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EXCHANGE OFFERS AND
CONSENT SOLICITATIONS STATEMENT
EXCHANGE OFFERS AND CONSENT SOLICITATIONS
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 FRIDAY,
FEBRUARY 1, 2002, 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 TENDERS OF NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO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 International S.A., a SOCIETE ANONYME incorporated under the laws
of the Grand Duchy of Luxembourg ("Carrier1"), hereby offers (such offers, the
"Offers" and each, an "Offer") to purchase for cash and common shares of
Carrier1 ("Shares"), 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, 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 JPMorgan Chase Bank (the "Trustee"),
pursuant to which the Notes were issued. The Proposed Amendments would, among
other things, eliminate substantially all 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 and the Designated Euro Amount (as
defined hereinafter) of Shares per E1,000 principal amount of Euro Notes;
and
- with respect to the Dollar Notes, US$182.50 and the Designated Dollar
Amount (as defined hereinafter) of Shares 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 through December 5, 2001 in
cash.
The "Designated Euro Amount" equals the result, rounded to the nearest whole
number, of "A" multiplied by the FX Rate, where "A" equals:
<Table>
B
-------
(1-.40) - B
- ------------------------------------------------
(160,000 + (85,000 X FX Rate))
</Table>
and "B" equals the amount of Shares outstanding as of the business day preceding
the Expiration Date, as such amount is reported to Carrier1 by its share
registrar or equivalent. The "FX Rate" means the average of the spot euro to
U.S. dollar exchange rates in effect on each of the five trading days preceding
the Expiration Date. Such rates will be the closing spot rates compiled by
JP Morgan FX Research department as quoted in The Wall Street Journal Europe,
or, if unavailable, the closing spot rates reasonably determined by Carrier1.
For example, such closing spot rate on December 20, 2001 was 0.897.
The "Designated Dollar Amount" equals "A" (as defined above), rounded to the
nearest whole number.
Assuming that Carrier1's registrar or its equivalent reports that there are
42,883,039 Shares outstanding on the business day preceding the Expiration Date
and assuming an FX Rate of 0.909918 (the rate used in Carrier1's September 30,
2001 pro forma financial statements below), if 100% of the Notes are tendered
and accepted for purchase, then (i) the Designated Dollar Amount will be 120 and
the Designated Euro Amount will be 110 and (ii) Carrier1 will issue 28,550,000
Shares pursuant to the Offers and there will be 71,433,039 Shares issued and
outstanding after consummation of the Offers.
ACCEPTING THE OFFERS AND INVESTING IN THE SHARES INVOLVES RISKS. HOLDERS
SHOULD CAREFULLY READ THIS STATEMENT (AS DEFINED HEREIN), INCLUDING THE SECTION
ENTITLED "RISK FACTORS" COMMENCING ON PAGE 13, AS WELL AS THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS STATEMENT.
THE SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND ARE BEING OFFERED IN THE UNITED
STATES IN RELIANCE ON SECTION 3(a)(9) OF THE SECURITIES ACT.
--------------------------
January 4, 2002
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By tendering its Notes, each Holder who tenders Notes pursuant to the Offers
agrees that it will not (i) offer, sell dispose of, charge, pledge or otherwise
transfer, directly or indirectly, any option or other right over or otherwise
transfer ("Transfer") any Shares issued pursuant to the Offers until the 90th
day following the Payment Date (as defined hereinafter), (ii) Transfer more than
one-third of such Shares held by such Holder on the Payment Date until the 180th
day following the Payment Date or (iii) Transfer more than two-thirds of such
Shares held by such Holder on the Payment Date until the 270th day following the
Payment Date; provided that any such Holder may transfer Shares in connection
with or after (x) the acquisition of Control (as defined hereinafter) of
Carrier1 by a person or group of persons acting in concert or (y) the merger or
consolidation of Carrier1 with or into any person; provided further that this
restriction shall not apply to any Shares held by Holders other than those
acquired pursuant to the Offers. In addition, pursuant to a requirement of the
Neuer Markt, by tendering Notes, each Holder who tenders Notes agrees not to
Transfer any Shares issued pursuant to the Offers until such Shares are listed
on the Neuer Markt. Shares issued pursuant to the Offers will have a separate,
restricted security identification number until such Shares are listed on the
Neuer Markt. Carrier1 intends to arrange for the Shares issued pursuant to the
Offers to be listed on the Neuer Markt by the 90th day following the Payment
Date (as defined hereinafter). See "Transfer Restrictions Applying to the
Shares".
HOLDERS WHO VALIDLY TENDER NOTES PURSUANT TO THE OFFERS WILL BE DEEMED TO
HAVE DELIVERED THEIR CONSENTS WITH RESPECT TO SUCH NOTES (AND 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 Carrier1 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, if tendered, 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
defined hereinafter) 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 substantially all of the restrictive covenants and other important
provisions 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".
Each of the Offers is made upon the terms and subject to the conditions set
forth in this Exchange Offers and Consent Solicitations Statement (as it may be
amended from time to time, and together with the documents incorporated by
reference, this "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 Dollar Notes outstanding on the Expiration
Date (the "Minimum Tender Condition"), the execution of the Supplemental
Indentures (as defined hereinafter) providing for the Proposed Amendments (the
"Supplemental Indenture Condition"), entry into an undertaking by Carrier One
LLC (the "Deed") wherein Carrier One LLC undertakes certain obligations with
respect to its Shares (the "Deed Condition") and a change in the composition of
the Board of Directors of Carrier1 (the "Board") such that on the Payment Date
there are three or fewer directors on the Board who are not Independent
Directors (as defined hereinafter) (the "Independent Director Condition"). See
"The Offers--Conditions to the Offers" and "Certain Information Concerning
Carrier1--The Board".
CERTAIN HOLDERS (COLLECTIVELY, THE "AGREED HOLDERS") HAVE AGREED PURSUANT TO
ONE OR MORE TENDER AND CONSENT AGREEMENTS (TOGETHER, THE "TENDER AND CONSENT
AGREEMENT") TO TENDER (AND NOT WITHDRAW) CERTAIN NOTES THAT TOGETHER CONSTITUTE
MORE THAN 50% OF THE PRINCIPAL AMOUNT OF THE EURO NOTES OUTSTANDING AND MORE
THAN 50% OF THE PRINCIPAL AMOUNT OF THE DOLLAR NOTES OUTSTANDING, AND THEREBY TO
DELIVER (AND NOT REVOKE) THEIR CONSENTS TO THE PROPOSED AMENDMENTS WITH RESPECT
TO SUCH NOTES AS PROMPTLY AS PRACTICABLE, BUT IN NO EVENT LATER THAN FIVE
BUSINESS DAYS FOLLOWING THE DATE OF THIS STATEMENT. THE TENDER AND CONSENT
AGREEMENT MAY BE TERMINATED BY CARRIER1 OR THE AGREED HOLDERS IF THE OFFERS ARE
NOT CONSUMMATED ON OR PRIOR TO MARCH 31, 2002. IN THE EVENT OF SUCH TERMINATION,
THE AGREED HOLDERS WILL NO LONGER BE OBLIGATED TO TENDER (AND NOT WITHDRAW) SUCH
NOTES OR TO DELIVER (AND NOT REVOKE) THEIR CONSENTS IN RESPECT OF SUCH NOTES. AS
A RESULT OF THE TENDER AND CONSENT AGREEMENT, CARRIER1 BELIEVES THAT, SUBJECT TO
THE CONDITIONS OF THE OFFERS AND THE REQUIREMENTS OF THE INDENTURES FOR
AMENDMENT, THE REQUISITE CONSENTS WILL BE RECEIVED AND THE MINIMUM TENDER
CONDITION AND THE SUPPLEMENTAL INDENTURE CONDITION WILL BE SATISFIED.
Carrier1 reserves the right to waive certain 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, Carrier1 reserves the right to extend or terminate the Offers, or to
otherwise amend the Offers in any respect.
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, Carrier1 will, on a date as promptly
as practicable following the Expiration Date (the "Payment Date"), pay the
Purchase Price for Notes validly tendered (and
ii
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not withdrawn) on or prior to the Expiration Date and accepted for purchase,
plus accrued and unpaid interest on such Notes through December 5, 2001.
IN THE EVENT THAT THE OFFERS ARE WITHDRAWN OR OTHERWISE NOT COMPLETED, THE
PURCHASE PRICE AND ACCRUED AND UNPAID INTEREST WILL NOT BE PAID OR BECOME
PAYABLE TO HOLDERS OF NOTES THAT 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, 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 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) Carrier1 or
Carrier1's subsidiaries or affiliates may choose to pursue.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF CARRIER1 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 CARRIER1,
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 CARRIER1 OR ANY OF ITS SUBSIDIARIES OR
AFFILIATES SINCE THE DATE HEREOF.
NONE OF CARRIER1, 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.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN RECOMMENDED BY, AND 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 EXCHANGE NOTES IN EXCHANGE
FOR CASH AND SHARES 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.
The Offers are not being made to North Dakota residents except those North
Dakota residents that are within one or more of the following categories: bank,
savings institution, trust company, insurance company, investment company as
defined in the Investment Company Act of 1940, pension or profit-sharing trust
or similar benefit plan, or other financial institution or qualified
institutional buyer, or dealer, whether the purchaser is acting for itself or in
a fiduciary capacity. By accepting the Offers, a Holder represents and warrants
that it is not a North Dakota resident or, if such Holder is a North Dakota
resident, it is a bank, savings institution, trust company, insurance company,
investment company as defined in the Investment Company Act of 1940, pension or
profit-sharing trust or similar benefit plan, or other financial institution or
qualified institutional buyer, or a dealer, acting for itself or in a fiduciary
capacity.
The Offers are not to be made to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
U.K. Public Offer of Securities Regulations 1995. Recipients of this Statement
are not permitted to transmit it to any other person other than the
aforementioned persons.
This Statement is directed only at persons who (i) are outside the United
Kingdom, (ii) fall within Article 19(5) of the Financial Services and Markets
Act 2000 (Financial Promotion) Order 2001 (the "Order") or (iii) fall within
Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations
etc.") of the Order (all such persons together being referred to as "relevant
persons"). This communication must not be acted on or relied on by persons who
are not relevant persons. Any investment or investment activity to which this
communication relates is available only to relevant persons and will be engaged
in only with relevant persons.
This Statement does not constitute a public offer to buy or exchange, nor
any other kind of offer, pursuant to all applicable Italian legislation,
including, without limitation, Legislative Decree no. 58 of 24th February 1998
and its implementing CONSOB Regulation no. 11971/1999, and no solicitation
efforts are being or will be conducted in Italy constituting a public offer to
buy or purchase, nor any other kind of 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 "CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS" AND "CERTAIN LUXEMBOURG
TAX CONSIDERATIONS" FOR DISCUSSIONS OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
IN EVALUATING THE OFFERS.
iii
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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.......................... 10
PURPOSE OF THE OFFERS............................................ 11
RISK FACTORS..................................................... 13
SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA................ 22
CAPITALIZATION................................................... 27
CARRIER1'S LARGEST SHAREHOLDER................................... 28
DESCRIPTION OF SHARE CAPITAL..................................... 29
DIVIDEND POLICY.................................................. 34
MARKET AND TRADING INFORMATION................................... 34
TRANSFER RESTRICTIONS APPLYING TO THE SHARES..................... 35
THE OFFERS....................................................... 36
Terms of the Offers......................................... 36
Proposed Amendments......................................... 39
Acceptance for Purchase and Payment for Notes............... 40
Delivery of Shares.......................................... 41
Procedures for Tendering Notes.............................. 42
Withdrawal of Tenders....................................... 46
Conditions to the Offers.................................... 47
Source and Amount of Funds.................................. 49
The Information Agent and the Depositary.................... 49
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS................... 50
CERTAIN LUXEMBOURG TAX CONSIDERATIONS............................ 55
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES...................... 55
</Table>
iv
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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 obtained 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, June 30, 2001 and September 30, 2001; and
(3) Carrier1's Current Reports on Form 8-K filed on April 5, May 14, May 16,
June 8, August 9, August 14, November 7, November 9, November 15, and
December 6, 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 Expiration Date 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 (as defined hereinafter) at
one of the addresses set forth on the back cover page hereof. The information
relating to 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 and Pro Forma Financial Data" refer, where
appropriate, to Carrier1 and its consolidated subsidiaries.
1
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FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Statement and the documents
incorporated by reference hereinafter 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 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 Carrier1's plans,
estimates and beliefs at the date made. Carrier1 does not undertake, and
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.
2
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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.................................. Carrier1 is a European facilities-based provider of
voice services and data services, offering them
primarily to other telecommunications service providers.
For further information about Carrier1, please read the
documents incorporated herein by reference.
The Offers................................ Carrier1 is offering to purchase for cash and Shares
from each Holder any and all outstanding Notes and is
also soliciting the Consents of Holders 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 and the Designated
Euro Amount of Shares per E1,000 principal amount of the
Euro Notes and, with respect to the Dollar Notes,
US$182.50 and the Designated Dollar Amount of Shares per
US$1,000 principal amount of the Dollar Notes.
Assuming that Carrier1's registrar or its equivalent
reports that there are 42,883,039 Shares outstanding on
the business day preceding the Expiration Date and
assuming an FX Rate of 0.909918, then, if 100% of the
Notes are tendered and accepted for purchase, the
Designated Dollar Amount will be 120 and the Designated
Euro Amount will be 110.
Each Holder whose Notes are accepted for purchase
pursuant to the Offers will also receive accrued and
unpaid interest on such Notes in cash through
December 5, 2001. See "The Offers--Terms of the Offers".
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. The Agreed
Holders have agreed in the Tender and Consent Agreement
not to take any action, directly or indirectly, to
enforce, or that may lead to enforcement of, any
remedies for events or occurrences that (x) would under
the applicable Indenture constitute an Event of Default
(as defined therein), but (y) would not under the
applicable Indenture, as amended by the applicable
Supplemental Indenture (as defined hereinafter),
constitute an Event of Default (as defined therein).
The Shares................................ Carrier1 has an authorized share capital of US$200
million at par value US$2 per share. As of December 20,
2001, there were 42,883,039 Shares issued and
outstanding. Assuming that Carrier1's registrar or its
equivalent reports that there are 42,883,039 Shares
outstanding on the business day preceding the Expiration
Date and assuming an FX Rate of 0.909918, then, if 100%
of the Notes are tendered and accepted for
</Table>
3
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<Table>
purchase, Carrier1 will issue 28,550,000 Shares pursuant
to the Offers and there will be 71,433,039 Shares issued
and outstanding. See "Description of Share Capital".
Transfer Restrictions..................... By tendering its Notes, each Holder who tenders Notes
pursuant to the Offers agrees that it will not
(i) Transfer any Shares issued pursuant to the Offers
until the 90th day following the Payment Date,
(ii) Transfer more than one-third of such Shares held by
such Holder on the Payment Date until the 180th day
following the Payment Date or (iii) Transfer more than
two-thirds of such Shares held by such Holder on the
Payment Date until the 270th day following the Payment
Date; provided that any such Holder may transfer Shares
in connection with or after (x) the acquisition of
Control of Carrier 1 by a person or group of persons
acting in concert or (y) the merger or consolidation of
Carrier1 with or into any person; provided further that
this restriction shall not apply to any Shares held by
Holders other than those acquired pursuant to the
Offers. "Control" of a person means the power to direct
or cause the direction of the management and policies of
such person, whether by holding a majority of the voting
shares of such person, by contract or otherwise.
In addition, pursuant to a requirement of the Neuer
Markt, by tendering its Notes, each Holder who tenders
Notes agrees not to Transfer any Shares issued pursuant
to the Offers until such Shares are listed on the Neuer
Markt. Shares issued pursuant to the Offers will have a
separate, restricted security identification number
until such Shares are listed on the Neuer Markt.
Carrier1 intends to arrange for the Shares issued in the
Offers to be listed on the Neuer Markt by the 90th day
following the Payment Date. See "Transfer Restrictions
Applying to the Shares".
Market and Trading Information............ Carrier1's Shares are currently listed on the Neuer
Markt segment of the Frankfurt Stock Exchange under the
symbol "CJN". Shares issued pursuant to the Offers,
however, will not be listed on the Neuer Markt upon
issuance. Carrier1 intends to arrange for the Shares
issued in the Offers to be listed on the Neuer Markt by
the 90th day following the Payment Date. The closing bid
price for the Shares on the Neuer Markt on January 3,
2002 was E1.55. Carrier1 will deliver Shares and not
American Depositary Shares ("ADSs") pursuant to the
Offers. Holders who receive Shares pursuant to the
Offers will not be able to deposit those Shares under
Carrier1's ADS scheme or receive ADSs. See "Market and
Trading Information".
The Consent Solicitations................. Each Holder who tenders Notes pursuant to the Offers
will be deemed to have consented, with respect to such
Notes, to the Proposed Amendments (and 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
</Table>
4
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<Table>
Consents without tendering their Notes in the Offers.
See "The Offers--Terms of 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. As a result of the Tender and Consent
Agreement, Carrier1 believes that, subject to the
conditions of the Offers, the Requisite Consents will be
received. See "The Offers--Terms of the Offers".
Proposed Amendments....................... Substantially all of the restrictive covenants in the
Indentures would be eliminated from the Indentures
pursuant to the Proposed Amendments if they are adopted.
Such covenants, among other things, generally limit the
ability of Carrier1 and its subsidiaries to: (i) incur
additional indebtedness; (ii) make certain payments,
including certain dividends, or investments; (iii) issue
or sell capital stock of certain subsidiaries; (iv)
enter into certain transactions with shareholders or
affiliates; (v) assume or incur certain liens; (vi)
enter into certain sale-leaseback transactions; and
(vii) dispose of certain assets. In addition, under the
existing covenants that would be eliminated, Carrier1
must, in the event of a change in control, offer to
repurchase the Notes on certain terms. The Proposed
Amendments would also eliminate certain restrictions
upon mergers, consolidations and similar transactions
involving Carrier1 and provisions for default upon
breach of any covenant not relating to payment
obligations in the applicable Indenture, certain
cross-default provisions, defaults relating to certain
judgments and insolvency- and bankruptcy-related default
provisions. See "The Offers--Terms of the Offers" and
"--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
such 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 Carrier1 pursuant to the
Offers. See "The Offers--Terms of the Offers" and
"--Proposed Amendments".
Untendered Notes.......................... Notes not tendered or, if tendered, not accepted
pursuant to the Offers will remain outstanding. If the
Requisite Consents
</Table>
5
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<Table>
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 remains
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. As a
result of the Tender and Consent Agreement, Carrier1
believes that, subject to the conditions of the Offers,
the Requisite Consents will be received. See "Risk
Factors--Risk Factors Relating to the Offers" and "The
Offers--Proposed Amendments".
Expiration Date........................... The Offers will expire at 11:59 p.m. New York City time,
Friday, February 1, 2002, unless extended. The Tender
and Consent Agreement may be terminated by Carrier1 or
the Agreed Holders if the Offers are not consummated on
or prior to March 31, 2002. In the event of such
termination, the Agreed Holders will no longer be
obligated to tender and not withdraw Notes pursuant to
the Tender and Consent Agreement or thereby to deliver
(and not revoke) their Consents in respect of such
Notes. See "The Offers--Terms of the Offers".
Payment Date.............................. Payments of cash and delivery of Shares will be made as
promptly as practicable following the Expiration Date.
Acceptance for Purchase and Payment for
Notes..................................... Carrier1 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 on such
Notes through December 5, 2001 will be made by deposit
of such amounts of cash and Shares with the Depositary
(as defined hereinafter), which, in each case, will act
as agent for the tendering and consenting Holders for
the purpose of receiving payments of cash and delivery
of Shares from the Company and transmitting such
payments of cash and delivery of Shares to those
Holders. Such payment of the Purchase Price plus accrued
and unpaid interest through December 5, 2001 is
expected to be made on the Payment Date, as promptly as
practicable 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
</Table>
6
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<Table>
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. The Agreed
Holders have agreed to tender (and not withdraw) certain
Notes and to deliver (and not revoke) Consents in
respect of such Notes in accordance with the Tender and
Consent Agreement. See "The Offers--Withdrawal of
Tenders".
Conditions to the Offers.................. Carrier1's obligation to accept for purchase, and to pay
for, Notes validly tendered pursuant to each Offer is
conditioned upon satisfaction of the Minimum Tender
Condition, the Supplemental Indenture Condition, the
Deed Condition and the Independent Director Condition
and satisfaction or waiver of the General Conditions (as
defined hereinafter). As a result of the Tender and
Consent Agreement, Carrier1 believes that, subject to
the other conditions of the Offers and the requirements
of the Indentures for amendment, the Minimum Tender
Condition and Supplemental Indenture Condition will be
satisfied. Carrier1 may not waive the Minimum Tender
Condition, the Supplemental Indenture Condition, the
Deed Condition or the Independent Director Condition.
See "The Offers--Conditions to the Offers".
Carrier1's Largest Shareholder............ Carrier1's largest shareholder is Carrier One LLC,
which, as of December 20, 2001, held 28,272,087 Shares,
representing approximately 65.9% of the Shares issued
and outstanding on that date. Assuming that 100% of the
Notes are tendered and accepted for purchase and
assuming that 28,550,000 Shares are issued pursuant to
the Offers, Carrier One LLC's Shares will represent
approximately 39.6% of the Shares outstanding after the
consummation of the Offers. Interests in Carrier One LLC
are held by Providence Equity Partners, L.P., Primus
Capital Fund IV Limited Partnership and a number of
individuals affiliated with those entities and Carrier1.
Pursuant to the Deed Condition, Carrier One LLC will be
subject to certain restrictions on the Transfer of its
Shares. See "Carrier1's Largest Shareholder" and "Risk
Factors--Risk Factors Relating to Carrier1's Continuing
Operations".
Board Composition......................... Carrier1 expects certain changes to occur to the
composition of the Board prior to the Expiration Date
and after the consummation of the Offers. In order to
satisfy the Deed Condition, Carrier One LLC, Carrier1's
largest shareholder, is required to enter into the Deed,
obligating it (i) not to nominate at any time more than
two persons for the Board, (ii) to vote its Shares and
otherwise use its reasonable efforts to ensure that, so
long as (x) the Agreed Holders have collectively
nominated a suitably qualified person to become an
Independent Director (as defined hereinafter) of the
Board
</Table>
7
<Page>
<Table>
and (y) Carrier1 shall have approved such person to be a
member of the Board (such approval not to be
unreasonably withheld or delayed), such person shall
have become a member of the Board within 60 days
following the Payment Date, (iii) to vote its Shares and
otherwise use its reasonable efforts to effect a change
in the composition of the Board such that, within
60 days following the Payment Date, the Board is
considered an Independent Board (as defined hereinafter)
and (iv) to vote its Shares and otherwise use its
reasonable efforts to ensure that from the 60th day
following the Payment Date until the 365th day following
the Payment Date, the Board is considered an Independent
Board. An "Indendent Director" means Thomas J. Wynne,
Victor A. Pelson and any person who is neither a person
who is or has been an executive officer of Carrier1 at
any time during the 12 months prior to the Expiration
Date nor any nominee or employee of Carrier One LLC or
its shareholders. An "Independent Board" means a Board
that has a majority of Independent Directors. The
obligations described in clause (ii) above shall
terminate on the 180th day following the Payment Date.
In addition, in order for the Independent Director
Condition to be satisfied, the composition of the Board
on the Expiration Date must be such that there shall be
three or fewer directors on the Board who are not
Independent Directors. See "Certain Information
Concerning Carrier1--The Board" and "Carrier1's Largest
Shareholder".
Dividend Policy........................... Carrier1 has never declared or paid dividends, and it
does not expect to do so in the foreseeable future. See
"Description of Share Capital--Dividends" and "Dividend
Policy".
Antidilution Protections.................. In the event that prior to the Expiration Date, Carrier1
consummates any Share splits, reverse Share splits or
Share reclassifications, the number of Shares to be
issued pursuant to the Offers will be adjusted
accordingly. In addition, prior to the Expiration Date,
Carrier1 will not issue any Shares or any securities
convertible into Shares, other than pursuant to warrants
and options outstanding on the date hereof. As of
December 20, 2001, there were 57,693 U.S. dollar
warrants and 22,255 euro warrants outstanding with the
right to purchase an aggregate number of 554,845 Shares,
each at a purchase price of US$2 per Share. See
"Description of Share Capital".
Pre-emptive Rights........................ If the Offers are successful, then up to but not
including the earlier to occur of (i) the 180th day
following the Payment Date, (ii) the appointment of a
majority of Independent Directors on the Board,
(iii) the issuance of Shares in a transaction involving
the issuance of 10% or more of the outstanding Shares to
any person or group of persons acting in concert (other
than to Providence Equity Partners, L.P. or
</Table>
8
<Page>
<Table>
any of its Controlled affiliates), (iv) the acquisition
of Control of Carrier1 by a person or group of persons
acting in concert and (v) the merger or consolidation of
Carrier1 with or into any person, the then-existing
shareholders of Carrier1 shall have pre-emptive rights
over the issuance by Carrier1 for cash of any Shares or
any securities convertible into Shares, other than
pursuant to warrants and options outstanding on the date
hereof and any other options issued to employees and
other than pursuant to public offerings. See
"Description of Share Capital--Capital Increases;
Pre-emptive Rights".
Source and Amount of Funds................ Assuming that Carrier1's registrar or its equivalent
reports that there are 42,883,039 Shares outstanding on
the business day preceding the Expiration Date and
assuming an FX Rate of 0.909918, if 100% of the Notes
are tendered and accepted for purchase and each Holder
receives the Purchase Price, then the aggregate cash
portion of the Purchase Price will be approximately
US$43.3 million. In addition, each Holder whose Notes
are accepted for purchase in the Offers will receive
accrued and unpaid interest on its Notes through
December 5, 2001. The aggregate amount of such interest,
assuming an FX Rate of 0.909918, is approximately
US$9.6 million. Carrier1 will consummate the Offers
using available funds of Carrier1 or its subsidiaries.
See "The Offers--Source and Amount of Funds".
The Information Agent and the
Depositary................................ The Depositary is JPMorgan Chase Bank. D.F. King shall
act as the Information Agent in connection with the
Offers. The respective addresses and telephone numbers
of the Depositary and the Information Agent are set
forth on the back cover of this Statement. See "The
Offers--The Information Agent and the Depositary".
Certain Tax Considerations................ Holders 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". For a description of
certain Luxembourg tax consequences to certain Holders,
see "Certain Luxembourg Tax Consequences".
Procedures for Tendering Notes............ In order to tender their Notes, Holders and beneficial
owners of Notes should follow carefully 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.
Risk Factors.............................. Holders should consider important risk factors relevant
to the Offers and to Carrier1's continuing operations.
See "Risk Factors".
</Table>
9
<Page>
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. For further information about Carrier1, please read the documents
incorporated herein by reference.
MANAGEMENT
In 2001, Stig Johanssen retired from his position as President and Chief
Executive Offer of Carrier1 and resigned from the Board. In September 2001, R.
Michael McTighe was named Chief Executive Officer of Carrier1 and later joined
the Board as a Director. In November 2001, Jim Brennan joined Carrier1 as
Executive Vice President of Sales and Marketing.
Mr. McTighe is the former CEO of Cable & Wireless Global, where he oversaw
Cable & Wireless' Internet protocol (IP) and data services operations in the
United States, United Kingdom, Europe and Japan. Mr. McTighe's duties at
Cable & Wireless included strategic management, product and business
development, marketing, purchasing, networks and technology. Prior to his
employment with Cable & Wireless, Mr. McTighe was president and CEO of Phillips
Electronics' Consumer Communications Division. In 1990, Mr. McTighe joined
Motorola, becoming Director of European Operations and eventually moving to the
company's U.S. headquarters as Director of Operations for the Asia-Pacific
region.
During 2001 Mr. Brennan served as President of 360networks' European
Operations where he was responsible for all of 360networks' sales, marketing and
operations in Europe, as well as pan-European partnerships and alliances. From
March of 2000 until his appointment in Europe, he was Senior Vice-President of
global accounts at 360networks. Before joining 360networks in March 2000,
Mr. Brennan was vice-president of global sales and marketing at Tyco Submarine
Systems. Prior to his employment with Tyco, Mr. Brennan served as vice-president
at Carlisle Capital, a private merchant banking company in New Hampshire. He
also held a number of international senior management positions in operations,
marketing and sales.
THE BOARD
Carrier1 expects certain changes to occur to the composition of its Board
prior to the Expiration Date and after the consummation of the Offers. The
conditions to consummation of the Offers include the Independent Director
Condition and the Deed Condition. The Independent Director Condition requires
that on the Expiration Date, the composition of the Board must be such that
there are three or fewer directors on the Board who are not Independent
Directors. An "Independent Director" means Thomas J. Wynne, Victor A. Pelson and
any person who is neither a person who is or has been an executive officer of
Carrier1 at any time during the 12 months prior to the Expiration Date nor any
nominee or employee of Carrier One LLC or its shareholders. See "The
Offers--Conditions to the Offer".
The Deed Condition requires that Carrier One LLC, Carrier1's largest
shareholder, execute the Deed. In addition to placing certain restrictions on
the ability of Carrier One LLC to transfer its Shares, the Deed will obligate
Carrier One LLC (i) not to nominate at any time more than two persons for the
Board, (ii) to vote its Shares and otherwise use its reasonable efforts to
ensure that, so long as (x) the Agreed Holders have collectively nominated a
suitably qualified person to become an Independent Director of the Board and (y)
Carrier1 shall have approved such person to be a member of the Board (such
approval not to be unreasonably withheld or delayed), such person shall have
become a member of the Board within 60 days following the Payment Date, (iii) to
vote its Shares and otherwise use its reasonable efforts to effect a change in
the composition of the Board such that, within 60 days following the Payment
Date, the Board is considered an Independent Board (as defined hereinafter) and
(iv) to vote its Shares and otherwise use its reasonable efforts to ensure that
from the 60th day following the Payment Date until the 365th day following the
Payment Date, the Board is considered an Independent Board. The obligations set
forth in clause (ii) above shall terminate on the 180th day following the
Payment Date. An "Independent Board" means a Board that has a majority of
Independent Directors. See "Carrier1's Largest Shareholder" and "The
Offer--Conditions to the Offers".
10
<Page>
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 September 30, 2001, Carrier1 had US$235.5 million of long-term debt
outstanding. In the twelve-month period ended September 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$90.0 million for the nine months ended September 30, 2001. See "Summary
Consolidated and Pro Forma Financial Data" for Carrier1's definition of EBITDA.
As of September 30, 2001, Carrier1 had US$133.7 million in cash and cash
equivalents, restricted cash, restricted investments and available-for-sale
securities. See "Summary Consolidated and Pro Forma 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 its 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, the Board approved steps in September 2001 to reduce
Carrier1's costs, including making large reductions in its staff and writing
down the value of its assets, which resulted in significant 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.
Carrier1 is making the Offers, therefore, as part of its 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. Even if the Offers are successful,
there can be no assurance that Carrier1 will be able to continue to fund its
operations.
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 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 has
engaged a financial adviser, and may from time to time engage other financial
advisers, to advise it concerning the possibility of entering into such a
transaction or transactions. Carrier1 is actively pursuing such opportunities.
A cash tender offer and consent solicitation for the Notes by a wholly-owned
subsidiary of Carrier1 was commenced on November 6, 2001 but was not consummated
because certain conditions were not satisfied. The consideration offered in the
Offers represent a considerable increase over the consideration offered in the
previous cash tender offer. Carrier1 believes the Offers are in the best
interest of Carrier1 and the holders of all its securities.
Upon exchange of the Notes for cash and Shares, Carrier1 expects to realize
a significant extraordinary gain. Carrier1 believes that it has sufficient tax
losses that could be used to offset the
11
<Page>
gain. As a result, Carrier1 will not have any tax liability arising from the
extraordinary gain resulting from the consummation of the Offers. Carrier1 will
incur a 1% capital duty on the value of the contribution in kind (the Notes
exchanged that are attributable to the Shares and not the cash) it will receive
in exchange for the Shares issued pursuant to the Offers. Assuming that 100% of
the Notes are tendered and accepted for purchase, Carrier1 expects that the
capital duty would be at least US$200,000. However, the actual amount of the
capital duty will depend on the determination of the value and number of Notes
tendered and accepted for purchase and the number of Shares issued pursuant to
the Offers.
12
<Page>
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 September 30, 2001 was US$235.5 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. Even if the Offers are successful, there can be
no assurance that Carrier1 will 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 "Purpose of the Offers"
and "The Offers--Proposed Amendments".
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, HOLDERS OF NOTES THAT ARE NOT
TENDERED WILL NO LONGER BENEFIT FROM SUBSTANTIALLY ALL OF THE RESTRICTIVE
COVENANTS AND OTHER IMPORTANT PROVISIONS IN THE INDENTURES. If the Proposed
Amendments become operative, Notes that are not tendered or, if tendered, are
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, substantially all of the
restrictive covenants and other important provisions contained in the Indentures
will be eliminated and Holders of Notes not tendered or, if tendered, not
accepted will no longer be entitled to the benefits of such provisions. The
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. Carrier1 believes that, subject to the conditions of the
Offers, the Requisite Consents will be received and that, subject to the
conditions of the Offers and the requirements of the Indentures, the Proposed
Amendments will become effective. 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
13
<Page>
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 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.
CARRIER1'S OPERATING COMPANIES HAVE NO OBLIGATION TO MAKE PAYMENTS ON THE
NOTES. THEY MAY FACE LEGAL OR OTHER LIMITATIONS ON THEIR ABILITY TO MAKE CASH
AVAILABLE FOR PAYMENT ON THE NOTES WITH THE RESULT THAT NOTES NOT PURCHASED IN
THE OFFERS WILL REMAIN EFFECTIVELY SUBORDINATED TO THE LIABILITIES OF CARRIER1'S
SUBSIDIARIES. Carrier1 is the company obligated to pay amounts due under the
Notes. Carrier1 is a holding company with few assets of significance other than
the stock of its subsidiaries. Carrier1 has loaned or contributed, and intends
to continue to loan or contribute, to its subsidiaries all or a portion of the
amounts raised on issuance of the Notes and in its initial public offering of
Shares. The cash flow and consequent ability of Carrier1 to service its debt
obligations, including the Notes, are dependent upon the ability of Carrier1 to
receive cash from its subsidiaries. These subsidiaries are separate legal
entities and have no obligations to pay amounts due under the Notes or to make
funds available for such payment. In addition, applicable law of the
jurisdictions in which these subsidiaries are organized or contractual or other
obligations to which they are subject may limit their ability to pay dividends
or make payments on intercompany loans or subject such payments to taxes. Claims
of creditors of these subsidiaries will generally have priority as to the assets
of such subsidiaries over the claims of the holders of Carrier1's debt.
Accordingly, the Notes will be generally subordinated to the liabilities of
these subsidiaries.
IF THE OFFERS ARE SUCCESSFUL, CHANGES TO CARRIER1'S SHAREHOLDER AND BOARD
PROFILES MAY AFFECT CARRIER1'S STRATEGY. If the Offers are successful, Carrier
One LLC's shareholding will be reduced. Assuming that 100% of the Notes are
tendered and accepted for purchase and that 28,550,000 Shares are issued
pursuant to the Offers, Carrier One LLC's shareholding will be reduced to
approximately 39.6% and Holders' Shares acquired pursuant to the Offers will
represent in the aggregate approximately 40% of Carrier1's Shares outstanding
after the consumation of the Offers. Moreover, in order for the Independent
Director Condition to the Offers to be satisfied, the composition of the Board
on the Expiration Date must be such that there are three or fewer directors on
the Board who are not Independent Directors. Furthermore, as a condition to
consummation of the Offers, the Deed Condition requires that Carrier One LLC
agree to take certain actions that will cause the Board to be an Independent
Board. See "Certain Information Concerning Carrier1--The Board", "Carrier1's
Largest Shareholder" and "The Offers--Conditions to the Offers". There can be no
assurance that, with the contemplated changes to the shareholder and Board
profiles, Carrier1's strategy will remain the same. There can be no certainty
about how Carrier1's shareholders, including Carrier One LLC and Holders of
Notes who become shareholders pursuant to the Offers, would exercise their
rights or whether or how their interests would be aligned with Carrier1.
HOLDERS OF SHARES MAY RECEIVE NOTHING IN THE EVENT OF LIQUIDATION OR
INSOLVENCY. In the event of the liquidation or insolvency of Carrier1 or upon
acceleration of the Notes due to an event of default, Carrier1's assets will be
used to pay the remaining outstanding Notes up to their aggregate principal
amount and discharge any other obligations before any distribution to
shareholders. Holding Shares instead of Notes will mean being subordinate to
Holders of Notes who continue to hold such Notes after the Offers.
SHARES RECEIVED BY HOLDERS PURSUANT TO THE OFFERS WILL NOT BE TRANSFERABLE
FOR A PERIOD OF TIME AND THE PRICE OF THE SHARES MAY DECLINE BY THE TIME THE
SHARES ARE TRANSFERABLE. By tendering Notes pursuant to the Offers, Holders
will agree to restrictions on their ability to transfer Shares received pursuant
to the Offers. Holders who receive Shares pursuant to the Offers will not be
able to deposit those Shares
14
<Page>
under Carrier1's ADS scheme or receive Carrier1 ADSs. The price of the Shares on
the Neuer Markt may be lower when Holders are permitted to Transfer their Shares
than the price at the time when they receive their Shares pursuant to the
Offers. See "Transfer Restrictions Applying to the Shares".
THE TRADING PRICE OF THE SHARES MAY FLUCTUATE WIDELY. The trading price of
the Shares has fluctuated and may continue to fluctuate widely. See "Market and
Trading Information". The market price of the Shares ranged between a high sales
price of E32.30 and a low sales price of E0.68 for the period from January 1 and
December 31, 2001, and may continue to be highly volatile and subject to wide
fluctuations in response to factors, including the following, some of which are
beyond Carrier1's control:
- the success or lack of success of the Offers;
- actual or anticipated variations in quarterly operating results;
- announcements of technological innovations or new products or services or
new pricing practices by Carrier1 or its competitors;
- changes in financial estimates by security analysts;
- underperformance against analysts' estimates;
- increased market share penetration by Carrier1's competitors;
- announcement by Carrier1 or its competitors or significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions or departures of key personnel;
- sales or issuances of additional Shares, including the issuance of Shares
pursuant to the Offers;
- changes in conditions and trends in the wireless communications industry;
- changes in government regulations;
- changes in economic conditions in the United States markets or the foreign
markets;
- existing and potential litigation; and
- the factors discussed below under "--Risk Factors Relating to Carrier1's
Continuing Operations".
In addition, the capital markets in general, and shares of
telecommunications providers in particular, have from time to time experienced
extreme price and volume fluctuations. This volatility is often unrelated or
disproportionate to the operating performance of these companies. These broad
market fluctuations may adversely affect the market price of the Shares,
regardless of Carrier1's actual operating performance.
RISK FACTORS RELATING TO CARRIER1'S CONTINUING OPERATIONS
The following factors could adversely affect the value of the Shares and
Carrier1's ability to repay the Notes:
IF THE OFFERS ARE NOT SUCCESSFUL, CARRIER1 MAY NOT BE ABLE TO CONTINUE TO
FUND ITS OPERATIONS AND, EVEN IF THE OFFERS ARE SUCCESSFUL, THERE CAN BE NO
ASSURANCE THAT CARRIER1 WILL BE ABLE TO CONTINUE TO FUND ITS OPERATIONS. 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. If the Offers are not successful,
Carrier1 may not be able to continue to fund its operations. Even if the Offers
are consummated, 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.
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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, or
delay or fail to make payment of monies owing to Carrier1. Such reduction,
termination, decision, payment delay or non-payment could result in large and
adverse fluctuations in revenues and cash flow and result in the loss of, or
change of relationship with, important customers. These risks may worsen if the
Offers do not succeed.
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 debt expense
increased to approximately US$25.9 million for the nine months ended
September 30, 2001 compared to US$4.8 million for the entire year of 2000.
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.
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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.
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 Chief Executive Officer, R. 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.
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.
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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.
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
18
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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.
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.
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.
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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.
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.
CARRIER1 WILL CONTINUE TO BE INFLUENCED OR CONTROLLED BY PARTIES WHOSE
INTERESTS MAY NOT BE ALIGNED WITH OTHER HOLDERS OF THE SHARES. If the Offers
are not successful, funds managed by Providence Equity Partners Inc. alone, and
funds managed by Providence and funds managed by Primus Venture Partners Inc.
together, will continue indirectly to control Carrier1. Even if the Offers are
successful, Carrier One LLC, through which Providence and Primus hold their
interests in Carrier1, will remain Carrier1's largest shareholder. See
"Carrier1's Largest Shareholder". 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 interest, or
permit them to realize gains on their investment, in a manner that is not in the
financial interest of minority shareholders.
Providence and Primus, or their affiliates, currently have significant
investments in other telecommunications companies, and may in the future invest
in other entities engaged in the telecommunications business, some of which may
compete with Carrier1. Providence and Primus are under no obligation to bring
Carrier1 any investment or business opportunities of which they are aware, even
if 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.
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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 or shareholders 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
shareholders 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. See "Enforceability of Certain Civil Liabilities".
CARRIER1 IS SUBJECT TO A SUIT FOR DAMAGES, THE POTENTIAL IMPACT OF WHICH IS
UNKNOWN AT THIS TIME. Carrier1 has been named in a class action suit by certain
of its shareholders relating to the offering of its Shares in its initial public
offering. Carrier1 has insufficient information at this time to determine
whether such suit could have a material effect on Carrier1, but does not believe
the claims, as described in press accounts, have merit.
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SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary consolidated financial data for
Carrier1 and its consolidated subsidiaries as of and for the nine months ended
September 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 nine months ended September 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, June 30, 2001 and
September 30, 2001.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(AMOUNTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------------------
2001 2000 2000 1999
----------- ------------ ------------ -----------
(UNAUDITED)
Revenues............................. US$ 284,635 US$ 185,356 US$ 261,551 US$ 97,117
----------- ------------ ------------ -----------
Cost of services (exclusive of
amounts shown separately below).... 307,767 189,349 264,973 113,809
Selling, general and administrative
expenses........................... 66,859 25,502 39,596 18,369
Depreciation and amortization........ 48,040 22,580 33,445 13,849
Restructuring........................ 15,937 -- -- --
Impairment of long-lived assets...... 429,163 -- -- --
----------- ------------ ------------ -----------
Loss from operations................. (583,131) (52,075) (76,463) (48,910)
Other income (expense):
Interest income.................... 10,106 14,584 20,245 5,859
Interest expense................... (23,889) (23,893) (31,711) (29,475)
Other expense, net................. (37) (2) (2,147) (555)
Currency exchange loss, net........ (2,330) (26,132) (18,067) (15,418)
----------- ------------ ------------ -----------
Loss before income tax (expense)
benefit and extraordinary item..... (599,281) (87,518) (108,143) (88,499)
Income tax (expense) benefit--net of
valuation allowance................ (368) -- -- --
----------- ------------ ------------ -----------
Loss before extraordinary item....... (599,649) (87,518) (108,143) (88,499)
Extraordinary loss on early
extinguishment of debt............. -- (3,789) (3,789) --
----------- ------------ ------------ -----------
Net loss............................. US$(599,649) US$ (91,307) US$ (111,932) US$ (88,499)
=========== ============ ============ ===========
</Table>
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OTHER FINANCIAL DATA
(AMOUNTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
AS OF AND FOR THE AS OF AND FOR THE
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------- --------------------------
2001 2000 2000 1999
----------- ------------ ------------ -----------
(UNAUDITED)
EBITDA(1)............................ US$ (89,991) US$ (29,495) US$ (43,018) US$ (35,061)
Purchases of property and
equipment.......................... (170,117) (153,691) (221,308) (160,949)
Net cash (used in) provided by
operating activities............... (96,294) 10,756 (28,258) (77,895)
Net cash used in investing
activities......................... (39,321) (124,049) (381,801) (253,711)
Net cash provided by financing
activities......................... 12,415 562,023 566,240 353,450
BALANCE SHEET DATA:
Cash and cash equivalents............ US$ 36,342 US$ 453,355 US$ 162,162 US$ 28,504
Available-for-sale securities........ 83,510 -- 198,186 --
Restricted cash(2)................... 13,853 21,354 24,429 5,512
Restricted investments(2)............ -- 29,375 29,951 90,177
Total assets......................... 472,361 955,214 1,054,261 437,655
Total long-term debt................. 235,517 234,699 238,641 337,756
Shareholders' equity (deficit)....... (94,729) 520,381 525,104 (34,509)
</Table>
- ------------------------------
(1) All EBITDA numbers are unaudited. With respect to the figures reported for
the nine months ended September 30, 2000 and 2001, EBITDA stands for
earnings before interest, taxes, depreciation, amortization, restructuring,
impairment of long-lived assets, foreign currency exchange gains or losses,
other income (expense) and extraordinary items. With respect to the figures
reported for the years ended December 31, 1999 and 2000, 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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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information is
derived from Carrier1's interim unaudited consolidated financial information
included in Carrier1's Quarterly Report on Form 10-Q for the period ended
September 30, 2001. The accompanying unaudited pro forma consolidated balance
sheet information as of September 30, 2001 gives effect to the Offers as if they
were completed on that date. The accompanying unaudited pro forma consolidated
statements of operations for the nine months ended September 30, 2001 give
effect to the Offers as if they had occurred at the beginning of that period.
The pro forma financial information presented assumes that 100% of the Notes are
tendered and exchanged. The pro forma financial information also assumes a value
for the Shares based on the closing price of the Shares on the Neuer Markt on
September 28, 2001 of E0.80 per Share, equivalent to US$0.73 using the exchange
rate on such date of E0.909918 per US$1.00. The pro forma adjustments are based
upon available information and certain assumptions that Carrier1 believes are
reasonable under the circumstances.
The following unaudited pro forma consolidated financial information has
been presented for illustrative purposes only and does not purport (a) to
represent what Carrier1's results of operations or financial condition would
have actually been had the Offers in fact occurred at the date or for the
periods presented or (b) to project Carrier1's results of operations for any
future period or Carrier1's financial condition for any future date.
24
<Page>
PRO FORMA CONSOLIDATED BALANCE SHEET
(AMOUNTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
PRO FORMA
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
2001 ADJUSTMENTS 2001
------------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
ASSETS (1) (1)
Current Assets:
Cash and cash equivalents................................. US$ 36,342 US$ 0 US$ 36,342
Restricted cash........................................... 13,852 0 13,852
Restricted investments held in escrow..................... 0 0 0
Available-for-sale securities............................. 83,510 (52,924)(2) 30,586
Accounts receivable, net of allowance for doubtful
accounts of US$32,489................................... 88,272 0 88,272
Unbilled receivables...................................... 34,652 0 34,652
Value-added tax refunds receivable........................ 46,046 0 46,046
Prepaid expenses and other current assets................. 24,875 0 24,875
----------- ----------- -----------
Total current assets.................................... 327,550 (52,924) 274,626
Property and Equipment--Net................................. 121,512 0 121,512
Investment in Related Party................................. 1,820 0 1,820
Investment--Other........................................... 6 0 6
Other Assets................................................ 21,473 (7,704)(3) 13,769
----------- ----------- -----------
Total....................................................... US$ 472,361 US$ (60,629) US$ 411,732
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
Accounts payable.......................................... US$ 91,216 US$ 0 US$ 91,216
Accrued network costs..................................... 25,230 0 25,230
Accrued refile costs...................................... 44,489 0 44,489
Accrued interest.......................................... 3,931 (3,931)(4) 0
Accrued contract penalty charges.......................... 12,036 0 12,036
Restructuring reserve..................................... 11,280 0 11,280
Value-added tax payables.................................. 19,440 0 19,440
Other liabilities......................................... 13,281 4,408 (5) 17,689
Deferred revenue.......................................... 7,158 0 7,158
Short-term debt........................................... 1,489 0 1,489
----------- ----------- -----------
Total current liabilities............................... 229,550 477 230,027
Deferred Revenue............................................ 102,023 0 102,023
Long-Term Debt
Senior notes.............................................. 235,517 (235,517)(6) 0
----------- ----------- -----------
Total long-term debt.................................... 235,517 (235,517) 0
----------- ----------- -----------
Commitments and Contingencies
Total liabilities....................................... 567,090 (235,040) 332,050
----------- ----------- -----------
Shareholders' (Deficit) Equity(7)........................... (94,729) 174,412 (8) 79,683
Total....................................................... US$ 472,361 US$ (60,628) US$ 411,733
=========== =========== ===========
</Table>
- ------------------------------
(1) Reflects the pro forma presentation assuming that 100% in aggregate
principal amount of the Notes are tendered and exchanged.
(2) Represents the cash and investments used to purchase the Notes and the
accrued interest on the Notes through December 5, 2001 in accordance with
the Offers.
(3) Represents the release of the net unamortized financing costs incurred in
connection with the original issuance of the Notes.
(4) Represents the reversal of the accrued interest on the Notes.
(5) Represents the accrual for the transaction costs resulting from the 100%
tender and exchange of the Notes.
(6) Represents the repurchase of the book value of the Notes.
(7) On a pro forma basis, 71,425,466 Shares would have been issued and
outstanding as of September 30, 2001.
(8) Represents the net increase in issued and paid-in capital resulting from
issuance of common stock pursuant to the Offers and the net extraordinary
gain from the repurchase of the Notes offset by the release of the net
unamortized financing costs in connection with the original issuance of the
Notes.
25
<Page>
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
PRO FORMA
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
2001 ADJUSTMENTS 2001
-------------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(1) (1)
Revenues............................................ US$ 284,635 US$ 0 US$ 284,635
Operating expenses:
Cost of services (exclusive of items shown
separately below)............................... 307,767 0 307,767
Selling, general and administrative............... 66,859 0 66,859
Depreciation and amortization..................... 48,040 0 48,040
Restructuring..................................... 15,937 0 15,937
Impairment of long-lived assets................... 429,163 0 429,163
----------- ---------- -----------
Total operating expenses............................ 867,766 0 867,766
----------- ---------- -----------
Loss from operations................................ (583,131) 0 (583,131)
----------- ---------- -----------
Other income (expense):
Interest expense.................................. (23,889) 23,889 (2) 0
Interest income................................... 10,106 (1,727)(3) 8,379
Currency exchange (loss) gain, net................ (2,330) 0 (2,330)
Other, net........................................ (37) 0 (37)
----------- ---------- -----------
Total other income (expense)........................ (16,150) 22,162 6,012
----------- ---------- -----------
Loss before income tax (expense) benefit and
extraordinary item................................ (599,281) 22,162 (577,119)
Income tax (expense) benefit--Net of valuation
allowance......................................... (368) 0 (4) (368)
----------- ---------- -----------
Loss before extraordinary item...................... (599,649) 22,162 (577,487)
Extraordinary gain (loss) on early extinguishment of
debt--Net of US$0 tax benefit..................... 0 0 0
----------- ---------- -----------
Net loss............................................ US$(599,649) US$ 22,162 US$(577,487)
=========== ========== ===========
EARNINGS (LOSS) PER SHARE:
Loss before extraordinary item.................... (13.99) -- (8.09)
Extraordinary gain (loss)......................... -- -- --
Net loss.......................................... (13.99) -- (8.09)
Weighted average Shares............................. 42,862,000 28,550,000 (5) 71,412,000
</Table>
- ------------------------------
(1) Reflects the pro forma presentation assuming that 100% in aggregate
principal amount of the Notes are tendered and exchanged.
(2) Reflects the reduction in interest expense resulting from the 100% tender
and exchange of the Notes.
(3) Reflects the adjustment in interest income as a result of the net change in
cash and investments.
(4) Carrier1 believes that it has sufficient tax losses to offset the
extraordinary gain on the exchange of the Notes. As a result Carrier1 has
not made a provision for income taxes.
(5) Reflects the issuance of the 28,550,000 Shares resulting from the 100%
tender and exchange of the Notes and assuming no change in the number of
Shares issued and outstanding from December 20, 2001 to the Payment Date.
26
<Page>
CAPITALIZATION
The following table sets forth Carrier1's historical cash position and
capitalization as of September 30, 2001. The information set forth in the
following table should be read in conjunction with the financial statements
incorporated by reference in this Statement. The pro forma column gives effect
to the Offers assuming that 100% of the Notes are tendered in the Offers and
accepted and assuming no changes in the number of Shares issued and outstanding
between December 20, 2001 and the Payment Date. As a result, the pro forma
column gives effect to the issuance of 28,550,000 Shares and a reduction in cash
of US$52.9 million (including US$43.3 million to pay the cash portion of the
Purchase Price and US$9.6 million to pay the accrued and unpaid interest).
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2001 (UNAUDITED)
(AMOUNTS ARE REPRESENTED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE INFORMATION)
<Table>
<Caption>
AS OF SEPTEMBER 30, 2001
------------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Cash, Cash Equivalents, Restricted Cash and
Marketable Securities............................ US$ 133,705 US$ (52,924) US$ 80,781
Long Term Debt
13.25% Senior Euro Notes due 2009.................. 75,517 (75,517) 0
13.25% Senior Dollar Notes due 2009................ 160,000 (160,000) 0
----------- ----------- -----------
Total Long Term Debt............................. 235,517 (235,517) 0
Shareholders' Equity
Total Shareholders' Equity....................... (94,729) 174,412 (1) 79,683
Total Capitalization............................. US$ 140,788 US$ (61,105) US$ 79,683
=========== =========== ===========
</Table>
- ------------------------------
(1) Represents the net increase in issued and paid-in capital resulting from
issuance of common stock pursuant to the Offers and the net extraordinary
gain from the repurchase of the Notes offset by the release of the net
unamortized financing costs in connection with the original issuance of the
Notes.
27
<Page>
CARRIER1'S LARGEST SHAREHOLDER
The Company's largest shareholder is Carrier One LLC, which as of
December 20, 2001 held 28,272,087 Shares, representing approximately 65.9% of
the Shares issued and outstanding on that date. Assuming that 100% of the Notes
are tendered and are accepted for purchase in the Offers and assuming that
Carrier1 will issue 28,550,000 Shares pursuant to the Offers, Carrier One LLC's
Shares will represent approximately 39.6% of Carrier1's Shares issued and
outstanding after the consummation of the Offers.
Interests in Carrier One LLC are beneficially held by Providence Equity
Partners, L.P., Primus Capital Fund IV Limited Partnership and a number of
individuals affiliated with those entities and with Carrier1. For more
information concerning the beneficial ownership of Carrier One LLC, please see
"Item 12. Security Ownership of Certain Beneficial Owners and Management" in the
Annual Report.
It is a condition to the Offers that Carrier One LLC enter into the Deed.
Under the Deed, Carrier One LLC may not (i) Transfer any Shares held by it on
the Payment Date until the 90th day following the Payment Date, (ii) Transfer
more than one-third of the Shares held by it on the Payment Date until the 180th
day following the Payment Date or (iii) Transfer more than two-thirds of the
Shares held by it on the Payment Date until the 270th day following the Payment
Date; provided that Carrier One LLC may Transfer Shares in connection with or
after (x) the acquisition of Control of Carrier1 by a person or group of persons
acting in concert or (y) the merger or consolidation of Carrier1 with or into
any person.
In addition to placing certain restrictions on the ability of Carrier One
LLC to Transfer its Shares, the Deed will obligate Carrier One LLC (i) not to
nominate at any time more than two persons for the Board, (ii) to vote its
Shares and otherwise use its reasonable efforts to ensure that, so long as (x)
the Agreed Holders have collectively nominated a suitably qualified person to
become an Independent Director of the Board and (y) Carrier1 shall have approved
such person to be a member of the Board (such approval not to be unreasonably
withheld or delayed), such person shall have become a member of the Board within
60 days following the Payment Date, (iii) to vote its Shares and otherwise use
its reasonable efforts to effect a change in the composition of the Board such
that, within 60 days following the Payment Date, the Board is considered an
Independent Board and (iv) to vote its Shares and otherwise use its reasonable
efforts to ensure that from the 60th day following the Payment Date until the
365th day following the Payment Date the Board is considered an Independent
Board. The obligations described in clause (ii) above terminate on the 180th day
following the Payment Date. See "Certain Information Concerning Carrier1--The
Board".
28
<Page>
DESCRIPTION OF SHARE CAPITAL
Set forth below is a summary of certain information concerning Carrier1's
share capital and certain material provisions of Carrier1's Articles of
Incorporation and the Luxembourg Law on Commercial Companies in effect as of the
date of this Statement. This summary contains information that Carrier1
considers to be material regarding the share capital of Carrier1, but it does
not purport to be complete and is qualified in its entirety by reference to
Carrier1's Articles of Incorporation and the Luxembourg Law on Commercial
Companies.
As of December 20, 2001, Carrier1 had outstanding 42,883,039 Shares with a
par value of US$2.00, all of which had been paid in full, representing a
subscribed capital amount of US$85,766,078. As of December 20, 2001, there were
a total of 57,693 U.S. dollar warrants and 22,255 euro warrants exercisable at
US$2.00 per share for a total of 554,845 Shares. The U.S. dollar warrants and
euro warrants were initially offered as units with the Dollar Notes and Euro
Notes, respectively, but were subsequently detached from the Notes and now trade
separately.
The total authorized capital of Carrier1, including the outstanding
subscribed capital, is set at US$200,000,000, consisting of a total of
100,000,000 Shares, par value US$2.00. Pursuant to Carrier1's Articles of
Incorporation (the "Articles"), the Board has been authorized to issue further
Shares so as to bring the total capital of Carrier1 up to the total authorized
capital in whole or in part from time to time. The authorization lapses five
years after the publication in the Luxembourg official gazette of the amendment
to the Articles pursuant to which the authorized capital was increased, which
occurred at the extraordinary shareholders' meeting on June 13, 2000, and may be
renewed by shareholder vote at an extraordinary meeting. Assuming the exercise
of all outstanding warrants but no other changes to the number of issued and
outstanding Shares as of December 20, 2001 prior to the Payment Date, the issued
share capital of Carrier1 before consummation of the Offers would consist of
43,437,884 Shares (not including additional Shares issuable upon exercise of
options held by Carrier1's directors and employees).
Assuming that Carrier1's registrar or its equivalent reports that there are
42,883,039 Shares outstanding on the business day preceding the Expiration Date
and assuming an FX Rate of 0.909918, then, if 100% of the Notes are tendered and
accepted for purchase. Carrier1 will issue 28,550,000 Shares pursuant to the
Offers and there will be 71,433,039 Shares issued and outstanding (not including
Shares that are issuable pursuant to warrants or options) after consummation of
the Offers.
In the event that, prior to the Expiration Date, Carrier1 consummates any
Share splits, reverse Share splits or Share reclassifications, the number of
Shares to be issued as described above will be adjusted accordingly. In
addition, prior to the Payment Date, Carrier1 will not issue any Shares or any
securities convertible into Shares, other than pursuant to warrants outstanding
on the date of this Statement.
MEETINGS OF SHAREHOLDERS
Meetings of shareholders may be either ordinary or extraordinary. At
ordinary meetings, which do not currently require a quorum, shareholders can
decide on most matters, but they cannot decide matters that entail a
modification of the Articles. Only at extraordinary meetings, for which more
stringent quorum and majority conditions apply, can shareholders modify the
Articles. Among other things, a merger, liquidation or transformation of
Carrier1 into another form of company, increases (unless decided by the Board
within the limits of the authorized capital) or decreases of share capital or
issuance of a new class of shares would all require modification of the
Articles. A quorum of 50% and a vote of two-thirds of the Shares present or
represented are required to amend the Articles. If the quorum is not achieved,
however, then a second meeting may be called, at which no quorum is required.
29
<Page>
Carrier1 must hold a general meeting every year at the place and date
indicated in the Articles. This annual general shareholders' meeting is an
ordinary meeting. Annual general shareholders' meetings usually have on their
agenda the approval of the annual accounts and related issues, such as approval
of the management report prepared by the Board and of the report of the
statutory auditor, and the use of profits shown on the balance sheet, including
the distribution of dividends. See "--Dividends" and, for further details about
Carrier1's dividend policy, "Dividend Policy".
Ordinary and extraordinary shareholders' meetings may be called by the Board
or by the statutory auditor. The Board and the statutory auditor must convene a
meeting if requested in writing by shareholders representing at least 20% of the
subscribed capital of Carrier1.
VOTING AND QUORUM REQUIREMENTS
Matters brought before ordinary shareholders' meetings do not require a
quorum but must receive a majority of the votes cast to pass. Extraordinary
meetings, which are required to amend the Articles, require a quorum of at least
half of the outstanding shares and may only act with a vote of two-thirds of the
shares present. If the quorum condition is not fulfilled, however, a second
meeting with the same agenda may be called, for which the same two-thirds
majority condition applies but for which no quorum is required.
For purposes of Luxembourg law, a "change of nationality" of Carrier1 would
require approval by all the shareholders. Such a "change of nationality" would
typically consist of a permanent transfer of its registered office outside of
Luxembourg, but would not include a merger with a non-Luxembourg company in
which the non-Luxembourg company survives. An increase of any obligations of
shareholders set forth in the Articles would also require approval of all
shareholders affected.
DIRECTORS' LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS
Under Luxembourg law, civil liability of directors both to the company and
to third parties is generally considered to be a matter of public policy. It is
possible that Luxembourg courts would declare void an explicit or even implicit
contractual limitation on directors' liability to Carrier1. Carrier1, however,
can validly agree to indemnify the directors against the consequences of
liability actions brought by third parties (including shareholders if such
shareholders have personally suffered a damage which is independent of and
distinct from the damage caused to Carrier1). The Articles contain such an
agreement.
APPOINTMENT AND REMOVAL OF DIRECTORS
The Articles provide that directors are elected by the shareholders at a
general meeting for a maximum term of six years (except in case of a vacancy
where the Board may provisionally appoint a director to fill such a vacancy
until the next general meeting). Directors may be re-elected indefinitely for
further terms of up to six years. Under the Articles, a minimum of three
directors is required but there is no maximum unless so resolved by the
shareholders at a general meeting.
There are no restrictions in the Articles or under Luxembourg law as to
nationality, residence or professional qualifications for directors. There is no
age limit nor are directors required to retire by rotation. Directors may be
removed, at any time with or without cause, at any ordinary shareholders'
meeting.
POWERS OF THE BOARD
The Board has wide powers to perform all acts necessary or desirable for
accomplishing Carrier1's aims. The Board may delegate daily management to one or
more directors, officers, executives,
30
<Page>
employees or other persons, provided that any delegation to a member of the
Board has been previously authorized by the shareholders at a general meeting.
OFFICERS
Under Luxembourg law, an employee of Carrier1 can only be liable to Carrier1
for damages brought about by his or her willful acts or gross negligence. Any
arrangement providing for the indemnification of officers against claims of
Carrier1 would be contrary to public policy.
Employees are liable to third parties under general tort law and may enter
into arrangements with Carrier1 providing for indemnification against third
party claims. An indemnification arrangement can never cover a willful act or
gross negligence.
DIVIDENDS
Dividends may only be paid out of the distributable profits and unrestricted
reserves of Carrier1 as shown in Carrier1's audited accounts for the most
recently completed financial year, which would consist of the profit (if any)
for such year and retained earnings from prior years after deduction for losses
carried over from prior years and reserves required by law or the Articles. The
Luxembourg law on companies requires Carrier1 to set up a reserve equal to 10%
of the subscribed capital by allocating yearly at least 5% of its profits to the
reserve account until it reaches the 10% threshold. Since Carrier1 has not had
profits through September 30, 2001, it has not allocated any amount to the
reserve account to date.
Under Luxembourg law, the Board may pay interim dividends because the
Articles contain a specific provision to that effect. However, formal and
substantive requirements have to be met in order for Carrier1 to pay interim
dividends. These include a requirement that Carrier1 prepare financial
statements showing that funds are available for distribution. The amount of such
distribution may not (x) exceed the profits earned by Carrier1 since the end of
the last financial year for which the annual accounts have been approved by the
general shareholders' meeting PLUS (y) retained earnings and withdrawals from
unrestricted reserves and MINUS (z) carried-forward losses and amounts to be
mandatorily paid to a reserve account. No interim dividends may be paid out
during the first six months of Carrier1's accounting year nor before the
approval of the annual accounts of the previous accounting year by a general
shareholders' meeting.
Carrier1's statutory auditor must verify whether the conditions for the
payment of interim dividends are fulfilled.
If an interim dividend exceeds the dividend set by the shareholders at the
annual ordinary shareholders' meeting, the excess is deemed an advance payment
of the next dividend.
Dividends may be paid in U.S. dollars or in Shares or otherwise as the Board
may determine in accordance with Luxembourg law. Payment of any dividends will
be made to holders of Shares at their addresses in the register maintained by or
on behalf of Carrier1. Carrier1 has never declared or paid any dividends and
does not expect to do so in the foreseeable future. See "Dividend Policy".
Nonresidents of Luxembourg who hold Shares may be subject to Luxembourg
statutory withholding tax in respect of any cash dividends paid. See "Certain
Luxembourg Tax Considerations".
CAPITAL INCREASES; PRE-EMPTIVE RIGHTS
The subscribed capital and the authorized capital of Carrier1 may be
increased or reduced by the shareholders at a shareholders' meeting under the
same quorum and majority requirements applicable to an amendment of the
Articles. The Board may issue shares (up to the amount authorized by the
Articles) without shareholder approval, and, if so decided by the Board,
shareholders will have no
31
<Page>
pre-emptive rights in connection with such issuance. Holders of Shares
outstanding prior to the Offers will have no pre-emptive rights in connection
with the Offers.
In the event that pre-emptive rights are not disallowed by the Board, all
shareholders will be notified of the period during which preemptive rights may
be exercised, as determined by the Board. Under Luxembourg law, this period must
be at least 30 days. Pre-emptive rights are transferable and may be sold, prior
to exercise.
If the Offers are successful, then up to but not including the earlier to
occur of (i) the 180th day following the Payment Date, (ii) the appointment of a
majority of Independent Directors on the Board, (iii) the issuance of Shares in
a transaction involving the issuance of 10% or more of the outstanding Shares to
any person or group of persons acting in concert (other than to Providence
Equity Partners, L.P. or any of its Controlled affiliates), (iv) the acquisition
of Control of Carrier1 by a person or group of persons acting in concert and (v)
the merger or consolidation of Carrier1 with or into any person, the
then-existing shareholders of Carrier1 shall have pre-emptive rights over the
issuance by Carrier1 for cash of any Shares or any securities convertible into
Shares, other than pursuant to warrants and options outstanding on the date
hereof and any other options issued to employees and other than pursuant to
public offerings.
LIQUIDATION RIGHTS
The shareholders of Carrier1 may dissolve Carrier1 under the conditions
prescribed for modification of the Articles. If such dissolution were to occur,
Carrier1 would then be liquidated, and after payment of its debts or consignment
of the sums necessary to pay such debts, the shareholders would be entitled to
the remaining assets of Carrier1, in proportion to their holdings.
FORM AND TRANSFER OF SHARES
As a general matter under Luxembourg law, Shares may be issued in registered
or bearer form, at the option of the shareholder. As a result of an amendment to
the Articles approved by shareholders at the extraordinary meeting held on
June 13, 2000, Shares must be issued in registered form, unless the Board
determines otherwise.
The Shares to be issued pursuant to the Offers are subject to various
restrictions on transfer. See "Transfer Restrictions Applying to the Shares".
After such restrictions cease to apply, beneficial interests in the Shares will
be transferable in accordance with the rules and regulations of Clearstream,
Frankfurt. The Shares are also expected to be accepted for clearance through
Clearstream, Frankfurt, Euroclear and Clearstream Banking, SOCIETE ANONYME, or
Clearstream, Luxembourg and will be delivered in book-entry form through their
respective book-entry facilities. After such restrictions cease to apply, the
Shares may be credited at the option of Holders either to a German bank's
Clearstream, Frankfurt account or to the accounts of participants with Euroclear
or Clearstream, Luxembourg. Until listed on the Neuer Markt, the Shares issued
pursuant to the Offers will have a restricted security identification number
separate from those listed on the Neuer Markt in order to restrict this
transfer. See "Transfer Restrictions Applying to the Shares".
In general, title to Shares in bearer form passes by delivery of the
certificates evidencing the Shares. Transfers of registered Shares require
either (i) an inscription of the transfer in the share register of Carrier1
signed by the transferor and the transferee or their respective agents or
(ii) a notification of the transfer by the transferor or the transferee to
Carrier1 which in turn must record such transfer in the share register
maintained by it or on its behalf. Carrier1 or its registrar may also enter the
transfer in the register on the basis of correspondence or other documents that
establish the existence of an agreement between the transferor and the
transferee.
32
<Page>
It is generally held that contractual restrictions on the transfer of Shares
are legal provided they do not render the Shares inalienable for a prolonged
period of time. Currently, the Articles provide that, if the Board determines
that a proposed transfer of Shares would violate a restriction on transfer
agreed to by the owner of such Shares or its predecessor in interest and brought
to the attention of the Board, the Board may refuse to record such transfer in
the share register of Carrier1 (with a provision that such refusal will not
result in a situation where a shareholder is forced to continue to hold Shares
for an extended period of time).
33
<Page>
DIVIDEND POLICY
Carrier1 has never declared or paid dividends, and it does not expect to do
so in the foreseeable future. Carrier1 does not expect to generate any net
income in the foreseeable future, but anticipates that future earnings generated
from operations, if any, will be retained to finance the expansion and continued
development of its business. Subject to the declaration of interim dividends by
the Board, decisions to pay dividends may only be made by Carrier1's
shareholders acting at a shareholders' meeting. If Carrier1 were to pay
dividends, it would expect to pay them in either U.S. dollars or euros. Any cash
dividends payable to holders of Shares who are nonresidents of Luxembourg would
normally be subject to Luxembourg statutory withholding taxes. See "Certain
Luxembourg Tax Considerations". Any future determination with respect to the
payment of dividends on the Shares will depend upon, among other things,
Carrier1's earnings, capital requirements, the terms of then-existing
indebtedness, applicable requirements of Luxembourg corporate law, general
economic conditions and such other factors considered relevant by the Board.
MARKET AND TRADING INFORMATION
SHARE PRICE INFORMATION
Carrier1's Shares and ADSs have been traded on the Neuer Markt segment of
the Frankfurt Stock Exchange ("CJN") and the Nasdaq National Market ("CONE"),
respectively, since February 24, 2000, the date of Carrier1's initial public
offering. The listing rules of the Neuer Market require Carrier1 to arrange for
the Shares issued pursuant to the Offers to be listed on the Neuer Markt within
one year from the date of issuance. Carrier1 intends to arrange for the Shares
issued in the Offers to be listed on the Neuer Markt by the 90th day following
the Payment Date.
Carrier1 will deliver Shares and not ADSs pursuant to the Offers. Holders
who receive Shares pursuant to the Offers will not be able to deposit those
Shares under Carrier1's ADS scheme or receive ADSs.
The following table sets forth, for the periods indicated, the high and low
closing bid prices per Share in euros as reported on the Neuer Markt.
<Table>
<Caption>
HIGH LOW
-------- --------
E E
2000
First quarter................ 174 90
Second quarter............... 100.5 52
Third quarter................ 85 39
Fourth quarter............... 55.50 16.10
2001
First quarter................ 32.30 8.60
Second quarter............... 3.39 3.40
Third quarter................ 3.84 0.68
Fourth quarter(1)............ 2.35 0.72
</Table>
- ------------------------------
(1) The closing bid price for the Shares as reported on the Neuer Markt on
January 3, 2002, was E1.55.
34
<Page>
TRANSFER RESTRICTIONS APPLYING TO THE SHARES
By tendering its Notes, each Holder who tenders Notes pursuant to the Offers
agrees that it will not (i) Transfer any Shares issued pursuant to the Offers
until the 90th day following the Payment Date, (ii) Transfer more than one-third
of such Shares held by such Holder on the Payment Date until the 180th day
following the Payment Date or (iii) Transfer more than two-thirds of such Shares
held by such Holder on the Payment Date until the 270th day following the
Payment Date; provided that any such Holder may Transfer Shares in connection
with or after (x) the acquisition of Control of Carrier1 by a person or group of
persons acting in concert or (y) the merger or consolidation of Carrier1 with or
into any person; provided further that this restriction shall not apply to any
Shares held by the Holders other than those acquired pursuant to the Offers.
In addition, pursuant to a requirement of the Neuer Markt, by tendering
Notes, each Holder who tenders Notes agrees not to Transfer any Shares issued
pursuant to the Offers until such Shares are listed on the Neuer Markt. Shares
issued pursuant to the Offers will have a separate, restricted security
identification number until such Shares are listed on the Neuer Markt. Carrier1
intends to arrange for the Shares issued in the Offers to be listed on the Neuer
Markt by the 90th day following the Payment Date.
35
<Page>
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, Carrier1 is offering to purchase
for cash and Shares 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 and the Designated Euro Amount of Shares per E1,000 principal
amount of Euro Notes and, with respect to the Dollar Notes, US$182.50 and the
Designated Dollar Amount of Shares 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 in cash
through December 5, 2001.
The "Designated Euro Amount" equals the result, rounded to the nearest whole
number, of "A" multiplied by the FX Rate, where "A" equals:
<Table>
B
-------
(1-.40) - B
- ------------------------------------------------
(160,000 + (85,000 X FX Rate))
</Table>
and "B" equals the amount of Shares outstanding as of the business day preceding
the Expiration Date, as such amount is reported to Carrier1 by its share
registrar or equivalent. The "FX Rate" means the average of the spot euro to
U.S. dollar exchange rates in effect on each of the five trading days preceding
the Expiration Date. Such rates shall be the closing spot rates compiled by
JP Morgan FX Research department as quoted in The Wall Street Journal Europe,
or, if unavailable, the closing spot rates reasonably determined by Carrier1.
For example, such closing spot rate on December 20, 2001 was 0.897.
The "Designated Dollar Amount" equals "A" (as defined above), rounded to the
nearest whole number.
In the event that prior to the Expiration Date, Carrier1 consummates any
Share splits, reverse Share splits or Share reclassifications, the number of
Shares to be issued as described above will be adjusted accordingly.
Payment of the Purchase Price plus the interest through December 5, 2001 for
Notes validly tendered and accepted for purchase shall be made on the Payment
Date, which shall promptly follow the Expiration Date.
THE AGREED HOLDERS HAVE AGREED PURSUANT TO THE TENDER AND CONSENT AGREEMENT
TO TENDER (AND NOT WITHDRAW) CERTAIN NOTES THAT TOGETHER CONSTITUTE MORE THAN
50% OF THE PRINCIPAL AMOUNT OF THE EURO NOTES OUTSTANDING AND MORE THAN 50% OF
THE PRINCIPAL AMOUNT OF THE DOLLAR NOTES OUTSTANDING, AND THEREBY TO DELIVER
(AND NOT REVOKE) THEIR CONSENTS TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH
NOTES AS PROMPTLY AS PRACTICABLE BUT IN NO EVENT LATER THAN FIVE BUSINESS DAYS
FOLLOWING THE DATE OF THIS STATEMENT. THE TENDER AND CONSENT AGREEMENT MAY BE
TERMINATED BY CARRIER1 OR THE AGREED HOLDERS IF THE OFFERS ARE NOT CONSUMMATED
ON OR PRIOR TO MARCH 31, 2002. IN THE EVENT OF SUCH TERMINATION, THE AGREED
HOLDERS WILL NO LONGER BE OBLIGATED TO TENDER (AND NOT WITHDRAW) SUCH NOTES OR
TO DELIVER (AND NOT REVOKE) THEIR CONSENTS IN RESPECT OF SUCH NOTES. THE AGREED
HOLDERS HAVE ALSO AGREED NOT TO TAKE ANY ACTION, DIRECTLY OR INDIRECTLY, TO
ENFORCE, OR THAT MAY LEAD TO AN ENFORCEMENT OF, ANY REMEDIES FOR EVENTS OR
OCCURRENCES THAT (x) WOULD UNDER THE APPLICABLE INDENTURE CONSTITUTE AN EVENT OF
DEFAULT (AS DEFINED THEREIN) BUT (y) WOULD NOT UNDER THE APPLICABLE INDENTURE AS
AMENDED BY THE APPLICABLE SUPPLEMENTAL INDENTURE CONSTITUTE AN EVENT OF DEFAULT
(AS DEFINED THEREIN).
By tendering its Notes, each Holder who tenders Notes pursuant to the Offers
agrees not to (i) Transfer any Shares held by such Holder on the Payment Date
until the 90th day following the Payment Date, (ii) Transfer more than one-third
of the Shares held by such Holder on the Payment
36
<Page>
Date until the 180th day following the Payment Date or (iii) Transfer more than
two-thirds of the Shares held by such Holder on the Payment Date until the
270th day following the Payment Date; provided that any such Holder may transfer
Shares in connection with or after (x) the acquisition of Control of Carrier1 by
a person or group of persons acting in concert or (y) the merger or
consolidation of Carrier1 with or into any person; provided that this lock-up
restriction shall not apply to any Shares held by Holders other than those
acquired pursuant to the Offers. In addition, pursuant to a requirement of the
Neuer Markt, by tendering Notes, each Holder who tenders Notes agrees not to
Transfer any Shares issued pursuant to the Offers until such Shares are listed
on the Neuer Markt. Shares issued pursuant to the Offers will have a separate,
restricted security identification until such Shares are listed on the Neuer
Markt. Carrier1 intends to arrange for the Shares issued in the Offers to be
listed on the Neuer Markt by the 90th day following the Payment Date.
Carrier1 is also soliciting Consents to the Proposed Amendments to the
Indentures from Holders. Holders who validly tender Notes pursuant to the Offers
will be deemed to have delivered their Consents with respect to such Notes (and
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. See "--The Proposed Amendments".
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 related 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 are expected to occur promptly after the Expiration Date.
IF THE REQUISITE CONSENTS TO AMEND THE INDENTURES ARE RECEIVED AND THE
SUPPLEMENTAL INDENTURES BECOME OPERATIVE, THE PROPOSED AMENDMENTS WILL BE
BINDING ON ALL NON-TENDERING HOLDERS. 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. AS A RESULT OF THE TENDER AND
CONSENT AGREEMENT, CARRIER1 BELIEVES THAT THE REQUISITE CONSENTS WILL BE
RECEIVED. SEE "RISK FACTORS".
The Offer will expire at 11:59 p.m. New York City time, Friday, February 1,
2002, unless extended.
Carrier1'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, the Deed Condition and the Independent
Director Condition, and satisfaction or waiver of the General Conditions to the
Offers. Subject to applicable securities and other laws and the terms and
conditions set forth in this Statement and in the accompanying Consent and
Letter of Transmittal, Carrier1 reserves the right (i) to waive the General
Conditions to the Offers, (ii) to extend or terminate the Offers including,
without limitation, such extensions as may be due to delays relating to
procedural requirements or (iii) to otherwise amend the Offers in any respect.
See "--Conditions to the Offers". The rights reserved by Carrier1 in this
paragraph are in addition to Carrier1'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, Carrier1 shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to
37
<Page>
the Dow Jones News Service. The Tender and Consent Agreement may be terminated
by Carrier1 or the Agreed Holders if the Offers are not consummated on or prior
to March 31, 2002. In the event of such termination, the Agreed Holders will no
longer be obligated to tender (and not withdraw) certain Notes beneficially
owned by them or to deliver (and not revoke) their Consents in respect of such
Notes.
The issuance of the Shares for an in kind contribution of Notes will be
subject to, among other things, Articles 26-1 and 32-1(5) of the Luxembourg law
of August 10, 1915 on Commercial Companies, as subsequently modified. These
provisions require that a report on non-cash contributions be prepared by a
"REVISEUR D'ENTERPRISES" (an independent auditor) that shows that the value of
the contribution corresponds at least to the number and nominal value of the
shares and related share premium, if any, to be issued as consideration. The
Company expects the valuation of the non-cash contribution per Share to be at
least US$2, which is the current nominal value of each Share. However, should
the valuation be less than US$2 per Share, the Offers may need to be extended to
facilitate the issuance of Shares or terminated if the Shares may not be issued.
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, the Deed Condition, the Independent Director Condition and
satisfaction or waiver of the General Conditions, be accepted for purchase by
the Company.
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 for the Notes. 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 applicable,
from which such Notes were delivered) unless otherwise requested by such Holder
under "Special Delivery Instructions" in the Consent and Letter of Transmittal.
Carrier1 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.
By tendering its Notes in the Offers, each tendering Holder agrees to waive
(i) any and all causes of action and other claims, to the extent they have
arisen prior to the Payment Date, against Carrier1, any of its affiliates, or
any past or present director, officer, employee or shareholder of Carrier1 under
or relating to the Notes, except any such claims for fraud under Notes not
tendered pursuant to the Offers and (ii) any and all causes of action and other
claims of any nature not related to the Notes, to the extent they have arisen
prior to the Payment Date, against any past or present director, officer,
employee or shareholders of Carrier1, except any such claims for fraud.
38
<Page>
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 4.03 LIMITATION ON INDEBTEDNESS. This provision currently
restricts the ability of Carrier1 and its subsidiaries to
incur certain indebtedness.
SECTION 4.04 LIMITATION ON RESTRICTED PAYMENTS. This provision currently
restricts the ability of Carrier1 and its subsidiaries to
make certain payments, such as dividends, or engage in
certain investments.
SECTION 4.05 LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES. This provision currently
restricts the ability of Carrier1 and its subsidiaries to
permit or incur encumbrances on the ability of its
subsidiaries to pay dividends, pay indebtedness, make loans
or advances to Carrier1 or Carrier1's subsidiaries or
transfer property or assets to Carrier1 or Carrier1's
subsidiaries.
SECTION 4.06 LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF
RESTRICTED SUBSIDIARIES. This provision currently restricts
the ability of Carrier1 and its subsidiaries to permit or
incur encumbrances on the ability of its subsidiaries to
issue or sell capital stock of its subsidiaries.
SECTION 4.07 LIMITATION ON THE ISSUANCES OF GUARANTEES BY RESTRICTED
SUBSIDIARIES. This provision currently restricts the
ability of Carrier1 and its subsidiaries to guarantee
indebtedness of Carrier1 that is subordinate to or ranks
PARI PASSU with the Euro or Dollar Notes, as applicable,
without also guaranteeing Carrier1's obligations under the
Euro or Dollar Notes, as applicable.
SECTION 4.08 LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND
AFFILIATES. This provision currently restricts the ability
of Carrier1 and its subsidiaries to enter into transactions
with shareholders of more than 5% of Carrier1's capital
stock or affiliates or with any affiliate of Carrier1 or its
subsidiaries without meeting certain requirements.
SECTION 4.09 LIMITATION ON LIENS. This provision currently restricts the
ability of Carrier1 and its subsidiaries to incur or assume
certain liens.
SECTION 4.10 LIMITATION ON SALE--LEASEBACK TRANSACTIONS. This provision
currently restricts the ability of Carrier1 and its
subsidiaries to enter into certain sale-leaseback
transactions.
SECTION 4.11 LIMITATIONS ON ASSET SALES. This provision currently
restricts the ability of Carrier1 and its subsidiaries from
selling certain of its or their assets.
SECTION 4.12 REPURCHASE OF NOTES UPON A CHANGE OF CONTROL. This
provision currently obligates Carrier1, within 30 days of a
change of control (as defined in the Indentures), to offer
to purchase all outstanding Euro 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>
39
<Page>
DELETION OF MERGER RESTRICTION. The Proposed Amendments would delete in
their entirety subparagraphs (ii), (iii) (iv) and (iv) of Section 5.01 of each
of the Indentures, as well as the events of default related to such
subparagraphs. Subparagraph (ii), (iii), (iv) and (v) of Section 5.01 currently
impose certain restrictions upon mergers, consolidations and similar
transactions involving Carrier1. The Proposed Amendments would also revise
subparagraph (i) of Section 5.01 of each of the Indentures, which currently
provides that any survivor or successor corporation following any such merger,
consolidation or similar transaction may be organized under the laws of certain
specified jurisdictions. The revision would permit any such survivor or
successor corporation to be organized under the laws of any jurisdiction.
DELETION OF CERTAIN EVENTS OF DEFAULT. The Proposed Amendments would delete
in their entirety paragraphs (d), (e), (f), (g) and (h) of Section 6.01 and
portions of Section 6.02 of each of the Indentures. Paragraph (d) currently
provides that a breach of any covenant or agreement not relating to payment
obligations in the applicable Indenture shall, after a 30-day grace period,
constitute an Event of Default under such indenture. Paragraph (e) currently
provides that certain events of default, or failure to make certain payments,
with respect to certain other indebtedness of Carrier1 or certain of its
subsidiaries, shall constitute an Event of Default under such Indenture.
Paragraph (f) currently provides that certain judgments against Carrier1 or
certain of its subsidiaries shall constitute an Event of Default under such
Indenture. Paragraph (g) currently provides that certain court rulings with
respect to bankruptcy, insolvency or similar proceedings brought against
Carrier1 or certain of its subsidiaries will constitute an Event of Default.
Paragraph (h) provides that the voluntary initiation by Carrier1 or certain of
its subsidiaries of bankruptcy, insolvency, administration, a general assessment
for the benefit of creditors or similar actions will constitute an Event of
Default. Section 6.02 provides, among other things, for certain consequences
relating to the Events of Default described in paragraphs (d), (e), (f),
(g) and (h) of Section 6.01 and the Proposed Amendments would eliminate such
references to paragraphs (d), (e), (f), (g) and (h) of Section 6.01 from
Section 6.02 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.
OTHER ASPECTS OF THE PROPOSED AMENDMENTS. 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 the Indentures have been
received, Carrier1 and the Trustee will effect the Proposed Amendments to the
Indentures 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, Carrier1 will accept for
purchase, and will pay the Purchase Price for, all Notes validly tendered (and
not withdrawn) pursuant to the Offers on or prior to the Expiration Date. Such
payment plus payment of accrued and unpaid interest through December 5, 2001
will be made by the deposit by Carrier1 with the Depositary
40
<Page>
of the Purchase Price plus such interest in immediately available funds and in
Shares as promptly as practicable 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 Carrier1
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 Carrier1 by reason of any delay on behalf of the Depositary in making
such payment.
Carrier1 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 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) either (x) a properly completed and duly executed Consent and Letter of
Transmittal (or a manually signed facsimile thereof) and, if applicable, an
Agent's Message (as defined hereinafter) from DTC or (y) 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 Carrier1 if, as and when Carrier1 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.
Carrier1 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 Carrier1's obligation to purchase the Notes
pursuant to the Offers 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 Carrier1
accept for purchase, and pay for, all Notes, as applicable, validly tendered
(and not withdrawn) pursuant to the Offers. See "--Conditions to the Offers".
DELIVERY OF SHARES
The Shares issued pursuant to the Offers will only be delivered in
book-entry form to accounts with participants in Clearstream, Frankfurt,
Clearstream, Luxembourg or Euroclear through their respective book-entry
facilities. All Holders of Notes, validly tendered, whether through Euroclear,
Clearstream or DTC, and accepted for purchase by Carrier1 will receive delivery
of Shares through Clearstream, Frankfurt, Clearstream, Luxembourg, or Euroclear.
THE SHARES ISSUED PURSUANT TO THE OFFERS WILL NOT BE DELIVERED THROUGH THE
BOOK-ENTRY FACILITIES OF DTC. HOLDERS OF NOTES THROUGH DTC MUST CAREFULLY FOLLOW
THE PROCEDURES SET FORTH BELOW UNDER "--PROCEDURES FOR TENDERING
NOTES--TENDERING NOTES HELD THROUGH DTC" IN ORDER TO RECEIVE THE SHARES
DELIVERED THROUGH CLEARSTREAM, FRANKFURT, CLEARSTREAM, LUXEMBOURG OR EUROCLEAR.
41
<Page>
Shares issued pursuant to the Offers will, until the Shares are listed on
the Neuer Markt, be subject to certain restrictions on Transfer. These Shares
will have a separate, restricted security identification. In addition, by
tendering their Notes, Holders will agree to certain other restrictions on their
ability to transfer the Shares. See "Transfer Restrictions Applying to the
Shares".
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, EXCEPT FOR NOTES DELIVERED
AFTER THE EXPIRATION DATE PURSUANT TO THE GUARANTEED DELIVERY PROCEDURE.
CARRIER1 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
TRANSMITTED THROUGH THE DTC AUTOMATED TENDER OFFER PROGRAM ("ATOP"), FOR WHICH
THIS TRANSACTION WILL BE ELIGIBLE (EXCEPT FOR DELIVERY OF SHARES, AS EXPLAINED
HEREINAFTER), 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.
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 Carrier1) will constitute a
binding agreement between such Holder and Carrier1 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 in
respect of such Notes 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 TENDER EFFECTIVELY NOTES AND THEREBY
DELIVER CONSENTS IN RESPECT OF SUCH NOTES THAT ARE HELD THROUGH DTC, ALL DTC
PARTICIPANTS MUST 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. Those holders who wish to receive the cash portion of the Purchase
Price and the accrued and unpaid interest through ATOP, or for other reasons
wish to use ATOP, should in addition, electronically transmit their
42
<Page>
acceptance (and thereby tender Notes) through ATOP, for which the transaction
will be eligible (except for delivery of Shares, as explained hereinafter). Upon
receipt of such Holder's acceptance through ATOP, DTC will edit and verify the
acceptance and send an Agent's Message to the Depositary for its acceptance. If
tendering Notes, the Holder must deliver Notes to the Depositary pursuant to the
book-entry delivery procedures set forth below or the procedures set forth below
for tendering Notes in physical form or 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.
THE SHARES EXCHANGED FOR THE NOTES WILL NOT BE DELIVERED THROUGH DTC'S
BOOK-ENTRY FACILITIES (EVEN IF SUCH NOTES WERE HELD AND TENDERED THROUGH DTC),
BUT INSTEAD THROUGH THE BOOK-ENTRY FACILITIES OF CLEARSTREAM, FRANKFURT,
CLEARSTREAM, LUXEMBOURG, OR EUROCLEAR. SEE "--DELIVERY OF SHARES" ABOVE. EACH
HOLDER OF NOTES HELD THROUGH DTC MUST COMPLETE THE CONSENT AND LETTER OF
TRANSMITTAL TO PROVIDE ACCOUNT DETAILS WITH A PARTICIPANT IN CLEARSTREAM,
FRANKFURT, CLEARSTREAM, LUXEMBOURG OR EUROCLEAR, WHETHER (X) FOR THE DELIVERY OF
SHARES AND THE CASH PORTIONS OF THE PURCHASE PRICE AND THE ACCRUED AND UNPAID
INTEREST THROUGH DECEMBER 5, 2001, OR (Y) ONLY FOR THE DELIVERY OF SHARES (IF
THE CASH IS TO BE PAID BY CHECK OR THROUGH THE DTC BOOK-ENTRY FACILITY). Copies
of the Consent and Letter of Transmittal can be obtained for no charge from the
Information Agent at the address set forth on the back cover of this Statement.
Except with respect to Notes tendered using the guaranteed delivery
procedure, 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 and, in the case of a tender through
DTC's ATOP system, a properly transmitted Agent's Message), Carrier1 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.
Special considerations for Euro Notes held through DTC are discussed below
under the heading "Tender of Euro Notes Held Through DTC".
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, and, if applicable, an Agent's Message in connection with
a book-entry transfer, and any other required documents, must, in any case, be
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. 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, in the case
of acceptance through ATOP, 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 that
Carrier1 may enforce such agreement against such participants.
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TENDER OF EURO NOTES HELD THROUGH DTC. For Euro Notes held through DTC, the
procedures specified above under the heading "Tender of Notes Held Through DTC"
must be followed. However, payment of the cash portion of the Purchase Price and
accrued and unpaid interest for any such Euro Notes 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 (in the
case of a tender through DTC's ATOP system, 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, and thereby deliver Consents in
respect of such Notes, 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
and thereby deliver Consents 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.
The Shares and the cash portion of the Purchase Price and accrued and unpaid
interest will be delivered through the book-entry facilities of Euroclear and
Clearstream as applicable. See "--Delivery of Shares".
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 Carrier1, the Information Agent or the
Trustee.
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.
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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, Inc. 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 and thereby deliver Consents in respect of such 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: JPMorgan
Chase 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: JPMorgan Chase
Bank, Trinity Tower, 9 Thomas More Street, London E1W 1YT, U.K., Attention:
Andrew Dellow.
GUARANTEED DELIVERY PROCEDURE. If a Holder desires to tender Notes pursuant
to the Offers and thereby deliver Consents in respect of such Notes 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/or 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 of such Notes)
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 Carrier1 herewith, or an Agent's
Message with respect to guaranteed delivery that is accepted by
Carrier1, is received by the Depositary on or prior to the Expiration
Date as provided below; and
(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 and, if applicable, 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.
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UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY CARRIER1 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 THROUGH DECEMBER 5, 2001
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, and, if applicable, 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 Notes tendered
pursuant to any of the procedures described above will be determined by Carrier1
in Carrier1's sole discretion (whose determination shall be final and binding).
Carrier1 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 Carrier1's counsel, be unlawful. Carrier1 also
reserves the absolute right, in its sole discretion, subject to applicable law,
to waive or amend the General Conditions 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.
Carrier1'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 Carrier1, the Depositary, 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 Carrier1 waives its right to reject a defective
tender of Notes, the Holder will be entitled to the Purchase Price and accrued
and unpaid interest through December 5, 2001.
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 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, 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 Carrier1, in its sole discretion, to constitute a material
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adverse change to the Holders, Carrier1 promptly will disclose such amendment
and, if necessary, extend the Offers for a period deemed by Carrier1 to be
adequate to permit Holders of the Notes to withdraw their Notes. In addition,
Carrier1 may, if it deems appropriate, extend the Offers for any other reason.
If Carrier1 makes a material change in the terms of the Offers or the
information concerning them, Carrier1 will disseminate additional materials and
extend the Offers to the extent required by law. If the Purchase Price is
increased or decreased or the amount of accrued and unpaid interest is increased
or decreased or the principal amount of Notes subject to the Offers is
decreased, the Offers will remain open at least ten business days from the date
Carrier1 first gives notice to Holders, by public announcement or otherwise, of
such increase or decrease. In addition, Carrier1 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 Carrier1 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 Carrier1's rights hereunder, tendered Notes may be
retained by the Depositary on behalf of Carrier1 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.
The Agreed Holders have agreed not to withdraw tenders of Notes made in
accordance with the Tender and Consent Agreement.
ALL QUESTIONS AS TO THE VALIDITY, FORM AND ELIGIBILITY OF NOTICES OF
WITHDRAWAL (INCLUDING TIME OF RECEIPT) OF NOTES WILL BE DETERMINED BY CARRIER1,
IN ITS SOLE DISCRETION (WHOSE DETERMINATION SHALL BE FINAL AND BINDING). NONE OF
CARRIER1, THE DEPOSITARY, 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) Carrier1's rights to extend and/or amend the Offers,
Carrier1 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, the Deed
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Condition, the Independent Director Condition or the General Conditions (as
defined herein) shall not have been satisfied or (in the case of the General
Conditions) waived. The Company may not waive the Minimum Tender Condition, the
Supplemental Indenture Condition, the Deed Condition or the Independent Director
Condition. The Minimum Tender Condition will have been satisfied if a majority
in aggregate principal amount of each of the Euro Notes and Dollar Notes have
been tendered (and not withdrawn) on or prior to the Expiration Date. The
Independent Director Condition will have been satisfied if, on the Expiration
Date, the composition of the Board is such that there are three or fewer
directors on the Board who are not Independent Directors. Each of the
Supplemental Indenture Condition and the Deed Condition will have been satisfied
if the Supplemental Indentures and the Deed, respectively, 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) Carrier1 after consultation with appropriate advisors or otherwise 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, stock exchange listing rule, executive order, decree, or
judgment of any court, or terms of any contract or agreement, to which
Carrier1 or any of its 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
Carrier1's judgment, could (i) prohibit or impose any material limitations
on Carrier1's ownership or operation (or that of their respective
subsidiaries or affiliates) of all or a material portion of its business or
assets, (ii) make the acceptance for purchase of, or payment for, some or
all of the 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 Carrier1 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 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 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
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(6) a tender or exchange offer with respect to some or all of the 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, and 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 the
outstanding Shares, or any new group shall have been formed that
beneficially owns more than 5% of the outstanding Shares, except insofar as
such transaction is contemplated by the Offers.
The foregoing General Conditions are for the sole benefit of Carrier1 and
may be asserted by Carrier1 in its sole discretion, regardless of the
circumstances giving rise to any such condition (including any action or
inaction by Carrier1) and may be waived by Carrier1, in whole or in part, at any
time and from time to time, in the sole discretion of Carrier1 and to the extent
permitted by law, whether any other condition of the Offers is also waived. The
failure by Carrier1 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
Assuming that Carrier1's registrar or its equivalent reports that there are
42,883,039 Shares outstanding on the business day preceding the Expiration Date
and assuming an FX Rate of 0.909918, if 100% of the Notes are tendered and
accepted for purchases, then the aggregate cash portion of the Purchase Price
will be approximately US$43.3 million. In addition, each tendering Holder whose
Notes are accepted for purchase will receive accrued and unpaid interest on its
Notes through December 5, 2001. The aggregate amount of such interest, assuming
an FX Rate of 0.909918, is approximately US$9.6 million.
THE INFORMATION AGENT AND THE DEPOSITARY
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.
JPMorgan Chase 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.
Carrier1 will pay 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. Carrier1 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. Under no
circumstances will Carrier1 or its affiliates pay or give any commission or
other remuneration, directly or indirectly, for soliciting the exchange of Notes
for Shares contemplated by the Offers.
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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 ownership and
disposition of the Shares received in the Offers. 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, 10% or greater shareholders of Carrier1, 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 in this section, "Certain U.S. Federal
Income Tax Considerations", a "Holder" means a beneficial owner of a Note that
for United States federal income tax purposes is (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 and Share
payments pursuant to the Offers will be accepted by the IRS or, if challenged,
by a court.
THE OFFERS
DOLLAR NOTES. A Holder will recognize interest income with respect to
payments of accrued interest on the Dollar Notes, provided the Holder did not
previously include such interest income.
A Holder whose Dollar Notes are exchanged pursuant to the Offers will not
recognize loss on the exchange, but may recognize gain up to the amount of cash
received in the exchange that is not related to interest, to the extent that the
fair market value of the Shares plus cash not used to pay accrued interest
exceeds the Holder's adjusted tax basis of the Dollar Notes exchanged. A Holder
will receive a tax basis in the Shares equal to the Holder's adjusted tax basis
in the Dollar Notes exchanged for the Shares less the excess of the amount of
cash received in the exchange over any gain recognized in the exchange. The
Holder's holding period for the Shares will include the period that the Holder
held the Dollar Notes.
Any gain or loss recognized by a Holder will be long-term capital gain or
loss if the Holder has held the Notes as capital assets for more than one year.
However, under the market discount rules, any gain recognized by a Holder will
be ordinary income to the extent of the accrued market discount that has not
previously been included in income.
EURO NOTES. A Holder will recognize interest income with respect to
payments of accrued interest on the Euro Notes, provided the Holder did not
previously include such interest income. A Holder that
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previously included accrued interest in income may recognize exchange gain or
loss with respect to the payment of such interest based upon the Holder's method
of translating accrued interest.
Subject to the discussion below regarding exchange gain or loss, a Holder
whose Euro Notes are exchanged pursuant to the Offers will not recognize loss on
the exchange, but may recognize gain up to the amount of cash received in the
exchange that is not related to interest, to the extent that the fair market
value of the Shares plus cash not used to pay accrued interest exceeds the
Holder's adjusted tax basis of the Euro Notes exchanged. A Holder will receive a
tax basis in the Shares equal to the Holder's adjusted tax basis in the Euro
Notes exchanged for the Shares less the excess of the amount of cash received in
the exchange over any gain recognized in the exchange. The Holder's holding
period for the Shares will include the period that the Holder held the Euro
Notes.
Any gain or loss recognized by a Holder will be long-term capital gain or
loss if the Holder has held the Notes as capital assets for more than one year.
However, under the market discount rules, any gain recognized by a Holder will
be ordinary income to the extent of the accrued market discount that has not
previously been included in income.
A Holder generally will recognize foreign currency gain or loss on the
principal amount of the Euro Note equal to the difference between (i) the U.S.
dollar value of the Holder's purchase price for the Euro Note at the spot rate
on the date of sale and (ii) the U.S. dollar value of the Holder's purchase
price for the Euro Note at the spot rate on the date the Holder acquired the
Euro Note. This foreign currency gain or loss will be taxable as U.S. source
ordinary income or loss, and will be recognized regardless of otherwise
applicable nonrecognition provisions in respect of the exchange (such as the
provisions relating to recapitalizations in general), but only to the extent of
the total gain or loss realized on the exchange.
DEEMED CONSENT PAYMENTS
It is possible that the IRS could assert that part of the 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.
Carrier1 believes 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. 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
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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% 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.
SHARES
GENERAL. A Holder receiving a distribution on Shares generally will be
required to include such distribution in gross income as a taxable dividend to
the extent such distribution is paid from the current or accumulated earnings
and profits of Carrier1 as determined under U.S. federal income tax principles.
Distributions in excess of the earnings and profits of Carrier1 generally will
first be treated, for U.S. federal income tax purposes, as a nontaxable return
of capital to the extent of the Holder's basis in the Shares and then as gain
from the sale or exchange of a capital asset, provided that the Shares
constitutes a capital asset in the hands of the Holder. Dividends received on
the Shares by U.S. corporate shareholders will not be eligible for the corporate
dividends received deduction.
A Holder will be entitled to claim a foreign tax credit with respect to
income received from Carrier1 only for foreign taxes (such as withholding
taxes), if any, imposed on dividends paid to such Holder, and not for taxes, if
any, imposed on Carrier1 or on any entity in which Carrier1 has made an
investment. For so long as Carrier1 is a "United States-owned foreign
corporation," distributions with respect to the Shares that are taxable as
dividends generally will be treated as foreign source passive income (or, for
Holders that are "financial service entities" as defined in the Treasury
Regulations, financial service income) or U.S. source income for U.S. foreign
tax credit purposes, in proportion to the earnings and profits of Carrier1 in
the year of such distribution allocable to foreign and U.S. sources,
respectively. For this purpose, Carrier1 will be treated as a United
States-owned foreign corporation so long as stock representing 50% or more of
the voting power or value of Carrier1 is owned, directly, or indirectly, by
"United States persons." The rules relating to foreign tax credits are extremely
complex, and Holders should consult their own tax advisors with regard to the
availability of a foreign tax credit and the application of the foreign tax
credit to their particular situation.
With certain exceptions, gain or loss on the sale or exchange of Shares will
be treated as U.S. source capital gain or loss (if such Shares is held as a
capital asset). Such capital gain or loss will be long-term capital gain or loss
if the Holder has held the Shares for more than one year at the time of the sale
or exchange.
Various provisions contained in the Code impose special taxes in certain
circumstances on U.S. or foreign corporations and their stockholders. The
following is a summary of certain provisions which could have an adverse impact
on Carrier1 and the Holders.
PERSONAL HOLDING COMPANY. A corporation that is a personal holding company
("PHC") is subject to an additional tax (at a floating rate; currently 39.1%) on
its undistributed personal holding company income (generally, U.S. taxable
income with certain adjustments, reduced by distributions to shareholders). A
corporation which is neither a foreign personal holding company nor a passive
foreign investment company (each of which is discussed below) generally is a PHC
if (i) more than 50% of the
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stock of which measured by value is owned, directly or indirectly (taking into
account certain ownership attribution rules), by five or fewer individuals
(without regard to their citizenship or residence) and (ii) which receives 60%
or more of gross income, as specifically adjusted, from certain passive sources.
For purposes of this gross income test, a foreign corporation generally only
includes taxable income derived from U.S. sources or income that is effectively
connected with a U.S. trade or business.
More than 50% of the outstanding shares of Carrier1, by value, may be
currently treated as owned (through attribution) by five or fewer individuals.
Carrier1 anticipates, however, that neither it nor its foreign subsidiaries
should be classified as a PHC. In addition, since it is anticipated that
Carrier1's U.S. subsidiaries will derive most or all of their income from
non-passive sources, Carrier1 further believes that none of such subsidiaries
will satisfy the foregoing income test and, thus, will not be classified as a
PHC. While Carrier1 currently believes that neither it nor any of its
subsidiaries would be classified as a PHC, it is possible that Carrier1 or one
or more of its subsidiaries would meet the foregoing income test and would
qualify as a PHC for that year. Carrier1 intends to manage its affairs and the
affairs of its subsidiaries so as to attempt to avoid or minimize the imposition
of the personal holding company tax, to the extent consistent with its other
business goals.
FOREIGN PERSONAL HOLDING COMPANY. In general, if Carrier1 or any of its
foreign corporate subsidiaries were to be classified as a foreign personal
holding company ("FPHC"), the undistributed foreign personal holding company
income (generally, taxable income with certain adjustments) of Carrier1 or such
subsidiary would be imputed to all of the Holders who were deemed to hold
Carrier1's stock or the stock of such subsidiary on the last day of its taxable
year. Such income would be taxable to such persons as a dividend, even if no
cash dividend were actually paid. Holders who dispose of their Shares prior to
such date generally would not be subject to tax under these rules. If Carrier1
were treated as an FPHC, Holders who acquire Shares from decedents would, in
certain circumstances, be denied the step-up of the income tax basis for such
Shares to fair market value at the date of death which would otherwise have been
available and instead would have a tax basis equal to the lower of the fair
market value or the decedent's basis.
A foreign corporation will be classified as an FPHC if (i) five or fewer
individuals, who are U.S. citizens or residents, directly or indirectly (taking
into account certain ownership attribution rules), own more than 50% of the
corporation's stock (measured either by voting power or value) (the "stockholder
test") and (ii) the corporation receives at least 60% of its gross income
(regardless of source), as specifically adjusted, from certain passive sources
(the "income test"). After a corporation becomes an FPHC, the income test
percentage for each subsequent taxable year is reduced to 50%.
Five or fewer individuals who are U.S. citizens or residents currently may
be treated as owning (through attribution) a beneficial interest of more than
50% of the voting power of the outstanding Shares of Carrier1 and its foreign
corporate subsidiaries for purposes of the FPHC rules, and Carrier1 accordingly
believes that the stockholder test may be met on a going forward basis. Carrier1
believes, however, that neither Carrier1 nor its foreign corporate subsidiaries,
should be classified as a FPHC because Carrier1 and each of the subsidiaries
should not satisfy the foregoing income test.
While Carrier1 currently believes that neither it nor any of its foreign
corporate subsidiaries would be classified as an FPHC, it is possible that
Carrier1 or one or more of such subsidiaries would meet the foregoing income
test in a given taxable year and would qualify as a FPHC for that year. If
Carrier1 concludes that it or any of its foreign corporate subsidiaries would be
classified as an FPHC for any profitable taxable year, Carrier1 intends to
manage its affairs and the affairs of the subsidiaries so as to attempt to avoid
or minimize having income imputed to the U.S. shareholders under these rules, to
the extent such management of its affairs is consistent with its other business
goals.
PASSIVE FOREIGN INVESTMENT COMPANY. In general, a foreign corporation is a
"passive foreign investment company" ("PFIC") if either (i) 75% or more of its
gross income constitutes "passive income" or (ii) 50% or more of the average
value of its assets produce passive income or are held for
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the production of passive income. Carrier1 intends to manage its affairs and the
affairs of its subsidiaries so as to attempt to avoid or minimize the chances
that Carrier1 will be classified as a PFIC, to the extent consistent with its
other business goals.
If Shares held by a Holder were treated as shares of a PFIC, such Holder
would be subject to a special tax and an interest charge at the time of the
disposition of such Shares. The special tax is computed by assuming that the
gain, if any, with respect to the Shares was earned in equal portions throughout
the holder's period of ownership. The portion allocable to each year prior to
the year of the disposition is taxed as ordinary income at the maximum marginal
tax rate applicable for each such period. The interest charge is imposed on the
amount of the special tax in each such prior year that is deemed to arise from
the allocation of the gain to such prior year and is charged at the applicable
rates imposed on underpayments of U.S. federal income tax for the period
commencing on the due date of the tax return for each prior period and ending on
the due date of the tax return for the year of the gain. These rules would also
apply to the receipt of an "excess distribution" with respect to shares of
Shares. In general, a shareholder of a PFIC is treated as having received an
excess distribution to the extent that the amount of the distribution is more
than 125% of the average annual distributions with respect to its shares during
the three preceding taxable years (or shorter period during which the taxpayer
held the shares).
If Carrier1 were a PFIC, Holders who acquire Shares from the decedents could
be denied the step-up of the income tax basis for such Shares or warrants which
would otherwise have been available.
Under certain circumstances, a shareholder of a PFIC may elect to treat a
PFIC as a "qualified electing fund" (a "QEF"), in which case the electing
shareholder would generally not be subject to the special tax rules discussed
above. Instead, the electing shareholder would include in its income each year
its pro rata share of the PFIC's ordinary earnings and net capital gain, whether
or not distributed. If Carrier1 determines that it is a PFIC, Carrier1 will
provide the requisite information to a shareholder upon reasonable request of
such shareholder to enable such shareholder to make the "QEF" election if the
shareholder so desires.
Holders should consult their own tax advisers as to the effect of the PFIC
rules (including the proposed regulations and the deemed sale election discussed
above) on the ownership, sale or other disposition of the Shares.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to dividends on
the Shares and the proceeds of sales of the Shares in respect of Holders other
than certain exempt persons (such as corporations). A backup withholding tax
will apply to such payments if the Holder fails to provide a correct taxpayer
identification number or certification of exempt status or, with respect to
certain payments, the Holder fails to report income and the IRS notifies the
payor of such under-reporting.
Any amounts withheld under the backup withholding rules will be allocated as
a credit against such Holder's U.S. federal income tax liability and may entitle
such Holder to a refund, provided the required information is furnished to the
IRS.
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CERTAIN LUXEMBOURG TAX CONSIDERATIONS
The following discussion is for general information only. Each holder is
strongly urged to consult with its own tax consultants to determine possible
Luxembourg tax consequences of a purchase of Shares.
The following summary outlines certain Luxembourg tax consequences to
persons who are non-residents of Luxembourg and who do not have a permanent
establishment in Luxembourg ("Non-Resident Holders") with respect to the
ownership and disposition of Shares. It does not examine tax consequences to
residents or to some extent, former residents.
Non-Resident Holders of Shares are not liable for Luxembourg tax on capital
gains on any such Shares; provided, however, that if they hold more than 10% of
the share capital of Carrier1, they are subject to tax on capital gains on the
disposal of Shares held for not more than six months. Such tax may be reduced or
eliminated pursuant to tax treaties to which Luxembourg is a party.
Dividends paid on Shares to Non-Resident Holders are subject to a
withholding tax of 20%. Under certain circumstances, European Union Non-Resident
Holders may benefit from an exemption of withholding tax. Reductions of the
withholding rate may also be provided by tax treaties. In the case of the
current tax treaty between Luxembourg and the United States, the withholding tax
is reduced to 15% or less, provided that the holder is entitled to claim treaty
benefits.
No inheritance tax is payable by a Non-Resident Holder of Shares except if
the deceased holder was a resident of Luxembourg at the time of death.
The issuance of Shares will result in the levy of a capital duty payable by
Carrier1 of 1% of the higher of the fair market value of the contribution in
kind or the nominal value of the Shares issued. See "Purpose of the Offers".
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Carrier1 is a SOCIETE ANONYME organized under the laws of the Grand Duchy of
Luxembourg. Carrier1 is a holding company that conducts its operations primarily
through other European companies. In addition, certain members of the Board and
substantially all its executive officers are residents of countries other than
the United States. A substantial portion of Carrier1's assets and the assets of
such non-resident persons are located outside the United States. As a result, it
may not be possible to:
- effect service of process within the United States upon Carrier1 or such
persons; or
- enforce against Carrier1 or such persons in U.S. courts judgements
obtained in U.S. courts predicated upon civil liability provisions of the
federal securities laws of the United States.
There is doubt as to whether the courts of Luxembourg would recognize
jurisdiction of the U.S. courts in respect of judgments obtained in U.S. courts
in actions against Carrier1 or such directors and officers and as to whether
Luxembourg courts would enforce judgments of U.S. courts predicated upon the
civil liability provisions of the U.S. federal or state securities laws. There
is also doubt as to whether Luxembourg courts would admit original actions
brought under the U.S. securities laws. In addition, certain remedies available
under the U.S. federal or state laws may not be admitted or enforced by
Luxembourg courts on the basis of being contrary to Luxembourg's public policy.
There can be no assurance that investors will be able to enforce any judgment
against Carrier1, members of the board or Carrier1's executive officers,
including any such judgment under the U.S. securities laws.
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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. A Holder may also contact such Holder's broker, dealer, commercial
bank or trust company or nominee for assistance concerning the Offers.
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:
JPMORGAN CHASE BANK
------------------------
JPMorgan Chase 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
After 5:00 p.m. New York City time on the Expiration Date,
Attention: William Potes
FACSIMILE:
(212) 946-8172
or
JPMorgan Chase 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