers--Conditions
to the Offers".
HOLDERS WHO VALIDLY TENDER NOTES PURSUANT TO THE OFFERS ARE DEEMED TO HAVE
DELIVERED THEIR CONSENTS TO THE PROPOSED AMENDMENTS TO THE APPLICABLE INDENTURE.
HOLDERS MAY NOT TENDER NOTES IN THE OFFERS WITHOUT BEING DEEMED TO HAVE
DELIVERED CONSENTS, EXCEPT FOR NOTES DELIVERED AFTER THE EXPIRATION DATE
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURE. HOLDERS MAY NOT DELIVER CONSENTS
WITHOUT TENDERING THEIR NOTES IN THE OFFERS.
In the case of each Indenture, the Proposed Amendments require the Consents
of the Holders of not less than a majority in aggregate principal amount of the
Notes outstanding under such Indenture, excluding for such purposes any Notes
owned by the Company or any of its affiliates (the "Requisite Consents").
If the Proposed Amendments become operative and the Offers are consummated,
Notes that are not tendered, or that are not accepted for purchase pursuant to
the Offers, will remain outstanding, but will be subject to the terms of the
applicable Indenture as modified by the applicable Supplemental Indenture as
described under "The Offers--Proposed Amendments". Adoption of the Proposed
Amendments will have adverse consequences for Holders whose Notes are not
tendered or, if tendered, not accepted pursuant to the Offers. Holders of such
outstanding Notes will no longer be entitled to the benefit of, among other
things, certain of the restrictive covenants presently contained in the
applicable Indenture. In addition, the trading market for any Notes not validly
tendered and accepted pursuant to the Offers is likely to be significantly more
limited in the future if the Offers are consummated. See "Risk Factors--Risk
Factors Relating to the Offers".
Tenders of Notes can be withdrawn on or prior to the Expiration Date. A
valid withdrawal of tendered Notes on or prior to the Expiration Date will
constitute the concurrent valid revocation of the withdrawing Holder's related
Consent. A Holder cannot revoke its Consent without also withdrawing the tender
of its Notes. Such withdrawal and revocation may not be made following the
Expiration Date.
Upon the terms and subject to the conditions of the Offers (including, if
the Offers are extended or amended, the terms and conditions of any such
extension or amendment) and applicable law, the Company will, on a date promptly
following the Expiration Date (the "Payment Date"), pay the Purchase Price for
Notes validly tendered (and not withdrawn) and accepted on or prior to the
Expiration Date, plus accrued and unpaid interest on such Notes up to, but not
including, the Payment Date.
IN THE EVENT THAT THE OFFERS ARE WITHDRAWN OR OTHERWISE NOT COMPLETED, THE
PURCHASE PRICE WILL NOT BE PAID OR BECOME PAYABLE TO HOLDERS OF NOTES WHO HAVE
TENDERED THEIR NOTES IN CONNECTION WITH THE OFFERS. IN ANY SUCH EVENT, THE NOTES
PREVIOUSLY TENDERED PURSUANT TO THE OFFERS WILL BE PROMPTLY RETURNED TO THE
TENDERING HOLDER.
From time to time in the future, the Company, Carrier1 or Carrier1's
subsidiaries or affiliates may acquire any Notes that are not purchased pursuant
to the Offers (through open-market purchases, privately negotiated transactions,
tender offers, exchange offers or otherwise), upon such terms and at such prices
as they may determine, which may be more or less than the price to be paid
pursuant to
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(COVER PAGE CONTINUED)
the Offers and could be for cash or other consideration. There can be no
assurance as to which, if any, of these alternatives (or combinations thereof)
the Company, Carrier1 or Carrier1's subsidiaries or affiliates will choose to
pursue in the future.
The Company reserves the right to waive any and all conditions to the Offers
and to accept for purchase any Note tendered pursuant to the Offers. Subject to
compliance with applicable securities laws and the terms set forth in this
Statement, the Company reserves the right to extend or terminate the Offers, or
to otherwise amend the Offers in any respect.
THIS STATEMENT HAS NOT BEEN FILED WITH OR REVIEWED BY ANY U.S. FEDERAL OR
STATE SECURITIES COMMISSION OR ANY REGULATORY AUTHORITY OF ANY COUNTRY, NOR HAS
ANY SUCH COMMISSION OR AUTHORITY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.
THIS STATEMENT CONSTITUTES NEITHER AN OFFER TO PURCHASE NOTES NOR A
SOLICITATION OF CONSENTS IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON
TO OR FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION UNDER
APPLICABLE SECURITIES OR "BLUE SKY" LAWS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY NOT CONTAINED IN THIS STATEMENT OR IN
THE CONSENT AND LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
CARRIER1, THE DEALER MANAGER, THE TRUSTEE, THE DEPOSITARY OR THE INFORMATION
AGENT. THE DELIVERY OF THIS STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH HEREIN OR IN ANY ATTACHMENTS HERETO OR IN THE AFFAIRS OF THE COMPANY,
CARRIER1 OR ANY OF THEIR RESPECTIVE SUBSIDIARIES OR AFFILIATES SINCE THE DATE
HEREOF.
NONE OF THE COMPANY, CARRIER1, THE DEALER MANAGER, THE TRUSTEE, THE
DEPOSITARY OR THE INFORMATION AGENT MAKES ANY RECOMMENDATION AS TO WHETHER ANY
HOLDER SHOULD TENDER NOTES PURSUANT TO THE OFFERS OR PROVIDE CONSENTS TO THE
PROPOSED AMENDMENTS. EACH HOLDER MUST MAKE ITS OWN DECISION AS TO WHETHER TO
TENDER NOTES AND DELIVER CONSENTS.
Morgan Stanley & Co. Limited, which is regulated in the United Kingdom by
The Securities and Futures Authority Limited, is acting for the Company and
Carrier1 and no one else in connection with the Offers and will not be
responsible to anyone other than the Company or Carrier1 for providing the
protections afforded to customers of Morgan Stanley & Co. Limited or for
providing advice in relation to the Offers.
This Statement has not been approved for the purposes of Section 57 of the
UK Financial Services Act 1986 (as amended). The Offers are not being made, and
this Statement is not being transmitted, to any person in the United Kingdom
other than to persons of a kind described in Article 3 of the UK Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or persons
to whom such document may otherwise be lawfully be issued or passed on.
Recipients of this Statement are not permitted to transmit it to any person
other than the aforementioned persons.
This Statement does not constitute an offer document pursuant to
Section 102 of Legislative Decree no. 58 of 24th February 1998 and its
implementing CONSOB Regulation no. 11971/1999, and no solicitation efforts are
being and will be conducted in Italy constituting a tender offer for which an
offer document must be authorized pursuant to the applicable regulations, or for
which a specific exemption is not available. This Statement is not being, and
shall not be, circulated to, and the Offers are not being made to, more than 200
persons in Italy.
SEE "RISK FACTORS" AND "CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS" FOR
DISCUSSIONS OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING THE
OFFERS. SEE "THE OFFERS--PROPOSED AMENDMENTS" FOR A DESCRIPTION OF THE PROPOSED
AMENDMENTS.
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TABLE OF CONTENTS
<Table>
AVAILABLE INFORMATION............................................ 1
INCORPORATION OF DOCUMENTS BY REFERENCE.......................... 1
PRESENTATION OF INFORMATION ABOUT CARRIER1....................... 1
FORWARD-LOOKING STATEMENTS....................................... 2
SUMMARY.......................................................... 3
CERTAIN INFORMATION CONCERNING CARRIER1.......................... 7
PURPOSE OF THE OFFERS............................................ 7
RISK FACTORS..................................................... 9
SUMMARY CONSOLIDATED FINANCIAL DATA.............................. 16
THE OFFERS....................................................... 18
Terms of the Offers......................................... 18
Proposed Amendments......................................... 19
Acceptance for Purchase and Payment for Notes............... 20
Procedures for Tendering Notes.............................. 21
Withdrawal of Tenders....................................... 26
Conditions to the Offers.................................... 27
Source and Amount of Funds.................................. 28
The Dealer Manager, the Information Agent and the
Depositary.................................................. 28
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS................... 30
</Table>
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AVAILABLE INFORMATION
Carrier1 is subject to the information reporting requirements of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the United States
Securities and Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the Public Reference Section of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, U.S.A., and at the regional public reference facilities
maintained by the Commission located at 233 Broadway, New York, New York 10279,
U.S.A. and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, U.S.A. Copies of such material can be obtained from the Public
Reference Section of the Commission at prescribed rates. Such material may also
be accessed electronically by means of the Commission's home page on the
Internet (http://www.sec.gov).
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by Carrier1 with the Commission pursuant to
the Exchange Act are incorporated in this Statement by reference and shall be
deemed to be a part hereof:
(1) Carrier1's Annual Report on Form 10-K for the year ended December 31, 2000
(the "Annual Report");
(2) Carrier1's Quarterly Reports on Form 10-Q for the quarterly periods ended
March 31, 2001 and June 30, 2001; and
(3) Carrier1's Current Reports on Form 8-K filed on April 5, May 14, May 16,
June 8, August 9 and August 14, 2001.
Carrier1 expects to file a Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2001 on or before November 14, 2001.
All documents and reports filed by Carrier1 with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Statement and on or prior to the earlier of the Payment Date or termination of
the Offers shall be deemed incorporated herein by reference and shall be deemed
to be a part hereof from the date of filing of such documents and reports. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Statement to the extent that a statement contained herein or in any
subsequently filed document or report that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Statement.
Carrier1 will provide without charge to each person to whom this Statement
is delivered, upon the written request of such person, a copy of any or all of
the documents which are incorporated by reference herein, other than exhibits to
such documents which are not specifically incorporated by reference herein.
Requests should be directed to the Information Agent or the Dealer Manager at
their respective addresses set forth on the back cover page hereof. The
information relating to the Company and Carrier1 contained in this Statement
does not purport to be complete and should be read together with the information
contained in the incorporated documents.
PRESENTATION OF INFORMATION ABOUT CARRIER1
In this Statement, references to "Carrier1" in the sections entitled
"Certain Information Concerning Carrier1", "Purpose of the Offers", "Risk
Factors" and "Summary Consolidated Financial Data" refer, where appropriate, to
Carrier1 and its consolidated subsidiaries.
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FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Statement and the documents
incorporated by reference herein discuss future expectations, contain
projections of results of operations or financial condition of Carrier1 and its
consolidated subsidiaries or state other forward-looking information. Those
statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results or financial condition to differ
materially from those contemplated by the statements. The "forward-looking"
information is based on various factors and was derived using numerous
assumptions. In some cases, these so-called forward-looking statements can be
identified by words like "may", "will", "should", "expects", "plans",
"anticipates", "believes", "estimates", "predicts", "potential" or "continue" or
the negative of those words and other comparable words. These statements only
reflect the prediction of the Company and Carrier1. Certain uncertainties and
risks relating to the Offers and Carrier1's business are summarized in "Risk
Factors". Statements in this Statement and in the documents incorporated by
reference herein should be evaluated in light of these important factors.
Consequently, such forward-looking statements should be regarded solely as the
Company's and Carrier1's plans, estimates and beliefs at the date made. Neither
the Company nor Carrier1 undertake, and each of them specifically declines, any
obligation to release publicly the results of any revisions to these
forward-looking statements that may be made to reflect any events or
circumstances that occurred or may occur after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS STATEMENT
AND THE CONSENT AND LETTER OF TRANSMITTAL. CAPITALIZED TERMS HAVE THE MEANINGS
ASSIGNED TO THEM ELSEWHERE IN THIS STATEMENT.
<Table>
Carrier1 and the Company............... Carrier1 is a European facilities-based provider of
voice services and data services, offering them
primarily to other telecommunications service providers.
Carrier1 Finance Limited is a limited company
incorporated under the laws of Jersey, Channel Islands
and a wholly owned subsidiary of Carrier1.
The Notes.............................. The Offers are being made with respect to the aggregate
outstanding principal amount of Carrier1's 13 1/4%
Senior Euro Notes due 2009, E85 million, and 13 1/4%
Senior Dollar Notes due 2009, US$160 million.
Risk Factors........................... Holders of Notes should consider important risk factors
relevant to the Offers and to Carrier1's continuing
operations. See "Risk Factors".
The Offers............................. The Company is offering to purchase for cash from each
Holder any and all outstanding Notes and is soliciting
the Consents of Holders of Notes to the Proposed
Amendments to the Indentures. The consideration for
Notes tendered pursuant to the Offers shall be, with
respect to the Euro Notes, E182.50 per E1,000 principal
amount of the Euro Notes and, with respect to the Dollar
Notes, US$182.50 per US$1,000 principal amount of the
Dollar Notes. Each Holder whose Notes are accepted for
purchase pursuant to the Offers will also receive
accrued and unpaid interest up to, but not including,
the Payment Date. See "The Offers".
Each Holder who tenders Notes pursuant to the Offers
will be deemed to have consented to the Proposed
Amendments. Holders may not tender Notes in the Offers
without being deemed to have delivered Consents, except
for Notes delivered after the Expiration Date pursuant
to the guaranteed delivery procedure. Holders may not
deliver Consents without tendering their Notes in the
Offers.
Requisite Consents..................... The aggregate outstanding principal amount of Euro Notes
is E85 million and of Dollar Notes is US$160 million.
The Proposed Amendments to each Indenture require the
Consents of Holders of not less than a majority in
aggregate principal amount of Notes outstanding under
each Indenture. Accordingly, the Proposed Amendments to
the Indentures require the Consents of Holders of Euro
Notes in an aggregate principal amount in excess of
E42.5 million and the Consents of Holders of Dollar
Notes in an aggregate principal amount in excess of
US$80 million. See "The Offers--Proposed Amendments".
</Table>
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The Proposed Amendments................ Certain of the restrictive covenants in the Indentures
would be substantially modified or eliminated from the
Indentures pursuant to the Proposed Amendments if they
are adopted. The Proposed Amendments would delete in
their entirety covenants which: (i) limit the ability of
Carrier1 and certain subsidiaries to issue or sell
capital stock of certain subsidiaries; (ii) limit the
ability of Carrier1 and certain subsidiaries to enter
into certain sale-leaseback transactions; and
(iii) require Carrier1, in the event of a change in
control, to offer to repurchase the Notes on certain
terms. The Proposed Amendments would also modify certain
restrictions on the sale of assets by Carrier1 or
certain subsidiaries and modify certain restrictions
upon mergers, consolidations and similar transactions
involving Carrier1. See "The Offers--Proposed
Amendments".
Effectiveness of Proposed
Amendments........................... Carrier1 intends to effect the Proposed Amendments
promptly following the Expiration Date by executing a
supplemental indenture (each, a "Supplemental Indenture"
and together, the "Supplemental Indentures") to each
Indenture if the Requisite Consents for amendment of
both Indentures have been received. The Notes will not
be accepted for purchase until after the Supplemental
Indentures have been executed. The Proposed Amendments
will not become operative unless and until Notes are
accepted for purchase by the Company pursuant to the
Offers. See "The Offers--Terms of the Offers".
Untendered Notes....................... Notes not tendered or, if tendered, not accepted
pursuant to the Offers will remain outstanding. If the
Requisite Consents are received and the Proposed
Amendments to the Indentures become operative pursuant
to the Supplemental Indentures, the Notes will no longer
have the benefit of the restrictive covenants that will
be eliminated from the Indentures by the Proposed
Amendments. In addition, as a result of the consummation
of the Offers, the aggregate principal amount of the
Notes that remain outstanding will be significantly
reduced, which may adversely affect the liquidity of
and, consequently, the market price for the Notes, if
any, that remain outstanding after consummation of the
Offers. See "Risk Factors--Risk Factors Relating to the
Offers".
Expiration Date........................ The Offers will expire at 11:59 p.m., New York City
time, Wednesday, December 5, 2001, unless extended. See
"The Offers--Terms of the Offers".
Payment Date........................... Payments will be made promptly following the Expiration
Date.
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Acceptance for Purchase and Payment for
Notes................................ The Company will accept for purchase Notes validly
tendered and not withdrawn on or prior to the Expiration
Date in accordance with the terms of each Offer. Payment
of the Purchase Price plus accrued and unpaid interest
will be made by deposit of such amounts with the
Depositary who, in each case, will act as agent for the
tendering and consenting Holders for the purpose of
receiving payments from the Company and transmitting
such payments to those Holders. Such payments are
expected to be made on the Payment Date, promptly
following the acceptance of the Notes for purchase by
the Company pursuant to the Offers. See "The Offers--
Acceptance for Purchase and Payment for Notes".
Withdrawal of Tenders.................. Tenders of Notes may be withdrawn on or prior to the
Expiration Date in compliance with the procedures
described herein. A withdrawal of tendered Notes on or
prior to the Expiration Date will constitute the
concurrent revocation of the withdrawing Holder's
Consent. A Holder cannot revoke its Consent without also
withdrawing the tender of its Notes. Such withdrawal and
revocation may not be made following the Expiration
Date. In the event of a termination of the Offers,
tendered Notes will be returned promptly to the
tendering Holders. See "The Offers--Withdrawal of
Tenders".
Conditions to the Offers............... The Company's obligation to accept for purchase, and to
pay for, Notes validly tendered pursuant to each Offer
is conditioned upon satisfaction or waiver of the
Minimum Tender Condition, the Supplemental Indenture
Condition and the General Conditions (as defined
herein). See "The Offers--Conditions to the Offers".
Source and Amount of Funds............. Assuming 100% of the outstanding principal amount of
Notes is tendered and accepted for purchase and each
Holder receives the Purchase Price, the aggregate
Purchase Price will be approximately E15.5 million and
US$29.2 million. In addition, each Holder whose Notes
are accepted for purchase in the Offers will receive
accrued and unpaid interest on its Notes up to, but not
including, the Payment Date. The Company will consummate
the Offers using available funds of Carrier1 or
Carrier1's subsidiaries. See "Certain Information
Concerning Carrier1" and "The Offers--Source and Amount
of Funds".
</Table>
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The Dealer Manager, the Information
Agent and the Depositary............. Morgan Stanley & Co. International Limited (the "Dealer
Manager") has been retained as financial adviser, dealer
manager and solicitation agent in connection with the
Offers. In such capacity, the Dealer Manager or its
affiliates may contact Holders regarding the Offers and
may request brokers, dealers, commercial banks, trust
companies and other nominees to forward this Statement
and related materials to Holders and beneficial owners
of Notes. The Depositary is The Chase Manhattan Bank.
D.F. King shall act as the Information Agent in
connection with the Offers. The respective addresses and
telephone numbers of the Dealer Manager, the Depositary
and the Information Agent are set forth on the back
cover of this Statement. See "The Offers--The Dealer
Manager, the Information Agent and the Depositary".
Certain Tax Considerations............. Holders of Notes should consider the tax consequences of
the Offers. For a description of certain U.S. federal
income tax consequences to certain Holders, see "Certain
U.S. Federal Income Tax Considerations".
Procedures for Tendering Notes......... In order to tender their Notes, Holders and beneficial
owners of Notes should follow the procedures set forth
in "The Offers--Procedures for Tendering Notes".
CUSIP Numbers of the Notes............. 13 1/4% Senior Euro Notes due 2009: CUSIP No.:
144500AF2.
13 1/4% Senior Dollar Notes due 2009: CUSIP No.:
144500AA3, CUSIP No.: 144500AC9.
ISIN Codes of the Euro Notes........... XS0101541463, XS0094984787.
</Table>
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CERTAIN INFORMATION CONCERNING CARRIER1
Carrier1 is a European facilities-based provider of voice services and data
services such as Internet, bandwidth and related telecommunications services.
Carrier1 offers these services primarily to other telecommunications service
providers. Carrier1 appointed a new Chief Executive Officer, Michael McTighe,
effective October 1, 2001.
PURPOSE OF THE OFFERS
The continuing deterioration of the overall European economic situation in
2001 has adversely affected, and will continue adversely to affect, companies
operating in the technology and telecommunications-related sectors, including
Carrier1.
As of June 30, 2001, Carrier1 had US$230.2 million of long-term debt
outstanding. In the twelve-month period ended June 30, 2001, aggregate interest
payments on such debt were approximately US$31.4 million. The escrowed funds set
aside to fund Carrier1's first five interest payments on the Notes have now been
used in full. Carrier1 generated negative EBITDA of approximately
US$66.3 million for the twelve months ended June 30, 2001. See "Summary
Consolidated Financial Data" for Carrier1's definition of EBITDA. As of
June 30, 2001, Carrier1 had US$161.5 million in cash and cash equivalents,
restricted cash, restricted investments and available-for-sale securities (which
included the funds in escrow for the August 2001 interest payment on the Notes).
See "Summary Consolidated Financial Data".
Current conditions in the capital markets make it unlikely that Carrier1
will be able to raise additional capital to refinance its long-term debt or fund
its operations, given Carrier1's operating performance and existing capital
structure. As a result, Carrier1 now believes that it could experience
difficulty in meeting its August 2002 interest payment obligations on the Notes.
See "Risk Factors--Risk Factors Relating to the Offers". Accordingly, Carrier1's
ability to continue to fund its operations depends upon whether it can reduce
capital expenditure and costs significantly, eliminate all or a substantial
portion of its debt and conserve cash required to fund its operations until it
is cash-flow positive.
Considering Carrier1's financial condition and business prospects in the
current economic climate, Carrier1's board of directors approved steps in
September 2001 to reduce its costs, including making large reductions in its
staff, which will result in certain charges to Carrier1's statement of
operations for the quarterly period ended September 30, 2001. Carrier1 does not
believe, however, that these steps alone will be adequate to assure continued
funding of its operations and believes that a significant reduction in
indebtedness is also required.
The Company is making the Offers, therefore, as part of Carrier1's overall
effort to eliminate or reduce its indebtedness substantially. This will
significantly decrease Carrier1's interest burden and is expected to improve
Carrier1's ability to continue to fund its operations.
Assuming that the Offers were consummated with effect on June 30, 2001 and
that 100% of the aggregate principal amount of the Notes had been tendered,
accepted for purchase and paid for by the Company at the Purchase Price,
together with accrued and unpaid interest thereon, on a pro forma basis, as of
June 30, 2001, Carrier1 would have had no long-term debt outstanding and
approximately US$108.8 million in cash and cash equivalents, restricted cash,
restricted investments and available-for-sale securities. The pro forma
information above is indicative only and does not purport to represent the
amounts that Carrier1's long-term debt outstanding, cash and cash equivalents,
restricted cash, restricted investments and available-for-sale securities would
have been if the Offers had in fact been consummated with effect from such
dates.
Successful completion of the Offers and adoption of the Proposed Amendments
will permit Carrier1 greater financial and operating flexibility as it assesses
how best to continue to develop its
7
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business and to continue to pursue strategic opportunities, including alliances,
acquisitions, business combinations and other similar transactions. Carrier1 has
no current arrangements or understandings to enter into any such transaction and
there can be no assurance that any such transaction will be entered into or
concluded. Carrier1 believes that it may be unable to participate in any such
transaction unless it reduces its indebtedness substantially and adopts the
Proposed Amendments. Carrier1 believes the Offers are in the best interest of
Carrier1 and the holders of all its securities.
Carrier1 expects to recognize an accounting gain approximately equal to the
difference between the nominal value of the Notes and the Purchase Price for all
Notes purchased, but does not expect completion of the Offers and adoption of
the Proposed Amendments to result in any tax liability to the Carrier1 group.
8
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RISK FACTORS
The following risk factors, in addition to the other information described
elsewhere in this Statement, should be carefully considered by each Holder
before deciding whether to participate in the Offers. These risk factors relate
both to the Offers and to Carrier1's continuing operations.
RISK FACTORS RELATING TO THE OFFERS
IF THE OFFERS ARE NOT SUCCESSFUL AND THE PROPOSED AMENDMENTS ARE NOT
ADOPTED, CARRIER1 BELIEVES THAT IT MAY EXPERIENCE DIFFICULTY MEETING ITS
OBLIGATIONS UNDER THE INDENTURES AND THAT CERTAIN PROVISIONS OF THE INDENTURES
WOULD CONTINUE TO RESTRICT ITS STRATEGIC FLEXIBILITY. Carrier1's total
long-term debt as of June 30, 2001 was US$230.2 million. Interest payments on
such debt for the twelve months preceding such date were approximately
US$31.4 million.
Current conditions in the capital markets make it unlikely that Carrier1
will be able to raise additional capital to refinance its long-term debt or fund
its operations, given Carrier1's existing capital structure and operating
performance. As a result, Carrier1 now believes that it could experience
difficulty in meeting its August 2002 interest payment obligations on the Notes.
Accordingly, if the Offers are not successful, Carrier1 may not be able to
continue to fund its operations.
The Indentures impose significant operating and financial restrictions on
Carrier1. The Indentures provide that upon a change of control, each Holder will
have the right to require Carrier1 to purchase all or a portion of the Holder's
Notes at a fixed consideration. If Carrier1 is unable to obtain the funds
necessary to satisfy that obligation, this provision could delay, deter or
prevent a change of control transaction. If the Offers are not successful and
the Proposed Amendments are not adopted, the restrictions in the Indentures may
substantially limit or prohibit Carrier1 from taking various actions, including
incurring additional debt, selling assets, engaging in mergers, consolidations
or other business combinations, repurchasing or redeeming its shares, or
otherwise capitalizing on business opportunities. See "The Offers--The Proposed
Amendments".
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, HOLDERS OF NOTES THAT ARE NOT
TENDERED WILL NO LONGER BENEFIT FROM CERTAIN OF THE RESTRICTIVE COVENANTS IN THE
INDENTURES. If the Proposed Amendments become operative, Holders of Notes that
are not tendered or, if tendered, not accepted pursuant to the Offers will
remain outstanding and will be subject to the terms of the Indentures as
modified by the Supplemental Indentures. As a result of the adoption of the
Proposed Amendments, certain of the restrictive covenants contained in the
Indentures will be substantially modified or eliminated and Holders of Notes not
tendered or, if tendered, not accepted will no longer be entitled to the
benefits of such provisions. The modification or elimination of these covenants
and other provisions will permit Carrier1 to take certain actions previously
prohibited that could increase the credit risks with respect to Carrier1,
adversely affect the market price and credit rating of the remaining Notes or
otherwise be materially adverse to the interest of Holders of remaining Notes.
See "The Offers--Proposed Amendments".
IF THE OFFERS ARE CONSUMMATED, THE LIQUIDITY, MARKET VALUE AND PRICE
VOLATILITY OF THE NOTES THAT REMAIN OUTSTANDING MAY BE ADVERSELY AFFECTED. The
Notes were issued in 1999 and are not listed on any national or regional
securities exchange. To Carrier1's knowledge, the Notes are traded infrequently
in transactions arranged through brokers. Quotations for securities that are not
widely traded, such as the Notes, may differ from actual trading prices and
should be viewed as approximations. To the extent that Notes are tendered and
accepted in the Offers, any existing trading market for the remaining Notes may
become more limited. A debt security with a smaller principal amount available
for trading (a smaller "float") may command a lower price than would a
comparable debt security with a greater float. The reduced float may also make
the trading price of the Notes that are not tendered and accepted for purchase
more volatile. Consequently, the liquidity, market value and price volatility of
Notes which remain outstanding may be adversely affected. The extent of the
public market for the
9
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Notes following consummation of the Offers will depend upon the number of
Holders remaining at such time, the interest in maintaining a market in the
Notes on the part of securities firms and other factors. There can be no
assurance that any trading market will exist for the Notes following
consummation of the Offers.
RISK FACTORS RELATING TO CARRIER1'S CONTINUING OPERATIONS
CARRIER1 EXPECTS TO EXPERIENCE NET LOSSES AND NEGATIVE CASH FLOW. To date,
Carrier1 has experienced net losses and negative cash flow from operating
activities. Carrier1 expects to incur net losses and negative cash flow from
operating activities through at least 2002. Whether or when Carrier1 will
generate positive cash flow from operating activities will depend on a number of
financial, competitive, regulatory, technical and other factors, many of which
are beyond its control.
CARRIER1 HAS NO CONTROL OVER THIRD PARTIES ON WHOM IT RELIES FOR THE
OPERATION OR MAINTENANCE OF PORTIONS OF ITS NETWORK, AND IF THEY OR THEIR
FACILITIES DO NOT PERFORM OR FUNCTION ADEQUATELY, ITS NETWORK MAY BE IMPAIRED
AND ITS OPERATING PERFORMANCE OR FINANCIAL CONDITION COULD BE ADVERSELY
AFFECTED. Carrier1's success is dependent on the technical operation of its
network and on the management of traffic volumes and route selections over the
network. Carrier1 depends on parties from whom it has leased or acquired a right
to use transmission capacity or dark fiber to provide or maintain certain of the
network's circuits, which exposes Carrier1 to risks related to these third
parties' performance. Shortfalls in maintenance or other failures to perform,
including bankruptcy, by any of these parties could lead to transmission failure
or additional costs. Because certain third parties on whom Carrier1 relies for
some important operations have gone or may go bankrupt or have experienced or
may experience financial difficulties, Carrier1 may experience increased costs
in operating, or lose some components of, its operational assets. Such loss or
increased costs could adversely affect Carrier1's performance or financial
condition. Carrier1's network is also subject to other risks outside Carrier1's
control, such as the risk of damage from fire, power loss, natural disasters and
general transmission failures caused by these or other factors.
THE TELECOMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE AND CARRIER1 MAY BE
UNABLE TO COMPETE SUCCESSFULLY. The European telecommunications market is
highly competitive, and liberalization is rendering it increasingly more so. The
opening of the market to new service providers, combined with technological
advances, has resulted in significant reductions in wholesale prices for
Carrier1's services. Decreasing prices are also narrowing gross profit margins
on long distance voice traffic. Carrier1's ability to compete successfully in
this environment will significantly depend on its ability to generate high
traffic volumes from its customers while keeping its costs of services low and
to effectively bundle and cross-sell the services it offers to its customers.
Carrier1 may be unable to do so.
Moreover, Carrier1's competitors may have more experience, superior
operational economies or greater financial resources, placing Carrier1 at a cost
and price disadvantage. Carrier1 competes with a number of incumbent telephone
operators, who generally control access to local networks and have significant
operational economies, including large national networks and existing operating
agreements with other incumbents. Moreover, national regulatory authorities
have, in some instances, shown reluctance to adopt policies that would result in
increased competition for the local incumbent. In addition, incumbents may be
more likely to provide transmission capacity on favorable terms and direct
excess traffic to their related carriers than to Carrier1.
Carrier1 also competes with companies that are building European networks to
the extent these companies offer services to Carrier1's target customers. Some
of these companies have more experience operating a network than Carrier1 has.
Carrier1 may not be able to deploy a European network as quickly or run it as
efficiently as some or all of these competitors, which could impair Carrier1's
ability to compete with them.
10
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Many of Carrier1's competitors have greater financial resources and may be
in a better position than it is to withstand the adverse effect on gross margins
and cash flow caused by price decreases, particularly those competitors that own
more infrastructure and thus may enjoy a lower cost base than Carrier1 does.
Unless and until Carrier1 is able to reduce its cost base, Carrier1 may not be
able to compete on the basis of price if market prices are reduced below a
certain level. Inability to price services competitively may in turn cause
Carrier1 to lose customers.
ANY DIFFICULTY IN RETAINING ITS CURRENT EMPLOYEES OR IN HIRING NEW EMPLOYEES
WOULD ADVERSELY AFFECT CARRIER1'S ABILITY TO OPERATE ITS BUSINESS. Carrier1's
operations are managed by a small number of key executive officers, including
Carrier1's new Chief Executive Officer, Michael McTighe. In addition, Carrier1's
business functions are managed by a relatively small number of key employees.
The loss of any of these individuals could have a material adverse effect on
Carrier1. Carrier1's success depends on its ability to attract, recruit and
retain sufficient qualified personnel.
CUSTOMERS MAY DIVERT THEIR TRAFFIC TO ANOTHER CARRIER BASED ON SMALL PRICE
CHANGES, RESULTING IN FLUCTUATIONS OR LOSS IN CARRIER1'S REVENUES. Voice
customers often maintain relationships with a number of telecommunications
providers, and Carrier1's contracts with its voice customers generally do not
impose minimum usage requirements on customers. Furthermore, basic voice
services are not highly differentiated. As a result, most customers are
price-sensitive and certain customers may divert their traffic to another
carrier based solely on small price changes. Similarly, while Carrier1 seeks to
provide a higher quality of service than its competitors, there is somewhat
limited scope for differentiation. There can be no assurance that small
variations between Carrier1's prices and those of other carriers will not cause
Carrier1's customers to divert their traffic or choose other carriers.
Carrier1's contracts with its voice customers require it to carry their voice
traffic at a contractually fixed price per minute that can only be changed upon
seven or thirty days' notice. If Carrier1 were forced to carry voice or Internet
traffic over a higher-cost route due to capacity and quality constraints, its
gross profit margins would be reduced.
DUE TO CARRIER1'S FINANCIAL DIFFICULTIES, CUSTOMERS OR POTENTIAL CUSTOMERS
MAY REDUCE, TERMINATE OR CHOOSE NOT TO DO BUSINESS WITH CARRIER1, RESULTING IN
FLUCTUATIONS OR LOSS IN CARRIER1'S REVENUES. Carrier1's customers or potential
customers may perceive risk to themselves in continuing or beginning to do
business with Carrier1 because of its financial difficulties, and may, as a
result, reduce, terminate or choose not to engage in, business with Carrier1.
Such reduction, termination or decision could result in large and adverse
fluctuations in revenues.
A LOSS OF, OR CHANGE OF RELATIONSHIP WITH, ONE OR MORE IMPORTANT CUSTOMERS
COULD HAVE A MATERIAL ADVERSE EFFECT ON CARRIER1. Carrier1 relies on a narrow
customer base, including a significant customer whose loss could have a material
adverse effect on its revenues. The loss of, or significant change of
relationship with, one key customer or a small number of important customers
could therefore have a material adverse effect on Carrier1.
TERMS REQUIRED BY CARRIER1'S SUPPLIERS COULD REDUCE CARRIER1'S FINANCIAL
FLEXIBILITY. Carrier1's suppliers may insist on Carrier1 arranging guarantees
and similar arrangements for their supply contracts because of uncertainties
about Carrier1's financial condition. Such arrangements may reduce the amount of
Carrier1's unrestricted cash available for other purposes. Such restrictions may
reduce Carrier1's flexibility to manage its financial and operational
activities.
CARRIER1'S REVENUE BASE IS HIGHLY EXPOSED TO THE FINANCIAL CONDITION OF
OTHER COMPANIES IN THE TELECOMMUNICATIONS SECTOR. Recently, the Internet
services industry has experienced increased merger and consolidation activity
among ISPs and Internet backbone providers. The consolidation of ISPs may reduce
the customer base for Carrier1's Internet services. Certain customers may be
bankrupt, unprofitable or only marginally profitable, resulting in higher risk
of delinquency or nonpayment. As a result of adverse developments in the
financial situation of some of Carrier1's customers, Carrier1's bad
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debt expense increased to US$23.8 million for the first six months of 2001
compared to US$4.8 million for the entire year of 2000.
CARRIER1 MAY ENGAGE IN ALLIANCES, JOINT VENTURES AND PARTNERSHIPS, WHICH ARE
ACCOMPANIED BY INHERENT RISKS. All joint ventures are accompanied by risks.
These risks include:
- lack of complete control over the relevant project;
- diversion of Carrier1's resources and management time;
- inconsistent economic, business or legal interests or objectives among
joint venture partners;
- the possibility that a joint venture partner will become bankrupt or
default in connection with a capital contribution or other obligation,
thereby forcing Carrier1 to fulfill such obligation or causing the joint
venture or Carrier1 to lose essential assets or services which cannot be
replaced or may only be replaced or obtained at significant cost; and
- difficulty maintaining uniform standards, controls, procedures and
policies.
THE INTERNATIONAL SCOPE OF CARRIER1'S OPERATIONS MAY ADVERSELY AFFECT ITS
BUSINESS. Because it conducts an international business, Carrier1 may face
certain risks, including:
- regulatory restrictions or prohibitions on the provision of its services;
- tariffs and other trade barriers;
- longer payment cycles;
- problems in collecting accounts receivable;
- political risks; and
- potentially adverse tax consequences of operating in multiple
jurisdictions.
In addition, an adverse change in laws or administrative practices in
countries within which Carrier1 operates could have a material adverse effect on
it.
Carrier1 is exposed to fluctuations in foreign currencies, as its revenues,
costs, assets and liabilities are denominated in multiple local currencies. Its
payment obligations on its debt are denominated in euros and U.S. dollars and
although its services are denominated in various currencies, they are primarily
denominated in euros. Any appreciation in the value of the U.S. dollar relative
to the euro, or the values of the U.S. dollar or the euro relative to other
currencies, could decrease Carrier1's revenues, increase its debt and interest
payments and, therefore, materially adversely affect its operating margins.
Fluctuations in foreign currencies may also make period-to-period comparisons of
its results of operations difficult.
IF CARRIER1 LOST ONE OR MORE OF ITS GOVERNMENT LICENSES OR BECAME SUBJECT TO
MORE ONEROUS GOVERNMENT REGULATIONS, ITS OPERATIONS COULD BE ADVERSELY
AFFECTED. Carrier1 is subject to varying degrees of regulation in each of the
jurisdictions in which it provides services. Local laws and regulations, and
their interpretations differ significantly among those jurisdictions. Future
regulatory, judicial and legislative changes may have a material adverse effect
on the operation of Carrier1's business.
National regulatory frameworks that are fully consistent with the policies
and requirements of the European Commission and the World Trade Organization
have only recently been, or are still being, put in place in many European Union
member states. These nations are still providing for and adapting to a
liberalized telecommunications market. As a result, in these markets, Carrier1
and other new entrants may encounter more protracted and difficult procedures to
obtain licenses and negotiate interconnection arrangements.
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Carrier1's operations are dependent on licenses that it acquires from
governmental authorities in each jurisdiction in which it operates. These
licenses generally contain clauses pursuant to which Carrier1 may be fined or
its license may be revoked in certain circumstances. Such revocation may be on
short notice, at times as short as 30 days' written notice to Carrier1. The
revocation of any of its licenses may cause Carrier1 to lose favorable
interconnection rates or, in some cases, force it to stop operating in the
relevant country.
RAPID CHANGE IN CARRIER1'S INDUSTRY COULD REQUIRE IT TO INCUR SUBSTANTIAL
COSTS TO IMPLEMENT NEW TECHNOLOGIES. CARRIER1 COULD LOSE CUSTOMERS IF ITS
COMPETITORS IMPLEMENT NEW TECHNOLOGIES BEFORE IT DOES. If the growth Carrier1
anticipates in the demand for telecommunications services were not to occur or
Carrier1 were precluded from servicing this demand, Carrier1 might not be able
to generate sufficient revenues in the next few years to fund its working
capital requirements.
To compete effectively, Carrier1 must anticipate and adapt to rapid
technological changes and offer, on a timely basis, competitively priced
services that meet evolving industry standards and customer preferences.
Carrier1 may choose new technologies that prove to be inadequate or incompatible
with technologies of its customers, providers of transmission capacity or other
carriers. As new technologies develop, Carrier1 may be forced to implement such
new technologies at substantial cost to remain competitive. In addition,
competitors may implement new technologies before Carrier1 does, allowing such
competitors to provide lower priced or enhanced services and superior quality
compared to those Carrier1 provides. Such a development could have a material
adverse effect on Carrier1's ability to compete, particularly because Carrier1
seeks to distinguish itself on the basis of the quality of its services.
CARRIER1 IS CONTROLLED BY PARTIES WHOSE INTERESTS MAY NOT BE ALIGNED WITH
OTHER HOLDERS OF ITS SECURITIES, INCLUDING THE NOTES. Funds managed by
Providence Equity Partners Inc. ("Providence") alone, and funds managed by
Providence and funds managed by Primus Venture Partners Inc. ("Primus")
together, indirectly control Carrier1. Such ownership may present conflicts of
interest between the Providence or Primus funds and Carrier1. They may pursue or
cause Carrier1 to pursue transactions that could enhance their controlling
interest, or permit them to realize gains on their investment, in a manner that
is not in the financial interests of minority shareholders or Holders.
Providence and Primus, or their affiliates, currently have significant
investments in other telecommunications companies, and may in the future invest
in other entities engaged in the telecommunications business, some of which may
compete with Carrier1. Providence and Primus are under no obligation to bring
Carrier1 any investment or business opportunities of which they are aware, even
if such opportunities are within Carrier1's objectives. Conflicts may also arise
in the negotiation or enforcement of arrangements Carrier1 may enter into with
entities in which Providence or Primus, or their affiliates, have an interest.
IF CARRIER1 IS UNABLE TO IMPROVE AND ADAPT ITS OPERATIONS AND SYSTEMS, IT
COULD LOSE CUSTOMERS AND REVENUES. Carrier1 expects its business to continue to
grow, which may significantly strain its customer support, sales and marketing,
accounting and administrative resources, network operation and management and
billing systems. Such a strain on Carrier1's operational and administrative
capabilities could adversely affect the quality of its services and ability to
collect revenues. To manage its growth effectively, Carrier1 will have to
further enhance the efficiency of its operational support and other back office
systems and procedures, and of its financial systems and controls.
In addition, if Carrier1 fails to project traffic volume and routing
preferences correctly, or to determine the optimal means of using its network,
it could lose customers, make inefficient use of the network, and have higher
costs and lower margins.
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A FAILURE TO ENTER INTO OR MAINTAIN ADEQUATE INTERCONNECTION AND PEERING
ARRANGEMENTS COULD CAUSE CARRIER1 TO INCUR HIGHER TERMINATION COSTS THAN
COMPETITORS WHO HAVE SUCH ARRANGEMENTS. One of the most cost-effective ways for
an international operator to achieve voice termination and access in a country
in which it has a point of presence is to negotiate an interconnection agreement
with a national incumbent telephone operator. Failure to maintain adequate
interconnection agreements would cause Carrier1 to incur higher voice
termination and access costs, which could have a material adverse effect on
Carrier1's ability to compete with carriers that have a more effective system of
interconnection agreements for the countries in which they operate.
Carrier1's ability to maintain arrangements for the exchange of data with
European and United States ISPs that have traffic volumes roughly equivalent to
Carrier1's will also affect Carrier1's costs. To the extent Carrier1 does not
maintain these arrangements, Carrier1 is required to pay a transit fee in order
to exchange Internet traffic. Carrier1's inability to maintain sufficient
peering arrangements would keep its Internet termination costs high and could
limit its ability to compete effectively with other European Internet backbone
providers that have lower transit costs than Carrier1 has.
CARRIER1 MAY NOT BE ABLE TO OBTAIN SUFFICIENT COST-EFFECTIVE TRANSMISSION
CAPACITY, WHICH COULD DELAY ITS ABILITY TO PENETRATE CERTAIN MARKETS OR CARRY A
HIGHER VOLUME OF TRAFFIC IN MARKETS IN WHICH IT ALREADY OPERATES. Carrier1
leases or has purchased rights to use transmission capacity from others, and
Carrier1 has swapped capacity on its own German network for transmission
capacity on other carriers' networks. Carrier1 therefore currently depends on
other parties for much of its transmission capacity. Carrier1 may not always be
able to obtain capacity where and when it needs it at an acceptable price.
Furthermore, to the extent some of its capacity suppliers begin to compete with
Carrier1, those suppliers may no longer be willing to provide it with capacity.
Failure to obtain required capacity could delay Carrier1's ability to penetrate
target markets or to carry a higher volume of traffic in the markets in which it
already operates.
CARRIER1 MAY CONTINUE TO HAVE TRANSMISSION COSTS THAT ARE HIGHER THAN TARGET
OR BE REQUIRED TO MAKE FURTHER CAPITAL EXPENDITURES TO OBTAIN
CAPACITY. Although Carrier1 has expanded its fiber based network, Carrier1 will
still need to continue to lease capacity. Carrier1 will therefore, in the short
term, continue to have transmission costs that are higher than if it were
operating its own network. There is no assurance that the cost of obtaining
capacity will decrease. If Carrier1 cannot purchase additional capacity at its
target costs for additional needs it may have in the future, it may have to seek
to meet those needs by building additional capacity, for which it would need to
incur additional capital expenditures. It is also possible that additional
capacity would not be available for purchase at the time that Carrier1 needs it.
IF ESTIMATES CARRIER1 HAS MADE ARE NOT CORRECT, CARRIER1 MAY HAVE TOO MUCH
OR TOO LITTLE CAPACITY. Carrier1 relies on other carriers to provide certain
voice termination services. Negotiation of refile or resale agreements with such
carriers involves making estimates of the future calling patterns and traffic
levels of Carrier1's customers. Underestimation of traffic levels or failure to
estimate calling patterns correctly could lead to:
- a shortage of capacity, requiring Carrier1 to either lease more capacity
or reroute calls to other carriers at a higher termination cost;
- higher termination costs, as Carrier1 may have to use additional,
higher-priced refilers or resellers; and
- a possible lower quality of service, as Carrier1 may not be carrying the
traffic over its own network.
Carrier1's lease capacity costs are fixed monthly payments based on the
capacity made available to it. If Carrier1's traffic volumes decrease, or do not
grow as expected, the resulting idle capacity will increase its per unit costs.
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CARRIER1 MAY HAVE DIFFICULTY ENHANCING ITS SOPHISTICATED BILLING, CUSTOMER
AND INFORMATION SYSTEMS. ANY SUCH DIFFICULTIES COULD DELAY OR DISRUPT ITS
ABILITY TO SERVICE OR BILL ITS CUSTOMERS. Sophisticated information systems are
vital to Carrier1's ability to:
- manage and monitor traffic along the network;
- track service provisioning traffic faults and repairs;
- effect best choice routing;
- achieve operating efficiencies;
- monitor costs;
- bill and receive payments from customers; and
- reduce credit exposure.
The billing and information systems Carrier1 has acquired will require
enhancements and ongoing investments. Carrier1 may encounter difficulties in
enhancing its systems or integrating new technology into its systems in a timely
and cost-effective manner. Such difficulties could have a material adverse
effect on Carrier1's ability to operate efficiently and to provide adequate
customer service.
ENFORCING JUDGMENTS AGAINST CARRIER1 MAY REQUIRE COMPLIANCE WITH NON-U.S.
LAW. Most assets of Carrier1 and its subsidiaries are located outside the
United States. Holders need to comply with foreign laws to enforce judgments
obtained in a U.S. court against Carrier1's assets, including to foreclose upon
such assets. In addition, it may not be possible for Holders to effect service
of process within the United States upon Carrier1, or to enforce against
Carrier1 U.S. court judgments predicated upon U.S. federal securities laws.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for
Carrier1 and its consolidated subsidiaries as of and for the six months ended
June 30, 2001 and 2000 and as of and for the years ended December 31, 2000 and
1999. The summary consolidated financial data as of and for the years ended
December 31, 2000 and 1999 were derived from Carrier1's consolidated financial
statements, which were audited by Deloitte & Touche AG, formerly Deloitte &
Touche Experta AG, independent auditors. The summary consolidated financial data
as of and for the six months ended June 30, 2001 and 2000 were derived from
Carrier1's consolidated financial statements for those periods, which were
unaudited but in the opinion of management contain all adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation of results
for interim periods. The information set forth below is not necessarily
indicative of the results of future operations and should be read in conjunction
with the consolidated financial statements and related notes and "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Carrier1's Annual Report and Carrier1's Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, 2001 and June 30, 2001.
Carrier1 expects to file a Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2001 on or before November 14, 2001.
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------------- --------------------------
2001 2000 2000 1999
----------- ------------ ------------ -----------
(UNAUDITED)
(AMOUNTS ARE PRESENTED IN THOUSANDS)
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues............................. US$ 197,610 US$ 108,798 US$ 261,551 US$ 97,117
----------- ------------ ------------ -----------
Cost of services (exclusive of
amounts shown separately below).... 193,541 113,003 264,973 113,809
Selling, general and administrative
expenses........................... 48,404 16,803 39,596 18,369
Depreciation and amortization........ 29,624 13,379 33,445 13,849
----------- ------------ ------------ -----------
Loss from operations................. (73,959) (34,387) (76,463) (48,910)
Other income (expense):
Interest income.................... 6,732 9,090 20,245 5,859
Interest expense................... (16,075) (15,836) (31,711) (29,475)
Other expense, net................. (4) (6) (2,147) (555)
Currency exchange loss, net........ (21,292) (15,825) (18,067) (15,418)
----------- ------------ ------------ -----------
Loss before extraordinary item....... (104,598) (56,964) (108,143) (88,499)
Extraordinary loss on early
extinguishment of debt............. -- (3,789) (3,789) --
----------- ------------ ------------ -----------
Net loss............................. US$(104,598) US$ (60,753) US$ (111,932) US$ (88,499)
=========== ============ ============ ===========
</Table>
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<Table>
<Caption>
AS OF AND FOR THE AS OF AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------------- --------------------------
2001 2000 2000 1999
----------- ------------ ------------ -----------
(UNAUDITED)
(AMOUNTS ARE PRESENTED IN THOUSANDS)
OTHER FINANCIAL DATA:
EBITDA(1)............................ US$ (44,335) US$ (21,008) US$ (43,018) US$ (35,061)
Purchases of property and
equipment.......................... 153,041 111,742 221,308 160,949
Net cash used in operating
activities......................... (87,132) (22,927) (28,258) (77,895)
Net cash used in investing
activities......................... (44,848) (92,291) (381,801) (253,711)
Net cash provided by financing
activities......................... 13,119 590,199 566,240 353,450
BALANCE SHEET DATA:
Cash and cash equivalents............ US$ 48,425 US$ 508,814 US$ 162,162 US$ 28,504
Available-for-sale securities........ 84,955 -- 198,186 --
Restricted cash...................... 13,370 21,202 24,429 5,512
Restricted investments(2)............ 14,885 47,246 29,951 90,177
Total assets......................... 907,610 1,008,039 1,054,261 437,655
Total long-term debt................. 230,214 241,333 238,641 337,756
Shareholders' equity (deficit)....... 382,271 585,672 525,104 (34,509)
</Table>
------------------------------
(1) All EBITDA numbers are unaudited. EBITDA stands for earnings before
interest, taxes, depreciation, amortization, foreign currency exchange gains
or losses, other income (expense) and extraordinary items. EBITDA is used by
management and certain investors as an indicator of a company's ability to
service debt and to satisfy its capital requirements. However, EBITDA is not
a measure of financial performance under generally accepted accounting
principles and should not be considered as an alternative to cash flows from
operating, investing or financing activities as a measure of liquidity, or
an alternative to net income as indications of Carrier1's operating
performance, or any other measure of performance derived under generally
accepted accounting principles. EBITDA as presented may not be comparable to
other similarly titled measures of other companies or to similarly titled
measures as calculated under Carrier1's debt agreements.
(2) Reflects:
(a) the remaining portion of the net proceeds of the Notes, which was used
to purchase government securities to secure and fund the first five
scheduled interest payments on the Notes,
(b) amounts used to collateralize a letter of credit relating to the
construction of the German network, and
(c) short-term and long-term restricted investments.
See notes 7 and 8 to Carrier1's consolidated financial statements in the
Annual Report.
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THE OFFERS
TERMS OF THE OFFERS
Upon the terms and subject to the conditions set forth in this Statement
(including, with respect to each Offer, if such Offer is amended or extended,
the terms and conditions of any such amendment or extension) and in the
accompanying Consent and Letter of Transmittal, the Company is offering to
purchase for cash any and all of Carrier1's outstanding Euro Notes and Dollar
Notes from Holders at the Purchase Price, which is, with respect to the Euro
Notes, E182.50 per E1,000 principal amount of Euro Notes and, with respect to
the Dollar Notes, US$182.50 per US$1,000 principal amount of Dollar Notes. In
addition to the Purchase Price, tendering Holders whose Notes are accepted for
purchase will receive any accrued and unpaid interest up to, but not including,
the Payment Date. Payment of the Purchase Price plus the interest for Notes
validly tendered and accepted for purchase shall be made on the Payment Date,
which shall promptly follow the Expiration Date.
The Company, on behalf of Carrier1, is also soliciting Consents to the
Proposed Amendments to the Indentures from Holders. Each Holder who validly
tenders Notes pursuant to the Offers will be deemed to have delivered its
Consent to the applicable Proposed Amendments. Holders may not tender Notes in
the Offers without being deemed to have delivered Consents, except for Notes
delivered after the Expiration Date pursuant to the guaranteed delivery
procedure. Holders may not deliver Consents without tendering their Notes in the
Offers.
Tenders of Notes may be withdrawn on or prior to the Expiration Date in
compliance with the procedures described herein. Tenders of Notes may also be
withdrawn if the Offers are terminated without any Notes being purchased
thereunder. A valid withdrawal of tendered Notes on or prior to the Expiration
Date will constitute the concurrent valid revocation of the withdrawing Holder's
related Consent. A Holder cannot revoke its Consent without also withdrawing the
tender of its Notes. Such withdrawal and revocation may not be made following
the Expiration Date.
All Notes validly tendered in accordance with the procedures set forth under
"--Procedures for Tendering Notes" and not withdrawn in accordance with the
procedures set forth under "--Withdrawal of Tenders" on or prior to the
Expiration Date will, upon the terms and subject to the conditions hereof,
including satisfaction of the Minimum Tender Condition, the Supplemental
Indenture Condition and the General Conditions, be accepted for purchase by the
Company.
With respect to each Indenture, the Proposed Amendments require the
Requisite Consents of Holders, meaning Consents of the Holders of not less than
a majority in aggregate principal amount of the outstanding Euro Notes or Dollar
Notes, as applicable, excluding for such purposes any Notes owned by Carrier1 or
any of its affiliates.
Upon receipt of the Requisite Consents with respect to each of the Euro
Notes and the Dollar Notes and satisfaction of the conditions set forth in each
Indenture, Carrier1 intends promptly after the Expiration Date to execute a
Supplemental Indenture to each Indenture providing for the Proposed Amendments.
The Notes will not be accepted for purchase until the Supplemental Indentures
have been executed. The Proposed Amendments will not become operative unless and
until the Notes are accepted for purchase by the Company pursuant to the Offers,
which is expected to occur promptly after the Expiration Date.
If the Offers are terminated or withdrawn, or the Notes are not accepted for
purchase, the Supplemental Indentures will not become operative, and no Purchase
Price or interest will be paid or payable. If any tendered Notes are not
purchased pursuant to the Offers for any reason, or certificates are submitted
evidencing more Notes than are tendered, such Notes not purchased will be
returned promptly following the Expiration Date or termination of the Offers
without expense to the tendering Holder (or, in the case of Notes tendered by
book-entry transfer, such Notes will be credited to the account maintained at
the Depository Trust Company ("DTC"), Euroclear or Clearstream, as
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applicable, from which such Notes were delivered) unless otherwise requested by
such Holder under "Special Delivery Instructions" in the Consent and Letter of
Transmittal.
IF THE REQUISITE CONSENTS ARE RECEIVED AND THE SUPPLEMENTAL INDENTURES
BECOME OPERATIVE, THE PROPOSED AMENDMENTS WILL BE BINDING ON ALL NON-TENDERING
HOLDERS OF THE NOTES. ACCORDINGLY, CONSUMMATION OF THE OFFERS AND THE ADOPTION
OF THE PROPOSED AMENDMENTS MAY HAVE ADVERSE CONSEQUENCES FOR HOLDERS WHO ELECT
NOT TO TENDER IN THE OFFERS. SEE "RISK FACTORS".
The Company's obligation to accept and pay for Notes validly tendered
pursuant to the Offers is conditioned upon satisfaction of the Minimum Tender
Condition, the Supplemental Indenture Condition and the General Conditions to
the Offers. Subject to applicable securities laws and the terms and conditions
set forth in this Statement and in the accompanying Consent and Letter of
Transmittal, the Company reserves the right (i) to waive any and all conditions
to the Offers, (ii) to extend or terminate the Offers or (iii) to otherwise
amend the Offers in any respect. See "--Conditions to the Offers". The rights
reserved by the Company in this paragraph are in addition to the Company's
rights to terminate the Offers described under "--Conditions to the Offers". Any
extension, amendment or termination of the Offers will be followed promptly by
public announcement thereof, the announcement in the case of an extension of the
Offers to be issued no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which any public announcement may be made, the Company shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement other than by issuing a release to the Dow Jones News Service.
The Company expressly reserves the absolute right, in its sole discretion,
from time to time to purchase any Notes after the Expiration Date, through
open-market or privately negotiated transactions, one or more additional tender
or exchange offers or otherwise on terms that may differ materially from the
terms of the Offers.
PROPOSED AMENDMENTS
This section sets forth a brief description of the Proposed Amendments to
the Indentures (which are substantially identical) for which Consents are being
solicited. The summaries of provisions of the Indentures set forth below are
qualified in their entirety by reference to the full and complete terms
contained in the applicable Indenture. Capitalized terms appearing below but not
defined in this Statement have the meanings assigned to such terms in the
applicable Indenture.
DELETION AND MODIFICATION OF COVENANTS. The Proposed Amendments would
delete in their entirety the following covenants and references thereto from
each Indenture, as well as the events of default related to such covenants:
<Table>
SECTION 4.06 LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. This provision currently restricts
the ability of Carrier1 and certain subsidiaries to issue or
sell capital stock of its subsidiaries.
SECTION 4.10 LIMITATION ON SALE--LEASEBACK TRANSACTIONS. This provision
currently restricts the ability of Carrier1 and certain
subsidiaries to enter into certain sale-leaseback
transactions.
SECTION 4.12 REPURCHASE OF NOTES UPON A CHANGE OF CONTROL. This
provision currently obligates Carrier1, within 30 days of a
change of control, to offer to purchase all outstanding Euro
Notes or Dollar Notes, as applicable, at a purchase price
equal to 101% of the principal amount thereof plus accrued
and unpaid interest payable through the redemption date.
</Table>
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In addition, the Proposed Amendments would modify Section 4.11 of each of
the Indentures by deleting those provisions that currently restrict Carrier1 and
certain subsidiaries from selling certain of its or their assets unless at least
75% of the consideration received consists of cash or specified cash
equivalents, and that require Carrier1, in certain circumstances, to apply the
proceeds of such asset sales to repay certain unsubordinated indebtedness or
invest in similar business assets or, otherwise, to make an offer to repurchase
the Notes at 100% of their principal amount. The Proposed Amendments would not
modify the provision in Section 4.11 of each of the Indentures that restricts
Carrier1 and certain subsidiaries from selling certain of its or their assets
for less than the fair market value of the assets sold.
DELETION OF CERTAIN MERGER RESTRICTIONS. The Proposed Amendments would
delete in their entirety subparagraphs (iii) and (iv) of Section 5.01 of each of
the Indentures, as well as references thereto in the Indentures. Subparagraph
(iii) of Section 5.01 currently restricts Carrier1 from entering into
transactions involving the sale of less than all of Carrier1's assets unless
Carrier1 or any successor obligor on the Notes would, after giving effect to
such transaction on a pro forma basis, have a consolidated net worth equal to or
greater than that of Carrier1 before such transaction. Subparagraph (iv) of
Section 5.01 currently restricts Carrier1 from entering into certain mergers,
consolidations and similar transactions unless Carrier1 or any successor obligor
on the Notes would, after giving effect to such transaction on a pro forma
basis, be permitted to incur indebtedness of at least US$1.00 under the
consolidated leverage ratio test restricting the incurrence of indebtedness set
forth in Section 4.03 of each of the Indentures.
DELETION OF DEFINITIONS. The Proposed Amendments would delete certain
definitions from each Indenture made irrelevant as a result of the foregoing.
The Proposed Amendments with respect to each Indenture constitute a single
proposal and a consenting Holder must consent to the Proposed Amendments as an
entirety and may not consent selectively with respect to certain of the Proposed
Amendments.
If the Requisite Consents for amendment of both Indentures have been
received, Carrier1 and Trustee will effect the Proposed Amendments on or
promptly after the Expiration Date, but the Proposed Amendments will not become
operative unless and until the Notes are accepted for purchase by the Company
pursuant to the Offers, which is expected to occur promptly after the Expiration
Date.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE AND THE OFFERS ARE CONSUMMATED,
NOTES THAT ARE NOT TENDERED, OR, IF TENDERED, ARE NOT ACCEPTED FOR PURCHASE
PURSUANT TO THE OFFERS, WILL REMAIN OUTSTANDING BUT WILL BE SUBJECT TO THE TERMS
OF THE APPLICABLE INDENTURE AS MODIFIED BY THE APPLICABLE SUPPLEMENTAL
INDENTURE.
ACCEPTANCE FOR PURCHASE AND PAYMENT FOR NOTES
Upon the terms and subject to the conditions of this Statement and the
accompanying Consent and Letter of Transmittal (including, with respect to each
Offer, if such Offer is amended or extended, the terms and conditions of any
such amendment or extension) and applicable law, the Company will accept for
purchase, and will pay for, all Notes validly tendered (and not withdrawn)
pursuant to the Offers on or prior to the Expiration Date. Such payment will be
made by the deposit by the Company with the Depositary of the Purchase Price,
plus accrued and unpaid interest up to, but not including, the Payment Date, in
immediately available funds promptly after the Expiration Date so that such
payment may be made to tendering Holders on the Payment Date. The Depositary
will act as agent for tendering Holders for the purpose of receiving payment
from the Company and transmitting such payment to tendering Holders. Under no
circumstances will interest on the Purchase Price or the accrued and unpaid
interest be payable or paid by the Company by reason of any delay on behalf of
the Depositary in making such payment.
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The Company expressly reserves the right, in its sole discretion and subject
to Rule 14e-l(c) under the Exchange Act, to delay acceptance for payment of or
payment for Notes in order to comply, in whole or in part, with any applicable
law. See "--Conditions to the Offers". In all cases, payment by the Depositary
to Holders of the Purchase Price and the accrued and unpaid interest will be
made only after timely receipt by the Depositary of (i) certificates
representing the Notes of such Holders or timely confirmation of a book-entry
transfer of such Notes into the Depositary's account at DTC, Euroclear or
Clearstream, as applicable, pursuant to the procedures set forth under
"--Procedures for Tendering Notes", (ii) a properly completed and duly executed
Consent and Letter of Transmittal (or a manually signed facsimile thereof) or an
Agent's Message (as defined herein) from DTC or the equivalent from Euroclear or
Clearstream in respect of the tender of the Notes and (iii) any other documents
required by the Consent and Letter of Transmittal, as applicable.
For purposes of the Offers, validly tendered Notes (or defectively tendered
Notes for which the Company has waived such defect) will be deemed to have been
accepted for purchase by the Company if, as and when the Company gives oral or
written notice thereof to the Depositary.
If any tendered Notes are not purchased pursuant to the Offers for any
reason, or certificates are submitted evidencing more Notes than are tendered,
such Notes not purchased will be returned, without expense, to the tendering
Holder (or, in the case of Notes tendered by book-entry transfer, such Notes
will be credited to the account maintained at DTC, Euroclear or Clearstream, as
applicable, from which such Notes were delivered) unless otherwise requested by
such Holder under "Special Delivery Instructions" in the Consent and Letter of
Transmittal, promptly following the Expiration Date or termination of the
Offers.
The Company reserves the right to transfer or assign, in whole at any time
or in part from time to time, to one or more of its affiliates, the right to
purchase Notes tendered pursuant to the Offers, but any such transfer or
assignment will not relieve the Company of its obligations under the Offers or
prejudice the rights of tendering Holders to receive the Purchase Price and the
accrued and unpaid interest pursuant to the Offers.
It is a condition precedent to the Company's obligation to purchase Notes
pursuant to each Offer that, among other conditions, the Supplemental Indentures
will have been executed. It is a condition subsequent to the effectiveness of
the Proposed Amendments contained in each Supplemental Indenture that the
Company accept for purchase, and pay for, all Notes validly tendered (and not
withdrawn) pursuant to the Offers. See "--Conditions to the Offers".
PROCEDURES FOR TENDERING NOTES
THE TENDER OF NOTES PURSUANT TO THE OFFERS AND IN ACCORDANCE WITH THE
PROCEDURES DESCRIBED BELOW WILL ALSO CONSTITUTE THE DELIVERY OF A CONSENT BY THE
HOLDER OF SUCH NOTES WITH RESPECT TO SUCH NOTES. THE COMPANY IS NOT SOLICITING
AND WILL NOT ACCEPT CONSENTS TO THE PROPOSED AMENDMENTS FROM HOLDERS WHO ARE NOT
TENDERING THEIR NOTES PURSUANT TO THE OFFERS.
THE METHOD OF DELIVERY OF NOTES AS WELL AS CONSENTS AND LETTERS OF
TRANSMITTAL, ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE (AS
DEFINED HEREIN) TRANSMITTED THROUGH THE DTC AUTOMATED TENDER OFFER PROGRAM
("ATOP"), FOR WHICH THIS TRANSACTION WILL BE ELIGIBLE, OR THE EQUIVALENT
PROCEDURE IN RESPECT OF NOTES HELD THROUGH EUROCLEAR OR CLEARSTREAM, IS AT THE
ELECTION AND RISK OF THE PERSON TENDERING NOTES AND DELIVERING CONSENTS AND
LETTERS OF TRANSMITTAL, AND, EXCEPT AS OTHERWISE PROVIDED IN THE CONSENT AND
LETTER OF TRANSMITTAL, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE
PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE
MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT
DELIVERY TO THE DEPOSITARY ON OR PRIOR TO SUCH DATE.
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TENDER OF NOTES. The tender by a Holder of Notes and delivery thereby of
its Consent pursuant to one of the procedures set forth below (and the
subsequent acceptance of such Notes for purchase by the Company) will constitute
a binding agreement between such Holder and the Company in accordance with the
terms and subject to the conditions set forth herein, in the Consent and Letter
of Transmittal and, if applicable, in the Notice of Guaranteed Delivery. Holders
that wish to tender both Euro Notes and Dollar Notes using the Consent and
Letter of Transmittal must complete separate Consents and Letters of Transmittal
for Euro Notes and Dollar Notes.
The procedures by which Notes may be tendered by beneficial owners who are
not registered Holders will depend upon the manner in which the Notes are held.
TENDER OF NOTES HELD THROUGH A CUSTODIAN. Any beneficial owner whose Notes
are registered in the name of a broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender Notes and thereby deliver Consents
should contact the registered Holder promptly and instruct such Holder to tender
Notes and thereby deliver Consents on such beneficial owner's behalf. A letter
containing instructions which may be used by a beneficial owner in this process
to instruct the registered Holder to tender Notes is enclosed in the
solicitation materials provided along with this Statement. If such beneficial
owner wishes to tender such Notes itself, such beneficial owner must, prior to
completing and executing the Consent and Letter of Transmittal and delivering
such Notes, either make appropriate arrangement to register ownership of the
Notes in such beneficial owner's name, if permitted, or follow the procedures
described in "--Tender of Notes Held in Physical Form". The transfer of record
ownership, if permitted, may take considerable time.
TENDER OF NOTES HELD THROUGH DTC. To effectively tender Notes and thereby
deliver the related Consents that are held through DTC, DTC participants should
either (i) properly complete and duly execute the Consent and Letter of
Transmittal (or a manually signed facsimile thereof), together with any other
documents required by the Consent and the Letter of Transmittal, and mail or
deliver the Consent and Letter of Transmittal and such other documents to the
Depositary or (ii) electronically transmit their acceptance through ATOP (and
thereby tender Notes), for which the transaction will be eligible. Upon receipt
of such Holder's acceptance through ATOP, DTC will edit and verify the
acceptance and send an Agent's Message (as defined herein) to the Depositary for
its acceptance. If tendering Notes through ATOP, delivery of tendered Notes must
be made to the Depositary pursuant to the book-entry delivery procedures set
forth below. Alternatively, the tendering DTC participant must comply with the
guaranteed delivery procedures set forth below, but tendering pursuant to such
guaranteed delivery procedures will not be deemed delivery of a Consent with
respect to any Notes so tendered.
Except with respect to Notes tendered using the procedure for guaranteed
delivery, unless the Notes being tendered are deposited with the Depositary on
or prior to the Expiration Date (accompanied by a properly completed and duly
executed Consent and Letter of Transmittal or a properly transmitted Agent's
Message), the Company may, at its option, treat such tender as defective for
purposes of the right to receive the Purchase Price and the accrued and unpaid
interest. Payment for the Notes will be made only against deposit of the
tendered Notes and delivery of any other required documents.
DTC BOOK-ENTRY DELIVERY PROCEDURES. The Depositary will establish accounts
with respect to the Notes at DTC for purposes of the Offers within two business
days after the date of this Statement, and any financial institution that is a
participant in DTC may make book-entry delivery of the Notes by causing DTC to
transfer such Notes into the Depositary's account in accordance with DTC's
procedures for such transfer. Although delivery of Notes may be effected through
book-entry transfer into the Depositary's account at DTC, the Consent and Letter
of Transmittal (or a manually signed facsimile thereof) with any required
signature guarantees, or an Agent's Message (as defined herein) in connection
with a book-entry transfer, and any other required documents, must, in any case,
be
22
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transmitted to and received by the Depositary at the addresses set forth on the
back cover of this Statement on or prior to the Expiration Date in connection
with the tender of such Notes. Holders tendering on or prior to the Expiration
Date may validly tender Notes by complying with the guaranteed delivery
procedure described below, but such tender of Notes will not constitute delivery
of Consents with respect to such Notes. Delivery of documents to DTC does not
constitute delivery to the Depositary. The confirmation of a book-entry transfer
into the Depositary's account at DTC as described above is referred to herein as
a "Book-Entry Confirmation".
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Depositary and forming a part of the Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from each
participant in DTC tendering the Notes and that such participants have received
the Consent and Letter of Transmittal and agree to be bound by the terms of the
Consent and Letter of Transmittal and the Company may enforce such agreement
against such participants.
TENDER OF EURO NOTES HELD THROUGH DTC. For Euro Notes held through DTC, the
procedures specified above regarding the use of DTC's ATOP system must be
followed. However, payment for any such Euro Notes purchased in the Offers will
be made in accordance with payment instructions specified by the DTC participant
tendering such Euro Notes and not through DTC's ATOP system (because payment
will be denominated in euros and not U.S. dollars). Accordingly, a tendering DTC
participant must provide to the Depositary payment instructions for a payment
denominated in euros, using the space provided in the Consent and Letter of
Transmittal (with the applicable VOI number provided in order to match the
payment instruction with the corresponding ATOP instruction). Each DTC
participant need provide these payment instructions only once.
TENDER OF EURO NOTES HELD THROUGH EUROCLEAR AND CLEARSTREAM. To tender Euro
Notes held through Euroclear or Clearstream, Holders must arrange for an
electronic instruction to be sent by the Euroclear or Clearstream participant,
as applicable, to Euroclear or Clearstream, as applicable, in accordance with
their normal procedures, instructing Euroclear or Clearstream, as the case may
be, to tender the Notes on behalf of the Holder. The electronic instruction
transmitted by Euroclear or Clearstream to the Depositary must contain a
computer-generated message by which the Holder acknowledges receipt of the
Consent and Letter of Transmittal and agrees to be bound by it and that the
Company may enforce such agreement against it.
Any Holder tendering Notes under this procedure must ensure that the above
instructions transmitted through the Euroclear or Clearstream participant can be
allocated to the Offers. Holders must submit a separate set of instructions for
each related Consent and Letter of Transmittal submitted, and the instructions
so transmitted must cover the entire aggregate principal amount of Notes
tendered pursuant to such Consent and Letter of Transmittal. To the extent that
instructions cannot be reconciled with the Offers, the tender of Notes may be
deemed not to have been validly submitted.
TENDER OF NOTES HELD IN PHYSICAL FORM. To tender effectively Notes held in
physical form, a properly completed Consent and Letter of Transmittal (or a
manually signed facsimile thereof) duly executed by the Holder thereof, and any
other documents required by the Consent and Letter of Transmittal, must be
received by the Depositary at one of its addresses set forth on the back cover
of this Statement and certificates representing such Notes must be received by
the Depositary at such address on or prior to the Expiration Date. A tender of
Notes may also be effected through the deposit of Notes with DTC, Euroclear or
Clearstream, as applicable, and making book-entry delivery as described herein.
A tendering Holder may comply with the guaranteed delivery procedure set forth
below if such Holder is unable to tender Notes on or prior to the Expiration
Date. Consents and Letters of Transmittal and Notes should be sent only to the
Depositary and should not be sent to the Company, Carrier1, the Information
Agent, the Dealer Manager or the Trustee.
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If the Notes are registered in the name of a person other than the signer of
a Consent and Letter of Transmittal, then, in order to tender such Notes
pursuant to the Offers, the Notes must be endorsed or accompanied by an
appropriate written instrument or instruments of transfer signed exactly as the
name or names of such Holder or Holders appear on the Notes, with the
signature(s) on the Notes or instruments of transfer guaranteed as provided
below. In the event such procedures are followed by a beneficial owner, the
Holder or Holders of such Notes must sign a valid proxy pursuant to the Consent
and Letter of Transmittal, because the tender of Notes will be deemed a delivery
of Consent to the Proposed Amendments in respect of the related Notes, and only
registered Holders as of the date of delivery of the Consent and Letter of
Transmittal are entitled to deliver Consents.
GUARANTEES OF SIGNATURES ON CONSENTS AND LETTERS OF TRANSMITTAL. Signatures
on all Consents and Letters of Transmittal must be guaranteed by a recognized
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program (each, a "Medallion Signature Guarantor"), unless the Notes tendered and
Consents delivered thereby are tendered and delivered (i) by a registered Holder
of Notes (or by a participant in DTC, Euroclear or Clearstream whose name
appears on a security position listing as the owner of such Notes) who has not
completed any of the boxes entitled "Special Payment Instructions" or "Special
Delivery Instructions" on the Consent and Letter of Transmittal or (ii) for the
account of a member firm of a registered national securities exchange, a member
of the National Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United States (each of
the foregoing being referred to as an "Eligible Institution"). See Instruction 1
of the Consent and Letter of Transmittal. If the Notes are registered in the
name of a person other than the signer of the Consent and Letter of Transmittal
or if certificates representing Notes not accepted for purchase or not tendered
are to be returned to a person other than the registered Holder, then the
signature on the Consent and Letter of Transmittal accompanying the tendered
Notes must be guaranteed by a Medallion Signature Guarantor as described above.
See Instructions 1 and 5 of the Consent and Letter of Transmittal.
MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. If a Holder desires to
tender Notes, but the certificates evidencing such Notes have been mutilated,
lost, stolen or destroyed, such Holder should contact the Trustee to receive
information about the procedures for obtaining replacement certificates for
Dollar Notes at Telephone No.: (212) 946-8177 or -8178 or at the following
address: The Chase Manhattan Bank, 450 West 33rd Street, 15th floor, New York,
New York 10001-2097, U.S.A., Attention: Capital Markets Fiduciary Services or
for Euro Notes at Telephone No.: (44 20) 7777 2358 or at the following address:
The Chase Manhattan Bank, Trinity Tower, 9 Thomas More Street, London E1W 1YT,
U.K., Attention: Andrew Dellow.
GUARANTEED DELIVERY. If a Holder desires to tender Notes pursuant to the
Offers and (a) certificates representing such Notes are not immediately
available, (b) time will not permit such Holder's Consent and Letter of
Transmittal, certificates representing such Notes and all other required
documents to reach the Depositary on or prior to the Expiration Date or (c) the
procedures for book-entry transfer (including delivery of an Agent's Message)
cannot be completed on or prior to the Expiration Date, such Holder may
nevertheless tender such Notes with the effect that such tender will be deemed
to have been received on or prior to the Expiration Date (but no Consent with
respect to such Notes will be deemed to have been delivered) if all the
following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Company herewith, or an
Agent's Message with respect to guaranteed delivery that is accepted by
the Company, is received by the Depositary on or prior to the
Expiration Date as provided below; and
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(iii) the certificates for the tendered Notes, in proper form for transfer
(or a Book-Entry Confirmation of the transfer of such Notes into the
Depositary's account at DTC as described above), together with a
Consent and Letter of Transmittal (or manually signed facsimile
thereof) properly completed and duly executed, with any signature
guarantees and any other documents required by the Consent and Letter
of Transmittal or a properly transmitted Agent's Message, are received
by the Depositary within two business days after the date of execution
of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be sent by hand delivery, facsimile
transmission or mail to the Depositary and must include a guarantee by an
Eligible Institution in the form set forth in the Notice of Guaranteed Delivery.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE COMPANY BY REASON OF ANY
DELAY IN MAKING PAYMENT TO ANY PERSON USING THE GUARANTEED DELIVERY PROCEDURE.
THE PURCHASE PRICE FOR, AND ACCRUED AND UNPAID INTEREST ON, NOTES TENDERED
PURSUANT TO THE GUARANTEED DELIVERY PROCEDURE WILL BE THE SAME AS FOR NOTES
DELIVERED TO THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE, EVEN IF THE
NOTES TO BE DELIVERED PURSUANT TO THE GUARANTEED DELIVERY PROCEDURE ARE NOT SO
DELIVERED TO THE DEPOSITARY, AND THEREFORE PAYMENT BY THE DEPOSITARY ON ACCOUNT
OF SUCH NOTES IS NOT MADE, UNTIL AFTER THE PAYMENT DATE.
HOLDERS SHOULD BE AWARE THAT TENDERING NOTES USING THE GUARANTEED DELIVERY
PROCEDURE WILL NOT CONSTITUTE THE DELIVERY OF CONSENTS IN RESPECT OF SUCH NOTES.
Notwithstanding any other provision hereof, payment of the Purchase Price
and the accrued and unpaid interest for Notes tendered and accepted for purchase
pursuant to the Offers will, in all cases, be made only after receipt by the
Depositary of the tendered Notes (or Book-Entry Confirmation of the transfer of
such Notes into the Depositary's account at DTC as described above), and a
Consent and Letter of Transmittal (or manually signed facsimile thereof) with
respect to such Notes, properly completed and duly executed, with any signature
guarantees and any other documents required by the Consent and Letter of
Transmittal, or a properly transmitted Agent's Message.
BACKUP U.S. FEDERAL INCOME TAX WITHHOLDING. To prevent backup U.S. federal
income tax withholding, each tendering Holder of Notes must provide the
Depositary with such Holder's correct taxpayer identification number and certify
that such Holder is not subject to backup U.S. federal income tax withholding by
completing the Substitute Form W-9 included in the Consent and Letter of
Transmittal or other appropriate documentation. See "Certain U.S. Federal Income
Tax Considerations".
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tendered Notes
pursuant to any of the procedures described above will be determined by the
Company in the Company's sole discretion (whose determination shall be final and
binding). The Company expressly reserves the absolute right, in its sole
discretion, subject to applicable law, to reject any or all tenders of any Notes
determined by it not to be in proper form or if the acceptance for purchase of,
or payment for, such Notes may, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the absolute right, in its sole discretion,
subject to applicable law, to waive or amend any of the conditions of the Offers
or to waive any defect or irregularity in any tender with respect to Notes of
any particular Holder, whether or not similar defects or irregularities are
waived in the case of other Holders. The Company's interpretation of the terms
and conditions of the Offers (including the Consent and Letter of Transmittal
and the Instructions thereto) will be final and binding. None of the Company,
Carrier1, the Depositary, the Dealer Manager, the Information Agent, the Trustee
or any other person will be under any duty to give notification of any defects
or irregularities in tenders or will incur any liability for failure to give any
such notification. If the Company waives its right to reject a defective tender
of Notes, the Holder will
25
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be entitled to the Purchase Price and accrued and unpaid interest up to, but not
including, the Payment Date.
WITHDRAWAL OF TENDERS
Tenders of Notes can be withdrawn on or prior to the Expiration Date in
compliance with the procedures described herein. A valid withdrawal of tendered
Notes on or prior to the Expiration Date will constitute the concurrent valid
revocation of the withdrawing Holder's related Consent. A Holder cannot revoke
its Consent except pursuant to a withdrawal of the tender of its Notes. Such
withdrawal and revocation may not be made following the Expiration Date. In the
event of a termination of the Offers, the Notes tendered pursuant to the Offers
will be promptly returned to the tendering Holder, the Consents will be deemed
revoked and the Supplemental Indentures will not become operative. If the Offers
are amended on or prior to the Expiration Date in a manner determined by the
Company, in its sole discretion, to constitute a material adverse change to the
Holders, the Company promptly will disclose such amendment and, if necessary,
extend the Offers for a period deemed by the Company to be adequate to permit
Holders of the Notes to withdraw their Notes. In addition, the Company may, if
it deems appropriate, extend the Offers for any other reason. If the Company
makes a material change in the terms of the Offers or the information concerning
them, the Company will disseminate additional materials and extend the Offers to
the extent required by law. If the Purchase Price is increased or decreased or
the principal amount of Notes subject to the Offers is decreased, the Offers
will remain open at least 10 business days from the date the Company first gives
notice to Holders, by public announcement or otherwise, of such increase or
decrease. In addition, the Company may, if it deems appropriate, extend the
Offers for any other reason.
For a withdrawal of tendered Notes to be effective, a written or facsimile
transmission notice of withdrawal must be received by the Depositary on or prior
to the Expiration Date at its addresses set forth on the back cover of this
Statement. Any such notice of withdrawal must (i) specify the name of the person
who tendered the Notes to be withdrawn, (ii) contain the description of the
Notes to be withdrawn and identify the certificate number or numbers shown on
the particular certificates evidencing such Notes (unless such Notes were
tendered by book-entry transfer) and the aggregate principal amount represented
by such Notes and (iii) either be signed by the Holder of such Notes in the same
manner as the original signature on the Consent and Letter of Transmittal by
which such Notes were tendered (including any required signature guarantees) or
be accompanied by (x) documents of transfer sufficient to have the Trustee
register the transfer of the Notes into the name of the person withdrawing such
Notes and (y) a properly completed irrevocable proxy authorizing such person to
effect such withdrawal on behalf of such Holder. If the Notes to be withdrawn
have been delivered or otherwise identified to the Depositary, a signed notice
of withdrawal is effective immediately upon written or facsimile notice of such
withdrawal even if physical release is not yet effected.
Any permitted withdrawal of Notes may not be rescinded, and any Notes
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offers; PROVIDED, HOWEVER, that withdrawn Notes may be re-tendered by
again following one of the appropriate procedures described herein at any time
on or prior to the Expiration Date.
If the Company extends the Offers or is delayed in its acceptance for
purchase of Notes or is unable to purchase Notes pursuant to the Offers for any
reason, then, without prejudice to the Company's rights hereunder, tendered
Notes may be retained by the Depositary on behalf of the Company and may not be
withdrawn (subject to Rule 14e-l(c) under the Exchange Act, which requires that
an offeror pay the consideration offered or return the securities deposited by
or on behalf of the investor promptly after the termination or withdrawal of a
tender offer), except as otherwise provided in this section.
26
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ALL QUESTIONS AS TO THE VALIDITY, FORM AND ELIGIBILITY OF NOTICES OF
WITHDRAWAL (INCLUDING TIME OF RECEIPT) OF NOTES WILL BE DETERMINED BY THE
COMPANY, IN THE COMPANY'S SOLE DISCRETION (WHOSE DETERMINATION SHALL BE FINAL
AND BINDING). NONE OF THE COMPANY, CARRIER1, THE DEPOSITARY, THE DEALER MANAGER,
THE INFORMATION AGENT, THE TRUSTEE OR ANY OTHER PERSON WILL BE UNDER ANY DUTY TO
GIVE NOTIFICATION OF ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF WITHDRAWAL
OF NOTES OR INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTIFICATION.
CONDITIONS TO THE OFFERS
Notwithstanding any other provisions of the Offers and in addition to (and
not in limitation of) the Company's rights to extend and/or amend the Offers,
the Company shall not be required to accept for purchase, purchase or pay for,
and may delay the acceptance for purchase of, or payment for, any tendered
Notes, in each event subject to Rule 14e-l(c) under the Exchange Act, and may
terminate the Offers, if any of the Minimum Tender Condition, the Supplemental
Indenture Condition or the General Conditions (as defined herein) shall not have
been satisfied or waived. The Minimum Tender Condition will have been satisfied
if Notes representing not less than a majority in aggregate principal amount of
each of the Euro Notes and the Dollar Notes outstanding on the Expiration Date
have been tendered (and not withdrawn) on or prior to the Expiration Date. The
Supplemental Indenture Condition will have been satisfied with respect to the
Offers if the Supplemental Indentures relating to each of the Indentures have
been executed.
The General Conditions (numbers one (1) through six (6), as described below,
the "General Conditions") will have been satisfied if each of the following
conditions will have been satisfied:
(1) the Company shall not have determined that the acceptance for purchase of,
or payment for, some or all of the Euro Notes or Dollar Notes under the
Offers would violate, conflict with or constitute a breach of any order,
statute, law, rule, regulation, executive order, decree, or judgment of any
court, or terms of any contract or agreement, to which the Company, Carrier1
or any of Carrier1's subsidiaries or affiliates may be bound or subject;
(2) the United States shall not have declared war or a national emergency and
the commencement or escalation of armed hostilities directly or indirectly
involving the United States shall not have occurred;
(3) there shall not have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the American Stock Exchange, the New
York Stock Exchange, the Nasdaq Stock Market, the Neuer Markt or in the
over-the-counter market, (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, the United
Kingdom or Luxembourg, (iii) a material change in United States currency
exchange rates or a general suspension of or material limitation on the
markets therefor, (iv) any limitation (whether or not mandatory) by any U.S.
federal, state or other governmental authority on, or any other event which
might materially affect, the extension of credit by banks or other financial
institutions, (v) any adverse change in the price of the Notes or in the
United States or European securities or financial markets, (vi) a material
impairment in the trading market for debt securities or (vii) in the case of
any of the foregoing existing at the date hereof, a material acceleration or
worsening thereof;
(4) there shall not be instituted, pending, or threatened any action,
proceeding, application, claim or counterclaim by any government or
governmental authority or agency, domestic or foreign, or by any other
person, domestic or foreign, before any court or governmental regulatory or
administrative agency, authority or tribunal, domestic or foreign, that, in
the Company's judgment, could (i) prohibit or impose any material
limitations on, the Company's or Carrier1's ownership or operation (or that
of their respective subsidiaries or affiliates) of all or a material portion
of its business or assets, or (ii) make the acceptance for purchase of, or
payment for, some or all of the
27
<Page>
Euro Notes or Dollar Notes, as the case may be, pursuant to the Offers
illegal, or result in a material delay in or otherwise affect the ability of
the Company to accept for purchase or pay for some or all of the Notes or
(iii) have an adverse effect on the contemplated benefits of the Offers to
the Company or Carrier1;
(5) there shall not be any change or changes that have occurred or are
threatened in the business, financial condition, assets, income, operations,
prospects, policies, or debt or stock ownership of Carrier1 or its
subsidiaries that, in the Company's and Carrier1's sole judgment, is or
could be material to Carrier1 or its subsidiaries or affiliates or otherwise
make it inadvisable to proceed with the purchase of the Euro Notes or Dollar
Notes pursuant to the Offers; and
(6) a tender or exchange offer with respect to some or all of Carrier1's common
shares, or a merger or acquisition proposal for Carrier1, shall not have
been proposed, announced or made by another person or shall not have been
publicly disclosed, or Carrier1 shall not have learned that a person or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) shall
have acquired or proposed to acquire beneficial ownership of more than 5% of
Carrier1's outstanding common shares, or any new group shall have been
formed that beneficially owns more than 5% of Carrier1's outstanding common
shares.
The foregoing Minimum Tender Condition, Supplemental Indenture Condition and
General Conditions are for the sole benefit of the Company and Carrier1 and may
be asserted by the Company in its sole discretion, regardless of the
circumstances giving rise to any such condition (including any action or
inaction by the Company) and may be waived by the Company, in whole or in part,
at any time and from time to time, in the sole discretion of the Company,
whether any other condition of the Offers is also waived. The failure by the
Company at any time to exercise any of the foregoing rights will not be deemed a
waiver of any other right and each right will be deemed an ongoing right which
may be asserted at any time and from time to time.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Company to pay the aggregate
Purchase Price in connection with the Offers is estimated to be approximately
E15.5 million and US$29.2 million (assuming 100% of the outstanding principal
amount of Notes is tendered and accepted for purchase). In addition, each
tendering Holder whose Notes are accepted for purchase will receive accrued and
unpaid interest on its Notes up to, but not including, the Payment Date. The
Company will consummate the Offers using available funds from Carrier1 or
Carrier1's subsidiaries.
THE DEALER MANAGER, THE INFORMATION AGENT AND THE DEPOSITARY
Morgan Stanley & Co. International Limited, the Dealer Manager, has been
engaged to act as financial advisor, dealer manager and solicitation agent in
connection with the Offers. In such capacity, the Dealer Manager or its
affiliates may contact Holders regarding the Offers and may request brokers,
dealers, commercial banks, trust companies and other nominees to forward this
Statement and related materials to beneficial owners of Notes. Certain
activities with respect to the Offers in the United States will be conducted
through the Dealer Manager's affiliate, Morgan Stanley & Co. Incorporated.
The Company and Carrier1 have agreed to indemnify the Dealer Manager against
certain liabilities, including certain liabilities under the U.S. federal
securities laws.
At any given time, the Dealer Manager may trade the Notes for its own
account or for the accounts of customers and, accordingly, may hold a long or
short position in the Notes.
Any Holder that has questions concerning the terms of the Offers may contact
the Dealer Manager at its address and telephone numbers set forth on the back
cover of this Statement.
28
<Page>
D. F. King has been appointed Information Agent for the Offers. Questions
and requests for assistance or additional copies of this Statement, the Consent
and Letter of Transmittal or the Notice of Guaranteed Delivery may be directed
to the Information Agent at the addresses and telephone numbers set forth on the
back cover of this Statement. Holders may also contact their broker, dealer,
commercial bank or trust company for assistance concerning the Offers.
The Chase Manhattan Bank has been appointed as Depositary for the Offers.
Consents and Letters of Transmittal and all correspondence in connection with
the Offers should be sent or delivered by each Holder or a beneficial owner's
broker, dealer, commercial bank, trust company or other nominee to the
Depositary at one of the addresses and facsimile numbers set forth on the back
cover of this Statement. Any Holder or beneficial owner that has questions
concerning the procedures for tendering Notes or whose Notes have been
mutilated, lost, stolen or destroyed should contact the Depositary at the
addresses and telephone numbers set forth on the back cover of this Statement.
The Company will pay the Dealer Manager, the Information Agent, the Trustee
and the Depositary reasonable and customary fees for their services and will
reimburse them for their reasonable out-of-pocket expenses in connection
therewith. The Dealer Manager or its affiliates have in the past provided
investment banking and financial advisory services to Carrier1. The Company will
pay brokerage firms and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Statement and related materials to the beneficial owners of Notes.
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<Page>
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the principal United States federal
income tax consequences to a Holder of (i) the Offers and (ii) the retention of
Notes and the adoption of the Proposed Amendments. This summary is based upon
current provisions of the United States Internal Revenue Code of 1986, as
amended (the "Code"), applicable United States Treasury regulations promulgated
thereunder, judicial authority and current Internal Revenue Service ("IRS")
rulings and practice, all of which are subject to change, possibly on a
retroactive basis. The tax treatment of a Holder of Notes may vary depending
upon such Holder's particular situation, and certain Holders (including
insurance companies, tax-exempt organizations, financial institutions, brokers,
dealers, nonresident aliens, foreign corporations, foreign partnerships or
foreign estates or trusts) might be subject to special rules not discussed
below. This discussion assumes that Notes are held as capital assets and is
directed to Holders who are United States persons that have the U.S. dollar as
their functional currency for United States federal income tax purposes. As used
herein, a "Holder" means a beneficial owner of a Note that is for United States
federal income tax purposes (i) a citizen or resident of the United States,
(ii) a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof, (iii) an estate whose income is
subject to United States federal income tax regardless of its source, (iv) a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust or
(v) any other person whose income or gain in respect of a Note is effectively
connected with the conduct of a United States trade or business.
NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO FOREIGN, STATE OR LOCAL
TAX LAWS OR ESTATE AND GIFT TAX CONSIDERATIONS. EACH HOLDER IS URGED TO CONSULT
ITS OWN TAX ADVISOR REGARDING FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX
CONSEQUENCES OF TENDERING THE NOTES PURSUANT TO THE OFFERS OR RETAINING THE
NOTES, ESPECIALLY IN LIGHT OF THE HOLDER'S PARTICULAR TAX ELECTIONS AND OTHER
PARTICULAR CIRCUMSTANCES.
This summary is based in part on certain United States Treasury regulations
addressing the United States federal income tax treatment of modifications of
debt instruments (the "Regulations"). No assurances can be given that the
treatment described herein of the Proposed Amendments or the cash payments
pursuant to the Offers will be accepted by the IRS or, if challenged, by a
court.
TENDERS OF NOTES PURSUANT TO THE OFFERS. In general, a Holder who receives
cash in exchange for Notes pursuant to the Offers will recognize gain or loss
for United States federal income tax purposes equal to the difference between
(i) the amount of cash received (other than cash attributable to accrued
interest, which will be taxable as ordinary income, and subject to the
discussion below concerning a possible deemed consent payment) in exchange for
such Notes, and (ii) such Holder's adjusted tax basis in such Notes at the time
of the sale. A Holder's adjusted tax basis for Notes generally will be the price
such Holder paid for the Notes increased by market discount to the extent such
market discount was previously included in income by the Holder (including any
market discount included in the taxable year of the sale prior to the sale) and
reduced (but not below zero) by amortized premium and any payments received by
the Holder other than interest payments.
Any gain or loss recognized on a sale of a Note pursuant to the Offers
generally will be capital gain or loss and will be long-term capital gain or
loss if the Holder has held the Note for more than one year at the time of sale.
A Holder who has acquired a Note with market discount generally will be required
to treat a portion of any gain on a sale of the Note as ordinary income to the
extent of the market discount accrued to the date of the disposition, less any
accrued market discount previously reported as ordinary income.
In the case of the Euro Notes, the amount realized in euros will be treated
first as a payment of accrued but unpaid interest (on which exchange gain or
loss may be recognized based upon the Holder's method of translating accrued
interest) and then as a payment of principal. With respect to
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<Page>
the payment of principal (which for these purposes is generally the Holder's
purchase price for the Notes in euros), exchange gain or loss is separately
computed to the extent the rate of exchange on the date the Euro Notes are
disposed of differs from the rate of exchange on the date such Euro Notes were
acquired. Exchange gain or loss computed on accrued interest and principal is
recognized, however, only to the extent of total gain or loss on the
transaction. In general, any such gain or loss will be treated as ordinary
income realized from U.S. sources.
DEEMED CONSENT PAYMENTS. It is possible that the IRS could assert that part
of the cash consideration paid for the Notes constitutes a deemed fee for
consenting to the Proposed Amendments. If the IRS were to make such an assertion
successfully, the deemed fee would be taxable as ordinary income to the Holder.
RETENTION OF NOTES; ADOPTION OF PROPOSED AMENDMENTS. Under the Regulations,
the modification of a debt instrument is a "significant" modification which will
create a deemed exchange if, based on all the facts and circumstances and taking
into account all modifications of the debt instrument collectively, the legal
rights or obligations that are altered and the degree to which they are altered
is "economically significant." The Regulations provide that a modification of a
debt instrument that adds, deletes or alters customary accounting or financial
covenants is not a significant modification.
The Company and Carrier1 believe that the adoption of the Proposed
Amendments should not cause a significant modification of the Notes under the
Regulations and therefore should not result in a deemed exchange of the Notes
for U.S. federal income tax purposes. If, notwithstanding the foregoing, the
adoption of the Proposed Amendments were to cause a deemed exchange to occur,
such a deemed exchange could cause Notes deemed to be reissued to bear original
issue discount, and, under certain circumstances, could also result in the
inability of a Holder that retains some Notes to claim a loss with respect to
those Notes that are accepted in the Offer. Holders are urged to consult with
their own tax advisors concerning the possibility that the adoption of the
Proposed Amendments could constitute a deemed exchange.
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, information
reporting requirements will apply to the payment of the gross proceeds of the
Offers to the Holders of Notes. Federal income tax law requires that a Holder
whose tendered Notes are accepted for purchase must provide the Depositary (as
payor) with such Holder's correct taxpayer identification number ("TIN") which,
in the case of a Holder who is an individual, is his or her social security
number, and certain other information, or otherwise establish a basis for
exemption from backup withholding. Exempt Holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and information reporting requirements.
If the Depositary is not provided with the correct TIN or an adequate basis
for exemption, the Holder may be subject to a 30.5% backup withholding tax
imposed on the gross proceeds of the Offers. If withholding results in an
overpayment of taxes, a refund or credit may be obtained, provided that the
required information is provided to the IRS.
To prevent backup withholding, each tendering Holder must complete the
Substitute Form W-9 provided in the Consent and Letter of Transmittal and either
(i) provide the Holder's correct TIN and certain other information under
penalties of perjury, or (ii) provide an adequate basis for exemption.
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<Page>
Any questions regarding the terms and conditions of the Offers may be directed
to the Dealer Manager. A Holder may also contact such Holder's broker, dealer,
commercial bank or trust company or nominee for assistance concerning the
Offers.
THE DEALER MANAGER FOR THE OFFERS IS:
MORGAN STANLEY
ACTING THROUGH
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
U.S.A.
Call Toll-Free in the U.S.: (877) 445-0397 (U.S. only) or
outside the U.S.: (212) 761-4000
Any questions or requests for assistance or additional copies of this Statement,
the Consent and Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Information Agent at the telephone numbers and addresses
listed below.
THE INFORMATION AGENT FOR THE OFFERS IS:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
U.S.A.
Attention: Edward McCarthy
Call Toll-Free in the U.S.: (800) 488-8035 (U.S. only) or
outside the U.S.: (212) 493-6952
or
D.F. KING (EUROPE) LTD.
2 London Wall Buildings
London Wall, London EC2M 5PP England
U.K.
Attention: Franklin Stephens
(44) 20 7920 9700
------------------------
THE DEPOSITARY FOR THE OFFERS IS:
THE CHASE MANHATTAN BANK
------------------------
The Chase Manhattan Bank
Institutional Trust Services Operation
Room 234
55 Water Street
New York, New York 10041
U.S.A.
Attention: Victor Matis
FACSIMILE:
(212) 638-7375
TELEPHONE:
(212) 638-0459
or
Chase Manhattan Bank
Trinity Tower
9 Thomas More Street
London E1W 1YT
U.K.
Attention: Andrew Dellow
FACSIMILE:
(44) 20 7777 5410
TELEPHONE:
(44) 20 7777 2358