<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON D.C. 20549

                                   FORM 20-F
(Mark One)

[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
     EXCHANGE ACT OF 1934

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1999

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

     FOR THE TRANSITION PERIOD FROM           TO

                        COMMISSION FILE NUMBER 333-59979
                      VERSATEL TELECOM INTERNATIONAL N.V.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                THE NETHERLANDS
                (JURISDICTION OF INCORPORATION OR ORGANIZATION)

  PAALBERGWEG 36,1105 BV AMSTERDAM ZUIDOOST, THE NETHERLANDS, +31 20 750 1000
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
           American Depositary Shares, each representing one ordinary share, par
           value NLG 0.05 per share
           Ordinary shares, par value NLG 0.05 per share

SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      none

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT:
           $225,000,000 13 1/4% Senior U.S. Dollar Notes due 2008
           $150,000,000 13 1/4% Senior U.S. Dollar Notes due 2008
           $180,000,000 11 7/8% Senior U.S. Dollar Notes due 2009
           E120,000,000 11 7/8% Senior Euro Notes due 2009

INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT:

               Ordinary shares issued and outstanding: 79,224,986

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
                              Yes  X      No  ___
Indicate by check mark which financial statement item the Registrant has elected
to follow:

                          Item 17 ___      Item 18  X

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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Introduction and Exchange Rate Information..................   ii
Cautionary Statement for Purposes of the "Safe Harbor"
            Provisions of the United States Private
            Securities Litigation Reform Act of 1995........   iv
                              PART I
ITEM 1:   DESCRIPTION OF BUSINESS...........................    1
                 Overview...................................    1
                 Business Strategy..........................    2
                 Recent Developments........................    3
                 Our Network................................    5
                 Products and Services......................    8
                 Sales and Marketing........................   10
                 Customers..................................   11
                 Customer Service...........................   11
                 Billing and Information Systems............   12
                 Minority Holdings..........................   12
                 Competition................................   13
                 Regulation.................................   13
                 Intellectual Property......................   19
                 Employees..................................   19
                 VersaPoint.................................   20
                 Certain Risks Which May Affect Our
                Business....................................   23
ITEM 2:   DESCRIPTION OF PROPERTY...........................   35
ITEM 3:   LEGAL PROCEEDINGS.................................   36
ITEM 4:   CONTROL OF REGISTRANT.............................   36
ITEM 5:   NATURE OF TRADING MARKET..........................   37
ITEM 6:   EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
            SECURITY HOLDERS................................   38
ITEM 7:   TAXATION..........................................   38
ITEM 8:   SELECTED FINANCIAL DATA...........................   52
ITEM 9:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS.............   53
ITEM 9A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
            MARKET RISK.....................................   61
ITEM 10:  DIRECTORS AND OFFICERS OF REGISTRANT..............   62
ITEM 11:  COMPENSATION OF DIRECTORS AND OFFICERS............   65
ITEM 12:  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
            SUBSIDIARIES....................................   65
ITEM 13:  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS....   66
                             PART II
ITEM 14:  DESCRIPTION OF SECURITIES TO BE REGISTERED........   67
                             PART III
ITEM 15:  DEFAULTS UPON SENIOR SECURITIES...................   67
ITEM 16:  CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR
            REGISTERED SECURITIES...........................   67
                             PART IV
ITEM 17:  FINANCIAL STATEMENTS..............................   67
ITEM 18:  FINANCIAL STATEMENTS..............................   67
ITEM 19:  FINANCIAL STATEMENTS AND EXHIBITS.................   68
Appendix A -- Glossary......................................  A-1
</TABLE>

                                        i
<PAGE>   3

                   INTRODUCTION AND EXCHANGE RATE INFORMATION

     VersaTel Telecom International N.V. is a company with limited liability
(naamloze vennootschap) organized under the laws of The Netherlands. Its
principal executive offices are located at Paalbergweg 36, 1105 BV
Amsterdam-Zuidoost, The Netherlands and its telephone number is +31 20 750 1000.
Unless the context otherwise requires in this Annual Report on Form 20-F (the
"Annual Report"), the terms the "Company," "VersaTel," "our company", "we" and
"us" refer to VersaTel Telecom International N.V. and its subsidiaries as a
combined entity, except where it is made clear that such term means only the
parent company.

     VersaTel's financial statements that form part of this Annual Report are
presented in Dutch guilders and are prepared in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP").

     References to "U.S. dollars" or "$" are to United States dollars,
references to "Dutch guilders" or "NLG" are to the currency of The Netherlands,
references to "Belgian francs" or "BEF" are to the currency of Belgium,
references to "Deutsche marks" and "DEM" are to the currency of Germany and
references to "euros" or "E" are to the common currency of certain participating
member states of the European Union. Solely for the convenience of the reader,
we translate certain Dutch guilder amounts into U.S. dollars at specified rates.
These translations should not be construed as representations that the Dutch
guilder amounts actually represent such U.S. dollar amounts or could be
converted into U.S. dollars at the rate indicated or at any other rate. Unless
otherwise indicated, the translations of Dutch guilders into U.S. dollars have
been made at NLG 2.19 per $1.00, the noon buying rate in the City of New York
for cable transfers in Dutch guilders as certified for customs purposes by the
Federal Reserve Bank of New York ("Noon Buying Rate") on December 31, 1999. On
March 17, 2000, the Noon Buying Rate was NLG 2.27 per $1.00.

DUTCH GUILDERS TO U.S. DOLLARS

     The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for Dutch guilders expressed in
Dutch guilders per U.S. dollar through December 31, 1998 and, for periods
thereafter, the exchange rate of Dutch guilders per U.S. dollar (calculated
based on the Noon Buying Rate for euro). On December 31, 1999, the exchange rate
for Dutch guilders per U.S. dollar (calculated based on the Noon Buying Rate of
euro per U.S. dollar on such date) was NLG 2.19 per $1.00.

<TABLE>
<CAPTION>
                                                                           PERIOD
                        PERIOD                           HIGH    LOW     AVERAGE(1)    PERIOD END
                        ------                           ----    ----    ----------    ----------
<S>                                                      <C>     <C>     <C>           <C>
1995...................................................  1.75    1.52       1.60          1.60
1996...................................................  1.76    1.61       1.69          1.73
1997...................................................  2.12    1.73       1.95          2.03
1998...................................................  2.09    1.81       1.98          1.88
1999...................................................  2.20    1.87       2.08          2.19
2000 (through March 17)................................  2.31    2.13       2.27          2.27
</TABLE>

---------------

(1)  The average of the Noon Buying Rates on the last day of each full month
     during the period.

     Netherlands law does not impose restrictions that would affect the
remittance of dividend or other payments to nonresident holders of the ordinary
shares or any other foreign exchange controls. Fluctuations in the exchange rate
between the Dutch guilder and the U.S. dollar in the past are not necessarily
indicative of fluctuations that may occur in the future.

BELGIAN FRANCS TO U.S. DOLLARS

     The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for Belgian francs expressed in
Belgian francs per U.S. dollar through December 31, 1998 and, for periods
thereafter, the exchange rate of Belgian francs per U.S. dollar (calculated
based on the Noon Buying Rate for euro). On December 31, 1999, the exchange rate
for Belgian francs per U.S. dollar (calculated based on the

                                       ii
<PAGE>   4

Noon Buying Rate of euro per U.S. dollar on such date) was BEF 40.06 per $1.00.
The exchange rate of the Luxembourg franc to the U.S. dollar is the same as that
of the Belgian franc to the U.S. dollar.

<TABLE>
<CAPTION>
                                                                           PERIOD
                        PERIOD                           HIGH    LOW     AVERAGE(1)    PERIOD END
                        ------                           ----    ----    ----------    ----------
<S>                                                      <C>     <C>     <C>           <C>
1995...................................................  32.14   27.94     29.47         29.43
1996...................................................  32.27   29.50     30.97         31.71
1997...................................................  38.82   31.76     35.81         37.08
1998...................................................  38.50   33.19     36.31         34.36
1999...................................................  40.28   34.15     38.14         40.06
2000 (through March 17)................................  42.20   39.03     41.59         41.61
</TABLE>

---------------

(1)  The average of the Noon Buying Rates on the last day of each full month
     during the period.

     Fluctuations in the exchange rate between the Belgian franc and the U.S.
dollar in the past are not necessarily indicative of fluctuations that may occur
in the future.

DEUTSCHE MARKS TO U.S. DOLLARS

     The table below sets forth, for the periods and dates indicated, certain
information concerning the Noon Buying Rates for Deutsche marks expressed in
Deutsche marks per U.S. dollar through December 31, 1998 and, for periods
thereafter, the exchange rate of Deutsche marks per U.S. dollar (calculated
based on the Noon Buying Rate for euro). On December 31, 1999, the exchange rate
for Deutsche marks per U.S. dollar (calculated based on the Noon Buying Rate of
euro per U.S. dollar on such date) was DEM 1.94 per $1.00.

<TABLE>
<CAPTION>
                                                                           PERIOD
                        PERIOD                           HIGH    LOW     AVERAGE(1)    PERIOD END
                        ------                           ----    ----    ----------    ----------
<S>                                                      <C>     <C>     <C>           <C>
1995...................................................  1.56    1.36       1.43          1.43
1996...................................................  1.57    1.44       1.51          1.54
1997...................................................  1.88    1.54       1.74          1.80
1998...................................................  1.85    1.64       1.76          1.67
1999...................................................  1.95    1.66       1.85          1.94
2000 (through March 17)................................  2.05    1.89       2.02          2.02
</TABLE>

---------------

(1)  The average of the Noon Buying Rates on the last day of each full month
     during the period.

     Fluctuations in the exchange rate between the Deutsche mark and the U.S.
dollar in the past are not necessarily indicative of fluctuations that may occur
in the future.

U.S. DOLLARS TO EURO

     Each of The Netherlands, Belgium, Luxembourg and Germany has adopted the
euro as of January 1, 1999. The table below sets forth, for the periods and
dates indicated, certain information concerning the Noon Buying Rates for euros
expressed in U.S. dollars per euro. On December 31, 1999, the exchange rate for
U.S. dollars per euro (calculated based on the Noon Buying Rate of U.S. dollar
per euro for such date) was $1.01 per E1.00.

<TABLE>
<CAPTION>
                                                                           PERIOD
                        PERIOD                           HIGH    LOW     AVERAGE(1)    PERIOD END
                        ------                           ----    ----    ----------    ----------
<S>                                                      <C>     <C>     <C>           <C>
First Quarter 1999.....................................  1.18    1.07       1.11          1.08
Second Quarter 1999....................................  1.08    1.03       1.04          1.03
Third Quarter 1999.....................................  1.08    1.01       1.06          1.06
Fourth Quarter 1999....................................  1.09    1.00       1.02          1.01
First Quarter 2000 (through March 17)..................  1.03    0.96       0.97          0.97
</TABLE>

---------------

(1)  The average of the Noon Buying Rates on the last day of each full month
     during the period.

     Fluctuations in the exchange rate between the euro and the U.S. dollar in
the past are not necessarily indicative of fluctuations that may occur in the
future.

                                       iii
<PAGE>   5

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE UNITED
            STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     This Annual Report contains forward-looking statements within the meaning
of the U.S. Private Securities Litigation Reform Act of 1995. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about us, including, among other things:

     -  our anticipated expansion plans for our network and growth strategies,

     -  our expectations about the impact of our expansion plans on our revenue
        potential, cost basis and margins,

     -  our ability to compete, both nationally and internationally,

     -  our intention to introduce new products and services, and

     -  anticipated trends and conditions in our industry, including regulatory
        reform and the liberalization of telecommunications services in Europe.

     In light of these risks, uncertainties, and assumptions, the
forward-looking events discussed in this Annual Report might not occur.
Important factors that could cause actual results to differ materially from
expectations reflected in such forward-looking statements ("cautionary
statements") are disclosed in this Annual Report, including, without limitation,
in conjunction with the forward-looking statements included in this Annual
Report and under "Risk Factors". All subsequent written and oral forward-looking
statements attributable to the company, its subsidiaries or persons acting on
their behalf are expressly qualified in their entirety by the cautionary
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Given these considerations, readers are cautioned not to
place undue reliance on such forward-looking statements.

                                       iv
<PAGE>   6

                                     PART I

                        ITEM 1:  DESCRIPTION OF BUSINESS

OVERVIEW

     We are a rapidly growing, competitive communications network operator in
our target market of the Benelux and Northwest Germany. We are a leading
alternative to the former monopoly telecommunications carriers in these regions.
Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services, to customers in our target market. We provide high-quality,
competitively priced telecommunications, data and Internet services to four
targeted market segments:

     -  Business Services -- small- and medium-sized businesses located
        throughout our target market.

     -  Local Access Services -- high bandwidth users within our target market
        located near to and who may be directly connected with our network.

     -  Data Services -- high bandwidth data customers with multiple sites
        throughout our target market.

     -  Carrier Services -- other telecommunications, data and Internet service
        providers.

     We recently reorganized certain of our Internet activities into a separate
business unit and appointed a new senior management team recruited primarily
from UUNet to manage these activities. This unit, VersaTel Internet, will focus
primarily on the small business and residential Internet market across Western
Europe. VersaTel Internet will provide broadband Internet connectivity through
DSL to deliver business-rich content, applications and simple web hosting to the
small business market. VersaTel Internet will also provide consumer oriented
content and Internet access. It will consist of:

     -  Zon -- one of the largest residential ISP/portals in The Netherlands
        with over 400,000 subscribers.

     -  VuurWerk -- a leading web hosting company in The Netherlands targeting
        small- and medium-sized businesses with over 12,000 web hosting
        customers and 35,000 domain name registrations.

     -  CS Net -- a business-to-business e-commerce facilitator.

     -  ITinera -- a Belgian web-hosting company and ISP.

     -  24hours -- a business ISP/portal and Application Service Provider
        ("ASP").

     We believe this reorganization will maximize our ability to accelerate our
customer growth, develop our content and provide application services in order
to capitalize swiftly on opportunities in the rapidly growing European Internet
market. We believe our 50% stake in VersaPoint (described below) will provide us
significant competitive advantages in providing DSL broadband access to both
business and residential customers. We will continue to develop proprietary
content, purchase content, and seek partnerships to create new content.

     We recently announced plans to create a new company with NorthPoint
Communications to deliver digital subscriber line (DSL) services across Western
Europe. This new company, VersaPoint, will combine NorthPoint's DSL network
deployment and operations expertise with our established broadband local access
network, DSL operations in the Benelux and Germany, and local market and
regulatory experience in Europe. We believe that our relationship with
VersaPoint will help us accelerate our ability to offer DSL services to
customers in all of our target markets.

     Our fully integrated broadband network provides end-to-end connectivity to
our customers. Our network has been designed to pass through all the major
population and business centers in the Benelux and to connect city centers,
business parks and buildings along its route. We believe that our recent German
acquisitions along with the continued expansion of our network in Germany will
further our ability to provide local access services to German customers. Our
network's design consists of three fully integrated elements:

                                        1
<PAGE>   7

     -  Backbone Infrastructure -- multiple, integrated fiber optic rings
        connecting major population and business centers in our target market.

     -  Local Access Infrastructure -- high bandwidth fiber optic and radio
        connectivity to customers along our network route.

     -  International Infrastructure -- fiber optic rings connecting our network
        with points of presence in London, Dusseldorf, Frankfurt and Paris.

     As of December 31, 1999, approximately 1,499 kilometers of fiber-ready duct
in the Benelux has been constructed and we now have in service four self-healing
rings consisting of approximately 1,370 kilometers of fiber. We have completed
construction of a total of 13 business park rings and 3 city rings representing
over 110 kilometers of operational local access fiber.

     As of December 31, 1999, we had over 30,000 customers and over 900
employees. Our revenues grew from NLG 39.6 million for the year ended December
31, 1998 to NLG 129.0 million for the year ended December 31, 1999. After giving
pro forma effect to the acquisitions of Svianed and VEW Telnet our revenues
would have been NLG 197.3 for the year ended December 31, 1999.

BUSINESS STRATEGY

     Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services to customers in our target market. The principal elements of our
strategy are:

     -  CONTINUE TO EXPAND OUR BROADBAND NETWORK.  We intend to continue to
        expand our fully integrated broadband network to allow us to provide
        voice, data and Internet services to an increasing number of customers
        throughout our target market. We have designed our network to pass the
        major points of interconnection of other service providers and to
        connect to major Internet exchanges. In addition, we have started
        constructing the infrastructure to connect local-access customers in the
        Benelux to our network. We believe that the extension of our network to
        include Northwestern Germany will give us the ability to connect local
        access customers in this market to our network. We are also deploying
        the latest network technologies, such as IP over DWDM (dense wave
        division multiplexing) and DSL services. We intend to continue to
        identify and implement the most advanced technologies in order to
        maximize the capacity of our network and to expand our service
        offerings.

     -  MAINTAIN FOCUS ON TARGETED CUSTOMER SEGMENTS.  We believe the recent
        formation of our Internet division and our VersaPoint joint venture with
        NorthPoint Communications will allow our senior management to maintain
        focus on the operations of our core business by letting a separate group
        of senior managers concentrate on opportunities presented by the growth
        of the Internet and DSL services sectors. We have continued and will
        continue to tailor our network, sales, support and products to meet the
        needs of the small- and medium-sized business and high bandwidth users
        along our network within our target market.

     -  EXPAND DSL SERVICES.  We plan to generate additional revenue and traffic
        on our network by offering high speed, high capacity DSL data and
        Internet access service to business customers and to residential
        customers through our new Internet unit. We believe that our
        relationship with VersaPoint will help us to accelerate our ability to
        offer DSL services to customers in our target market as well as reduce
        the operating costs and capital expenditures associated with providing
        such services. We also plan to generate additional revenue by leasing
        our network to VersaPoint whenever possible to provide it with
        transmission capacity to link VersaPoint's DSL equipment located at
        "central offices" leased by VersaPoint from local PTTs. We believe the
        VersaPoint joint venture will capture a portion of the pan-European
        market DSL opportunity as well as accelerate our entrance into the
        German market.

     -  EXPAND INTERNET ACTIVITIES.  We plan to increase our Internet activities
        and pursue new initiatives in the Internet services area, primarily
        through our newly formed Internet division. This division will be
        managed by a separate team of executives, some of which have been
        recruited from MCI Worldcom's

                                        2
<PAGE>   8

       Internet subsidiary, UUNet. We believe this reorganization will maximize
       our ability to accelerate our customer growth, develop our content, and
       provide application services in order to capitalize on opportunities in
       the rapidly growing European Internet market.

     -  DEVELOP BROADBAND WIRELESS AND MOBILE INITIATIVES.  We intend to develop
        a presence in the Wireless Local Loop and third generation Mobile, or
        Universal Mobile Telecommunications Systems ("UMTS") activities that
        will be introduced in our target market by participating in the expected
        auction of licenses to provide such services. We believe that, if we are
        successful in this effort, a wireless product offering will be a
        valuable asset in serving our customers' needs.

     -  FOCUS ON SUPERIOR CUSTOMER SERVICE.  We strive to maintain a competitive
        advantage by providing superior customer service in terms of
        responsiveness, accuracy and quality. We believe that our target market
        has been particularly underserved by the PTTs and that providing a high
        level of customer service is a key element to attracting and retaining
        customers. We were one of the first communications companies in our
        target market to provide detailed monthly billing statements and monthly
        call management reports. We intend to continue investing in our customer
        care and operational support systems to enable us to maintain a
        competitive advantage.

     -  PURSUE SELECTIVE ACQUISITIONS AND STRATEGIC RELATIONSHIPS.  We plan to
        continue to acquire or enter into partnerships with other
        telecommunications, data and Internet service providers in order to
        accelerate the growth of our customer base, our network and our service
        portfolio. We have established a presence in Northwest Germany through
        our recent acquisition of VEW Telnet and expect to extend our presence
        in this region upon the completion of our pending acquisition of KomTel.
        In addition, through our formation of VersaPoint, we believe that we
        have established a means to eventually offer DSL services to customers
        throughout our target market. We will continue to pursue additional
        strategic relationships and selective acquisitions which will serve to
        accelerate the growth of or augment our existing operations.

RECENT DEVELOPMENTS

PENDING ACQUISITION OF KOMTEL

     On March 15, 2000 we announced that we had reached a definitive agreement
to purchase 80% of the outstanding common shares of KomTel, a leading
alternative fiber network operator in the Schleswig-Holstein and Hamburg regions
of Northern Germany, from the electric utility company, Stadtwerke Flensburg
GmbH and other shareholders.

     Under the agreement, we have agreed to pay E 61.6 million in cash and will
repay at closing or assume approximately E 13.0 million of existing debt.
Stadtwerke Flensburg will retain a 20% interest in KomTel until 2002 at which
point we have an option to purchase and Stadtwerke Flensburg has the right to
sell, the remaining 20% for E 15.4 million.

     We believe our acquisition of KomTel, together with our recent acquisition
of VEW Telnet, will allow us to further develop our German operations in a
region with a population of 4.5 million and more than 150,000 addressable
businesses. At December 31, 1999, KomTel had more than 3,000 business customers,
38,000 Internet customers and 160 employees.

     Through KomTel, we will gain access to 1,078 km of fiber optic network,
(most of which is leased) containing an average of 32 fibers. KomTel also
operates in 27 central office locations and VersaTel expects KomTel to connect
an additional 39 central office sites to its network by the end of 2000.

VERSAPOINT

     On March 8, 2000, we entered into a joint venture agreement with NorthPoint
Communications Group, Inc., a provider of high-speed, local data network
services in the United States, to form a new company, VersaPoint. VersaPoint
intends to rapidly deploy DSL equipment and sell DSL services on a wholesale
basis to Internet Service Providers and communications companies throughout the
Benelux and Northwest Germany, and

                                        3
<PAGE>   9

eventually across Western Europe. Pursuant to the joint venture agreement, we
have agreed to purchase DSL services, when available, from VersaPoint, and
VersaPoint has agreed to lease lines, when available, from VersaTel. VersaTel
also has agreed to allow VersaPoint to install its DSL equipment in more than 50
central office locations in The Netherlands and Germany and to allow VersaPoint
to lease VersaTel's existing transmission lines in those areas. NorthPoint has
agreed to provide VersaPoint with certain management services to implement
VersaPoint's strategy. We expect that VersaPoint will launch its services by the
end of the third quarter of 2000. By purchasing DSL services from VersaPoint, we
believe we will accelerate our ability to offer DSL services to business and
residential customers throughout our target market.

24HOURS

     On March 6, 2000, we launched "24hours", a Dutch language business
ISP/portal. 24hours targets the rapidly growing small- and medium-sized business
market in The Netherlands. 24hours has rights to certain exclusive content
provided by Elsevier Bedrijfsinformatie, a division of Reed Elsevier, including
content from its business publication FEM/De Week, one of the leading Dutch
weekly financial magazines. In addition to providing internet access and
business rich content, we expect that 24hours will also become an Application
Service Provider ("ASP") to the business market in The Netherlands by the end of
the third quarter of 2000.

VERSATEL INTERNET

     We recently reorganized our Internet activities into a separate business
unit and appointed a new senior management team recruited primarily from UUNet
to manage these activities. This business unit, VersaTel Internet, will focus
primarily on the small business and residential Internet markets. It will
consist of Zon, one of the largest residential ISP/portals in The Netherlands
with over 400,000 subscribers; VuurWerk, a leading web hosting company in The
Netherlands for the small business market with over 12,000 web hosting customers
and 35,000 domain name registrations; CS Net, a leading business-to-business
e-commerce facilitator; ITinera, a leading Belgian web hosting company and ISP;
and 24hours, our new Dutch language business ISP/portal.

ACQUISITION OF VEW TELNET

     On December 1, 1999 we acquired VEW Telnet, a competitive network operator
in the Northwest Rhine region of Germany, from VEW Energie, a German power
company. As a result of this acquisition we now provide voice, data and Internet
services to approximately 4,400 business customers in one of the highest density
areas of Europe. VEW Telnet's 1,300 km fiber optic network which is leased for a
term of 30 years from VEW Energie will be directly connected to our network by
the end of the first quarter, 2000. It consists of an STM-16 ring and 7 STM-4
rings with over 160 SDH nodes/points-of-presence and seven points of
interconnection with Deutsche Telekom. These rings are being upgraded to STM-64
and STM-16, respectively, this year. We also have obtained the right to use VEW
Energie's power network rights-of-way when VEW Energie expand their own network.
VEW Telnet had revenues of DEM 19.5 million for the financial year ended
December 31, 1998 and of DEM 40.0 million for the financial year ended December
31, 1999, including the period from December 1, 1999 to December 31, 1999 during
which VEW Telnet was a subsidiary of ours.

     VEW Telnet's assets include 36 co-location sites at Deutsche Telekom MDF
locations in the Northwest Rhine region of Germany. Voice, data and Internet
services provided by VEW Telnet over Deutsche Telekom unbundled lines are
growing rapidly, with over 20,000 voice grade equivalent lines in service at the
end of February 2000. We intend to expand the number of MDF sites in service
rapidly to cover approximately 40% of the business customers in the Northwest
Rhine region of Germany to over 130 sites by the end of 2000 and approximately
80% of businesses with 325 MDF sites by the end of 2001. These sites will be
connected initially with leased lines from both Deutsche Telekom and local city
operators. Most connections will be replaced with fiber to be constructed by VEW
Telnet. In addition, we have entered into a 12-month telecommunications services
contract with them with an additional five year "right of last offer" provision.

                                        4
<PAGE>   10

ZON

     We launched Zon on August 31, 1999, as a residential ISP/portal, along with
our marketing and distribution partners Radio 538, a leading commercial radio
station in The Netherlands among 15 to 35 year olds, and Free Record Shop, a
leading music retail chain in The Netherlands. VersaTel currently owns 90% of
the issued and outstanding share capital of Zon and Radio 538 and Free Record
Shop own 10%, collectively, with an option to acquire an additional 10% of Zon's
share capital based on certain performance incentives. Free Record Shop and
Radio 538 are providing marketing and distribution support for Zon's products.

     As of December 31, 1999, Zon provided Internet service to more than 275,000
subscribers. For the month ended December 31, 1999, Zon customers generated over
80.9 million terminating minutes for VersaTel as well as approximately 6.7
million page views for Zon's web site. In a recent marketing survey regarding
the brand-awareness of free Internet service providers in The Netherlands, Zon
scored highest with 23% brand-awareness.

     Zon focuses primarily on individual Internet users in The Netherlands. Zon
offers subscribers Internet access and e-mail without registration or
subscription fees. Subscribers therefore only pay local dial-in telephone costs.
Current and new Internet users can subscribe to Zon by accessing the Zon web
site through a free subscription CD-ROM which is available at Free Record Shop
in The Netherlands or by calling Zon's toll-free number.

ACQUISITION OF SVIANED

     On June 11, 1999, we acquired Svianed, the third largest provider of data
services in The Netherlands. As a result of this acquisition, we now provide
data services to approximately 50 customers through Svianed's existing network,
which connects to over 600 buildings and utilizes over 700 leased lines covering
approximately 6,000 kilometers. These customers consist primarily of
institutions in the financial services and banking industries, and include the
principal social insurance organization and the largest financial institution in
The Netherlands. The Svianed network has 50 regional points of presence and
transports traffic at speeds of up to 150 Mbps. Svianed had revenues of NLG 56.7
million for the financial year ended December 31, 1998 and NLG 68.6 million for
the financial year ended December 31, 1999, including the period from June 11,
1999 to December 31, 1999 during which Svianed was our subsidiary.

     Our acquisition of Svianed has significantly accelerated our offering of
broadband data services by combining our market presence with Svianed's data and
network management expertise. We have begun to migrate Svianed's traffic onto
portions of our network where possible in order to reduce our reliance on leased
lines. We believe that, over time, this will significantly enhance the quality
of our service offering and reduce our costs.

ACQUISITIONS OF VUURWERK, SPEEDPORT, ITINERA AND CS NET

     We acquired VuurWerk and SpeedPort in May 1999, ITinera in June 1999 and CS
Net in November of 1998. VuurWerk is a leading provider of web hosting,
co-location, access and e-commerce services in The Netherlands and Belgium.
SpeedPort is a provider of Internet co-location and connectivity solutions for
high bandwidth Internet and e-commerce applications. ITinera is a Belgium-based
Internet service provider with over 950 business customers. CS Net enables
Internet-based trade communities to conduct business-to-business transactions in
specific trade communities.

OUR NETWORK

     Our high bandwidth network has been designed and built to provide flexible,
broadband local access to business customers with connectivity to major business
and population centers in the Benelux and to certain international destinations.
We believe that our recent German acquisitions along with the continued
expansion of our network in Germany will further our ability to provide local
access services to German customers. Our network carries voice, data and
Internet traffic and supports all major protocols, including Frame Relay, ATM
and IP. We connect with the major Internet exchanges in Amsterdam, Brussels,
London, Paris and Frankfurt and expect to connect with Dusseldorf during the
second quarter of 2000 and have increased the number and quality of peering
arrangements with carriers of IP traffic such as Scarlet, Rocade, Host IT and
Bellnet and our Internet

                                        5
<PAGE>   11

subsidiaries, Zon and VuurWerk, to enhance our presence in the rapidly expanding
European Internet services market.

NETWORK DESIGN PRINCIPLES

     Our network is designed to be scalable, flexible, reliable and efficient:

     -  SCALABILITY.  Our network offers high capacity in all of its components,
        including ducts, fibers, DWDM, SDH and operating support system
        platforms. We have multiple ducts, each of which is capable of carrying
        over 300 fibers, on all routes in the Benelux. We believe this will
        provide sufficient excess capacity for future growth and will allow us
        to trade and sell a portion of our excess capacity to other operators.
        We have installed DWDM equipment on our initial fibers, which allows us
        to transmit multiple frequencies of light on the same fiber strand. As a
        result, the capacity of a single fiber can be currently increased by 16
        times. Our SDH equipment is currently capable of transmitting at the
        rate of 10 Gbps (STM-64), with the ability to make 20 Gbps available, if
        necessary. We have also obtained the right to use VEW Energie's power
        network rights-of-way when VEW Energie expand their own network. We
        believe that this will give us a cost-effective way of building
        additional fiber network in the Northwest Rhine region of Germany.

     -  FLEXIBILITY.  Our network's design enables us to respond to changes in
        service offerings and network standards and protocols. We currently have
        two Nortel DMS 100 digital circuit switches in Amsterdam, one in each of
        Rotterdam and Antwerp, and expect to have an additional Nortel DMS
        switch installed in Brussels in the third quarter of 2000. We also have
        a Nokia switch in each of Recklinghausen, Dortmund and Munster, and
        expect to have an additional Nortel switch installed in S-Hertogenbosch
        in the third quarter of 2000. We currently have a Cisco data switch in
        Amsterdam, Rotterdam and Antwerp and expect to have an additional Cisco
        data switch installed in Brussels in the third quarter of 2000. We also
        use Newbridge data switches in The Netherlands and Ascend data switches
        in eleven locations in Germany. The Nokia and Nortel switches enable us
        to deliver voice and ISDN telecommunications services and the Cisco,
        Newbridge and Ascend data switches allow us to support multiple data
        communications protocols including IP, IPX (Novell), ATM and Frame
        Relay. We are also continuously modifying our network to ensure that it
        can support new technologies, such as high speed, high capacity DSL
        Internet and network access services, as they become available.

     -  RELIABILITY.  Our network provides redundancy at multiple levels by
        using a self-healing, shared protection ring structure to provide dual
        direction routing capability in the event of cable damage or equipment
        failure. SDH equipment automates most of the functions of routing and
        connecting service bandwidth and reroutes these functions in the event
        of failure. Our data and voice/ISDN networks also have alternate routing
        capability to assure high availability of the services they deliver. We
        have selected transmission equipment from recognized international
        vendors such as Nortel, Nokia, Cisco, Newbridge, Ascend and Siemens.

     -  EFFICIENCY.  We have constructed our network in a manner which we
        believe will provide us with excess capacity to allow for future growth
        in an efficient manner. We also believe that our use of high quality
        components and equipment in the maintenance of our network contributes
        to its efficient operation.

NETWORK ELEMENTS

     Our network consists of the following integrated elements:

     -  BACKBONE INFRASTRUCTURE.  Our backbone infrastructure carries voice,
        data and Internet traffic and supports all major protocols, including
        Frame Relay, ATM and IP. It extends to all major commercial and
        population centers in the Benelux and the Northwest Rhine region of
        Germany, including most interconnection points with PTTs, other
        telecommunications network operators and major Internet exchanges. We
        have designed the route of our backbone infrastructure so that it passes
        through as many businesses as possible by going through business
        communities and past major bandwidth users. Approximately 90,000
        businesses are located within one kilometer and approximately 270,000
        busi-

                                        6
<PAGE>   12

       nesses are located within five kilometers of our network backbone. A
       small portion of our network is being constructed jointly with other
       carriers and some rural sections are being completed by purchases of dark
       fiber and, pending the completion of construction, through leased lines.
       As of December 31, 1999, 1,499 kilometers of fiber-ready duct has been
       constructed in the Benelux and we now have in service four self-healing
       rings consisting of 1,370 kilometers of fiber.

     -  LOCAL ACCESS INFRASTRUCTURE.  Our local access network infrastructure
        consists of city rings and business park rings. We began construction of
        fiber optic infrastructure in business parks in January 1999. We
        connected our first customers shortly after the initial ring of the
        Benelux network became operational in May 1999. We have completed
        construction of a total of 13 business park rings and 3 city rings
        representing over 110 kilometers of operational local access fiber. In
        addition, through VersaPoint, we will be offering DSL technology to
        customers when each of these technologies becomes available.

     -  INTERNATIONAL INFRASTRUCTURE.  As of December 31, 1999, we have
        established an international network extending our backbone
        infrastructure to several major interconnection and Internet exchange
        points in Western Europe. Initially, these points are London, which we
        connected in March 1999, Frankfurt, which we connected in May 1999, and
        Paris, which we connected in November 1999. We expect to connect
        Dusseldorf during the second quarter of 2000. This international
        infrastructure consists of one or more fiber pairs in fully redundant
        ring structures. We also are considering acquiring fiber optic capacity
        to the United States to improve our network's Internet connectivity.
        Most of our international infrastructure consists of fiber or SDH
        capacity obtained from other operators, along with transmission
        equipment owned and operated by us.

SERVICE PLATFORMS

     Our network incorporates service platforms to deliver each of the major
service categories we offer or plan to offer. A digital circuit switching
platform delivers voice and ISDN services. A data communications platform based
on ATM supports all major data protocols with high quality service. An Internet
services platform supports the Internet services we provide to end-users and our
offering of outsourced services to ISPs and content providers. An SDH
transmission platform provides highly reliable transmission capacity for our
other services and for capacity leased to other operators, service providers and
customers. In parallel, we are implementing an additional new platform of IP
equipment connected directly to DWDM/fiber which is intended to support all
types of services. We believe that by integrating the functions of SDH, ATM and
circuit switching, this platform will provide a lower cost and a more flexible
design than traditional equipment.

DATA CENTERS

     We have established large scale data centers in all of the major cities in
The Netherlands to house our transmission, IP routing and switching facilities.
These data centers also offer hosting, co-location and interconnection services
to high-volume customers, such as ISPs, in secure, controlled sites with direct
access to our network. We are also constructing Internet co-location facilities
in London, Paris and Frankfurt.

PEERING AND TRANSIT ARRANGEMENTS

     We have a number of informal arrangements with various ISPs allowing us to
exchange traffic with each other without incurring transit costs. These
so-called "peering" or transit arrangements are typically established with an
ISP when the volume of traffic we send to the ISP is approximately equal to the
volume of traffic we receive from the ISP. Once a peering arrangement is
established with an ISP, we are typically no longer required to pay charges in
respect of traffic originating on our network and terminating with such ISP. We
currently have peering arrangements with 98 ISPs, including Belgacom, Euronet,
PSINet Europe, Demon Internet, @Home Benelux, World Online, A2000 and other
major ISPs in the Internet market in western Europe. We expect to enter into
additional peering arrangements with network-based ISPs in order to support our
Internet services. In addition, we expect to sell approximately 50 transit
connections to ISPs and content providers.

                                        7
<PAGE>   13

NETWORK MANAGEMENT

     We monitor our network 24 hours a day, seven days a week, at our network
operations center. Our network operations center is able to identify network
interruptions as soon as they occur and allows us to reroute traffic to ensure
termination. Our network operations center also has an uninterrupted power
supply as well as redundant communications access and computer processors. We
control our own points of presence in the Benelux which allows us immediate
access to our equipment and network for rapid service restoration when
necessary. We own our points-of-presence in Germany and certain of these
points-of-presence are maintained by VEW Energie.

     We have provided for a back-up network operations center in the event our
primary network operations center is forced off-line. We also are constructing a
new network operations center in our new headquarters building which is expected
to become operational during the second quarter of 2000.

NETWORK IMPLEMENTATION

     We have entered into a framework agreement with Nortel to supply most of
our transmission equipment, including SDH, radio, voice/ISDN switching and the
SDH network management system. This agreement includes vendor financing for all
Nortel products and services. We have also entered into similar agreements with
Cisco and Newbridge to provide our data communications platforms and related
support services. We have agreements with leading construction companies in The
Netherlands and Belgium for network construction, and we are currently
negotiating network construction agreements in Germany. These construction
companies are responsible for obtaining rights-of-way, civil engineering,
physical construction and testing of our network. We have retained experienced
agents in each of The Netherlands, Belgium and Germany to assist the
construction companies in obtaining rights-of-way.

PRODUCTS AND SERVICES

     We currently offer a wide range of business and carrier products and
services and continually evaluate potential product and service offerings,
including competitors' offerings, in order to retain and expand our customer
base and to increase revenue per customer. We also offer products and services
to residential customers.

BUSINESS PRODUCTS AND SERVICES OFFERINGS

     We currently offer the following products and services to business
customers:

     LONG DISTANCE TELEPHONY.  We offer international and national long distance
telephony services to over 8,300 business customers in The Netherlands, over
3,100 business customers in Belgium and over 4,400 business customers in
Germany. Our telephony service is offered through our "1611" carrier select code
by dial-around and least-cost routing software installed in our customer PBXs in
the Benelux and by carrier pre-selection in Germany.

     DSL SERVICES.  We offer DSL data and Internet access services to selected
customers in The Netherlands on a trial basis and in Germany on a commercial
basis and expect to offer DSL data and Internet access services to customers in
all of our target market, subject to regulatory approval. We intend to provide
these services in part by purchasing such services from our VersaPoint joint
venture. DSL technology allows for secure high speed Internet access and data
transmission using the existing copper telephone wires connected to most homes
and businesses.

     ISDN SERVICES.  We offer ISDN primary rate services to our customers in the
Benelux and ISDN primary rate and basic rate services in Germany. These services
are principally targeted at the business market with digital PBXs and high
volumes of outgoing and incoming traffic. Currently, ISDN is the fastest growing
service for business telephony in the Western European market.

     LAN TO LAN INTERCONNECT SERVICES.  We offer high speed LAN (local area
network) to LAN interconnect services for multi-site business customers. This
service addresses business customers that need to interconnect their multiple
LANs to share centralized computer data and applications efficiently. We provide
end-to-end management of the wide area network, including the routers, at
customers' premises.

                                        8
<PAGE>   14

     FRAME RELAY AND NATIVE ATM SERVICES.  We offer high speed Frame Relay and
ATM services mainly for large business customers. This service addresses
business customers that need Wide Area Network capabilities between their
multiple sites.

     DEDICATED INTERNET CONNECTIVITY.  We offer dedicated high speed Internet
access services to business customers. This service provides high bandwidth
access to the Internet, domain names, e-mail facilities, news feeds from news
groups and web space for hosting web-sites.

     REMOTE ACCESS SERVICES.  We offer efficient remote access services to
business customers, enabling employees to access the corporate LAN from home.
These home offices have secure access to the corporate network, data and
applications.

     IP-BASED ELECTRONIC TRANSACTION SERVICES.  We offer Internet-based,
business-to-business transaction services to customers in similar industries
that act as comprehensive sources of information, interaction and electronic
commerce for their users.

     DIAL-IN INTERNET ACCESS SERVICES.  We offer dial-in Internet access
services for small- and medium-sized businesses and package it with our long
distance telephony service.

     WEB HOSTING SERVICES.  We offer web hosting services aimed at the business
market. This service consists of an integrated package of a domain name, e-mail
accounts, web space for hosting corporate web-sites and on-line web-site
statistics. We currently have more than 35,000 domain registrations and more
than 12,000 web hosting customers.

     TOLL-FREE (0800) SERVICES.  We offer both "on-net" and "off-net" toll-free
(0800) services to our business customers. This service is positioned to serve
both our target market of small- and medium-sized businesses as well as internal
and external call centers.

CARRIER PRODUCTS AND SERVICES

     We currently offer the following products and services to carrier
customers:

     CALL TERMINATION SERVICES.  We offer switched services to other
telecommunications service providers, including international and national call
termination services in the Benelux. As we complete our international network,
we will be able to offer competitive call termination services in Germany,
France and the United Kingdom.

     DATA CENTERS AND CO-LOCATION FACILITIES.  We provide co-location services
for carriers wishing to extend and expand their networks by housing their own
computing and telecommunications equipment inside our data centers and other
co-location facilities within the Benelux, Northwest Germany, Frankfurt and
London.

     NETWORK CAPACITY FACILITIES.  We sell and trade rights-of-way, ducts, dark
fiber, wavelength and high bandwidth SDH capacity to other carriers. We also
provide tele-housing and interconnect facilities at our selected premises.

     VIRTUAL POINT-OF-PRESENCE DIAL-IN SERVICES.  We offer virtual
point-of-presence services for telecommunications, data and Internet service
providers in order to allow cost-efficient dial-in capability and effective
remote access capabilities for their customers.

     INTERNET TRANSIT SERVICES.  We offer Internet transit services to
telecommunications and Internet service providers seeking transit services
between major Internet exchanges.

     LEASED CIRCUIT SERVICES.  We offer resilient E1, E3, T3 and STM-1 leased
lines to other carriers and services providers within the Benelux, and will
lease lines to our VersaPoint joint venture for the operation of its DSL
services. We provide high quality and managed "point-to-point" or
"point-to-multipoint" circuits via our fiber and SDH network.

     ISP HOSTING SERVICES.  Through our VersaTel Internet division we provide
hosting facilities for ISPs such as Zon, our ISP launched last year which offers
residential Internet access services. With more than 400,000 subscribers to
date, Zon is one of the largest ISPs in The Netherlands.
                                        9
<PAGE>   15

     We also expect to introduce carrier select and preselect hosting services
for resellers, application hosting services, and Voice Over IP gateway and
clearing house services within the next 12 months.

RESIDENTIAL PRODUCTS AND SERVICES

     INTERNET ACCESS SERVICES.  Our VersaTel Internet subsidiary offers dial-up
and ISDN Internet access services to residential customers and expects to offer
DSL Internet access service to residential customers in The Netherlands and
Germany within the next 12 months. Residential Internet services are offered
primarily by VersaTel Internet's Free Internet service provider Zon. Zon offers
dial-up Internet access, e-mail and certain web hosting services, as well as
general information content.

SALES AND MARKETING

     We seek to capitalize on our position as a competitive communications
service provider that offers comprehensive customer service and competitively
priced communications services in the Benelux and Northwest Germany with a focus
on small- and medium-sized businesses. We believe that we have created a
prominent brand name in our target market that we expect to apply successfully
throughout the Benelux and Northwest Germany. We market the majority of our
products and services under the VersaTel brand name through several marketing
channels, including database marketing, targeted telemarketing, brand and
promotional advertising, direct mail and our sales force.

     Our sales force is comprised of direct sales personnel, telemarketers and
independent sales agents. At December 31, 1999, we had 80 direct sales personnel
in The Netherlands, 30 in Belgium and 16 in Germany. In the future, we expect to
increase the number of our direct sales personnel and open additional sales
offices in selected locations. Our sales personnel make direct calls to
prospective and existing business customers, analyze business customers' usage
and service needs, and demonstrate how our services may improve a customer's
communications capabilities and costs. Each member of our sales force is
required to complete our intensive training program. In addition, we have a
telemarketing group that screens prospective customers and monitors existing
call volumes to identify prospective customers.

     Our sales force is organized in the following four groups to target the
primary customer segments with a focused product portfolio that matches the
needs of these customer segments:

     BUSINESS SERVICES.  Our business services sales force targets small- and
medium-sized businesses throughout our target market. The customers targeted by
this group currently access our network indirectly by either manually dialing or
automatically dialing through an auto-dialer or through a pre-programmed PBX our
"1611" carrier select code. The services offered to these customers also include
ISDN, Internet and LAN to LAN interconnection services.

     LOCAL ACCESS SERVICES.  Our local access services sales force targets
potential customers along our network with a high bandwidth service package
consisting of voice, data and Internet products. Unlike most other competitive
alternative communications services providers who focus primarily on large
international cities, we will be able to offer high bandwidth services to our
customers at any point along our network. The customers targeted by this team
will access our network directly through leased lines or, upon its deployment,
through our own local access infrastructure.

     DATA SERVICES.  Our data services sales force targets potential customers
with multiple locations throughout our target market with high bandwidth
requirements. These potential customers include medium- to large-sized
organizations that are located more than five kilometers from our network or do
not seek a direct connection to our network.

     CARRIER SERVICES.  Our carrier services sales force markets our product
portfolio to other telecommunications and ISPs, including switchless resellers,
in our target market and the countries reached by our international network. Our
focus is on developing a broad range of services that address the specific needs
of carrier customers.

                                       10
<PAGE>   16

CUSTOMERS

     We market our services on a retail basis to business and certain selected
residential customers and on a wholesale basis to other carriers and service
providers.

     SMALL- AND MEDIUM-SIZED BUSINESSES.  Our target customers are primarily
small- and medium-sized businesses (businesses with fewer than 500 employees)
and larger customers of high bandwidth data services. We focus particularly on
business and industry segments which have historically generated significant
volumes of national and international traffic, such as financial services,
information technology services, transportation and import and export. We
believe that the small- and medium-sized business segment has been underserved
by the PTTs and the major alternative service providers. Traditionally, the PTTs
and the other major carriers have focused on offering their lowest rates and
best services primarily to larger, higher-volume business customers.

     CARRIER CUSTOMERS.  Our carrier customers are global and regional network
operators, ISPs and switchless resellers serving specific market segments in the
Benelux. We focus primarily on high capacity and high volume customers. We
believe that new entrants to the telecommunications services market that provide
voice, data or Internet services in the Benelux region will require quality
carrier services and high bandwidth services to develop their market position.

     RESIDENTIAL CUSTOMERS.  Our residential customers are primarily subscribers
to our free ISP Zon. Zon offers dial-up Internet access services, e-mail and
certain web-hosting services to residential subscribers as well as general
information content. Zon receives fees from KPN Telecom based on the local call
traffic generated by subscribers and generates advertising revenues from banner
advertisements.

     Our initial focus with respect to residential customers had been to market
our services to employees of our business customers and to residential customers
in certain niche markets characterized by high-volume calling patterns.
Recently, we have refocused our efforts and now intend to access the residential
market for long distance telephony services only in our capacity as a wholesaler
of carrier hosting services to switchless resellers of long distance telephony
to residential customers. We believe that this approach is a more cost-effective
way of generating long distance telephony revenues from the residential market
segment.

     The following table sets forth our customer base for telephony services as
of the dates indicated.

<TABLE>
<CAPTION>
                                                                AS OF DECEMBER 31,
                                                    ------------------------------------------
                                                    1995     1996     1997     1998      1999
                                                    -----    -----    -----    -----    ------
<S>                                                 <C>      <C>      <C>      <C>      <C>
THE NETHERLANDS
  -- Business customers.........................       34      669    2,014    6,272     8,311
  -- Residential customers......................       --       --      230    1,698     1,615
  -- Wholesale customers........................        1        1        1        4        21
BELGIUM
  -- Business customers.........................       --       --       --      368     3,103
  -- Wholesale customers........................       --       --       --       --         5
GERMANY
  -- Business customers.........................       --       --       --       --     4,421
  -- Residential customers......................       --       --       --       --     1,533
  -- Wholesale customers........................       --       --       --       --        19
                                                    -----    -----    -----    -----    ------
TOTAL...........................................       35      670    2,245    8,342    19,028
                                                    =====    =====    =====    =====    ======
</TABLE>

CUSTOMER SERVICE

     Our goal is to maintain an advantage over our competitors in our target
markets by providing superior customer service. We believe that providing a high
level of customer service is a key element to establishing customer loyalty and
attracting new customers. We have dedicated customer service representatives who
initiate contact with our customers on a routine basis to ensure customer
satisfaction and market new products. Customer service representatives are
available 24 hours a day, 365 days a year. In addition, we provide detailed
monthly

                                       11
<PAGE>   17

billing statements and monthly call management reports which identify savings to
customers and enable them to manage their telecommunications expenditures more
effectively.

     We also believe that technology plays an important role in customer
satisfaction. Advanced technological equipment is crucial to enabling the
provision of high quality service to our customers. We seek to reduce technical
risks as much as possible by buying proven products from world leaders in the
applicable technology. We have installed sophisticated status-monitoring and
diagnostic equipment at our network operations center and plan to install
similar units on our SDH equipment and in our new network operations center.
This equipment allows us to identify and remedy network problems before they are
detected by customers. We believe that by providing superior customer service
and through the effective use of technology, we can maintain a competitive
advantage in our target markets.

BILLING AND INFORMATION SYSTEMS

     We are in the process of replacing our billing, customer care and sales
support system. Sophisticated billing and information systems are vital to our
growth and our ability to bill and receive payments from customers, to reduce
our credit exposure and to monitor costs. We had scheduled to replace our
existing billing system during the second quarter of 1999 with a billing system
designed by Saville Systems. We have experienced multiple delays in the
implementation of this new system and have been forced to rely in the meantime
on upgrades of our current system. These upgrades have not always been
successful and in 1999 and early 2000 we had certain difficulties in invoicing
customers promptly. These difficulties included problems with invoicing certain
customers as a result of a year 2000 specific problem. We believe that we have
now however resolved these problems and expect to complete the implementation of
our new billing system by the second quarter of 2000.

     We have planned and budgeted enhancements to our information systems to
handle the growth in the size and complexity of our business, our customer base
and our product portfolio in areas such as work flow, fixed asset management,
sales support and service provisioning.

MINORITY HOLDINGS

     We have interests in the following city carriers as a result of our
acquisition of VEW Telnet:

     TELEBEL GESELLSCHAFT FUR TELEKOMMUNIKATION BERGISCHES LAND MBH, WUPPERTAL,
GERMANY

     -  Shares held by VEW Telnet: 25.1%

     -  Additional shareholders: Wuppertaler Stadtwerke AG, Wuppertal GmbH,
        Engel GmbH & Co. KG, Stadtsparkasse Wuppertal, Stadtsparkasse Solingen
        and Vermogensbetrieb Stadt Solingen

     -  750,000 inhabitants in license area

     DOKOM GESELLSCHAFT FUR TELEKOMMUNIKATION MBH, DORTMUND, GERMANY

     -  Shares held by VEW Telnet: 10%

     -  Additional shareholders: Stadt Dortmund, Dortmunder Stadtwerke AG,
        Dortmunder Energie-und Wasserversorgung GmbH, Stadtsparkasse Dortmund
        and Westfalische Ferngas-AG

     -  600,000 inhabitants in license area

     RUHRNET GESELLSCHAFT FUR TELEKOMMUNIKATION MBH, SCHWERTE, GERMANY

     -  Shares held by VEW Telnet: 24%

     -  Additional shareholders: Technopark Schwerte GmbH, Stadtsparkasse
        Schwerte and Stadtwerke Schwerte GmbH

     -  100,000 inhabitants in license area

     We also hold an interest of 5% in BORnet GmbH, Stadtlohn, Germany which is
another city carrier, and an interest of 9% in Hot Orange B.V., an e-commerce
company in The Netherlands. We also have certain cooperation agreements with
additional city carriers in Germany.
                                       12
<PAGE>   18

COMPETITION

     Until recently, the telecommunications market in each EU Member State was
dominated by its respective PTT. Since the implementation of a series of
European Commission directives beginning in 1990, the EU Member States have
started to liberalize their respective telecommunications markets, permitting
alternative telecommunications providers to enter the market. Liberalization has
coincided with technological innovation to create an increasingly competitive
market, characterized by still-dominant PTTs as well as an increasing number of
new market entrants. Competition in the European long distance
telecommunications industry is driven by numerous factors, including price,
customer service, type and quality of services and customer relationships.

     In The Netherlands, Belgium, Luxembourg and Germany, we compete or will
compete primarily with the national PTTs. As the former monopoly providers of
telecommunications services in these countries, the PTTs have an established
market presence, fully built networks and financial and other resources that are
substantially greater than ours. In addition, the national PTTs own and operate
virtually all of the infrastructure which we must currently access to provide
our services. We estimate that in each of these countries the national PTT still
controls the vast majority of the telecommunications market, including the
market with respect to DSL services.

     In addition, various new providers of telecommunications services have
entered the market in each of these countries, targeting various segments of the
market. Companies such as Telfort, a company formed by British Telecom and
Nederlandse Spoorwegen N.V., the Netherlands railroad company, as well as Global
One Communications, MCI Worldcom, GTS/Esprit Telecom and EnerTel, compete with
KPN Telecom for contracts with large multinational companies in The Netherlands.
MCI Worldcom, British Telecom, AT&T, TeleNet, France Telecom, COLT Telecom,
Unisource, a subsidiary of KPN Telecom, and GTS/Esprit Telecom compete with
Belgacom for contracts with large multinational companies in Belgium.

     The following table sets forth important competitors in the areas of voice,
data, Internet and carrier services:

<TABLE>
<CAPTION>
           MARKET               THE NETHERLANDS              BELGIUM                 GERMANY
           ------               ---------------              -------                 -------
<S>                            <C>                      <C>                      <C>
Voice                          KPN Telecom              Belgacom                 Deutsche Telekom
                               Telfort                  MCI Worldcom             MCI Worldcom
                               MCI Worldcom             GTS/Esprit Telecom       Mobilcom
                               GTS/Esprit Telecom                                Mannesmann
                               COLT Telecom                                      Viag Interkom
Data                           KPN Telecom              Belgacom                 Deutsche Telekom
                               Global One               MCI Worldcom             MCI Worldcom
                               Telfort                                           COLT Telecom
                                                                                 Mannesmann
Business Internet              KPN Telecom              Belgacom                 Deutsche Telekom
                               MCI Worldcom/UUNet       TeleNet                  MCI Worldcom
                               Wirehub                                           Mannesmann
                               EuroNet                                           AOL/Bertelsmann
Residential Internet           World Online             Wanadoo                  T-Online
                               Chello                   Internet Online          AOL
                               Freeler                  Sky Net                  CompuServe
                                                        Freebel
Carrier Services               KPN Telecom              Belgacom                 Deutsche Telekom
                               MCI Worldcom             MCI Worldcom             MCI Worldcom
                               EnerTel/WorldPort        GTS/Esprit Telecom       Mannesmann
                               GTS/Esprit Telecom                                Viag Interkom
</TABLE>

REGULATION

     In Europe, the traditional system of monopoly PTTs has ensured the
development of broad access to telecommunications services; however, it has also
restricted the growth of high-quality and competitively priced

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<PAGE>   19

voice and data services. The liberalization in the European telecommunications
market is intended to address these market deficiencies by ending PTTs'
monopolies, allowing new telecommunications service providers to enter the
market and increasing the competition within the European telecommunications
market. The inefficiencies of the traditional monopoly system, combined with the
EU liberalization initiatives, have created the current market opportunity for
VersaTel's product and service offerings.

     The current regulatory framework in the EU and in the countries in which we
provide our services or intend to provide our services is briefly described
below. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on us, that national
or international regulators or third parties will not raise material issues with
regard to our compliance or noncompliance with applicable regulations or that
any changes in applicable laws or regulations will not have a material adverse
effect on us.

EUROPEAN UNION

     Starting in 1987, the EC Green Paper on Telecommunications charted the
course for the current changes in the EU telecommunications industry by
advancing principles such as separation of operators from regulators,
transparency of procedures and information, cost orientation of tariffs, access
to monopoly infrastructure networks and the liberalization of services. In 1990,
the EU Member States approved two directives that established these principles
in EU law: the Open Network Provision ("ONP") Framework Directive and the EC
Services Directive. These two directives set forth the basic rules for access to
the PTT public networks and the liberalization of the provision of all
telecommunications services within the EU except for voice telephony.

     The ONP Framework Directive established the conditions under which
competitors and users could gain cost-oriented access to the PTTs' public
networks. The EC Services Directive abolished the existing monopolies on, and
permitted the competitive provision of, all telecommunications services with the
exception of voice telephony. The intended effect of the Services Directive was
to permit the competitive provision of all services, other than voice telephony,
including value-added services and voice services to closed user groups. As a
result, many new entrants entered the market, labeling their services as closed
user group services, while in fact providing voice telephony services.

     In 1992, the EC approved the ONP Leased Line Directive, which required the
PTTs to lease lines to competitors and end-users, and to establish cost
accounting systems for those products by the end of 1993. The national
regulatory authorities were to use this cost information to set cost-oriented
tariffs for leased lines. The purpose of the ONP Leased Lines Directive is to
ensure that, in a competitive market, all users continue to have access to
leased lines from at least one operator, under harmonized conditions of access
and use.

     In 1996, the EC issued the Full Competition Directive, which requires EU
Member States to permit alternative infrastructure providers, such as existing
networks of cable companies, railroads, electric and other utility companies, to
resell capacity on these networks for the provision of services other than voice
telephony from July 1996. This allows VersaTel to lease transmission capacity
from companies other than the PTTs. The Full Competition Directive also
established January 1, 1998 as the date by which the EU Member States had to
establish a legal framework which removes all remaining restrictions on the
provision of telecommunications services, including voice telephony. Although
Spain, Greece, Portugal, Ireland and Luxembourg were each allowed to delay
implementation for various periods, only Greece had not implemented the Full
Competition Directive as of January 1, 1999. Subject to the foregoing, each EU
Member State is obliged, under EU law, to enforce the terms of the Full
Competition Directive. Enforceability of the Full Competition Directive may be
challenged at the EU level or at the EU Member State level.

     In addition to the Full Competition Directive, the EC issued the Licensing
Directive in April 1997 and the Interconnection Directive in June 1997. The
Licensing Directive establishes a common framework for general authorizations
and individual licenses in the field of telecommunication services. The
Licensing Directive is intended to allow telecommunications operators to benefit
from an EU-wide market for telecommunications and establish a common framework
for national authorization regimes and seeks to facilitate cross-border networks
and services. The Interconnection Directive standardizes regulatory frameworks
to be implemented by EU Member States and their national regulatory authorities,
including the regulation of public telecommunications networks and services. The
Interconnection Directive governs the manner in which alternative network
operators
                                       14
<PAGE>   20

and service providers are permitted to interconnect with the PTTs' public
networks. The Interconnection Directive requires national regulators to ensure
that interconnection agreements with parties with significant market power
provide for access at cost-oriented rates.

     The Interconnection Directive has been amended to provide for carrier
selection (ensuring that end-users can select the long distance or international
carrier of their choice on a call-by-call basis) as of January 1, 1998, and
carrier pre-selection (ensuring that end-users can select the long distance or
international carrier of their choice prior to the time calls are made) and
number portability (the ability of end-users to keep their numbers when changing
operators) by January 1, 2000. Carrier selection and carrier pre-selection are
required to be made available by carriers with significant market power. The
Interconnection Directive indicates that significant market power could be
assumed if the carrier's market share exceeds 25%, but Member States may adopt
different standards.

     In December 1999 the European Commission published a draft policy document
to review the present regime for telecommunication regulations in the European
Union, which in general continues the present regime. After consultations with
the industry and other stakeholders, a political review is likely to lead to a
new set of directives which will take effect around the year 2003. Certain
principal issues which are likely to be changed include institutional structure
and the reduction of the size of the regulatory framework.

     Despite these regulatory initiatives supporting the liberalization of the
telecommunications market, most EU Member States are still in the initial stages
of liberalizing their telecommunications markets and establishing competitive
regulatory structures to replace the monopolistic environment in which the PTTs
previously operated. For example, most EU Member States have only recently
established a national regulatory authority. In addition, the implementation,
interpretation and enforcement of these EC directives differ significantly among
the EU Member States. While some EU Member States have embraced the
liberalization process and achieved a high level of openness, others have
delayed the full implementation of the directives and maintain several levels of
restrictions on full competition.

     There are currently few laws and regulations that specifically regulate
communications on the Internet. European and U.S. Government authorities and
agencies are considering laws and regulations that address issues such as user
privacy, pricing, on-line content regulation and taxation of on-line products
and services. In November 1995, the EC adopted a general directive regarding
certain privacy rights of citizens of EU Member States and in December 1997, the
EU adopted another directive designed to specifically address privacy rights in
the area of telecommunications services. These directives impose restrictions on
the collection and use of personal data, guaranteeing citizens of EU Member
States the right of access to their data, the right to know where the data
originated and the right to recourse in the event of unlawful processing.
Although, to the best of our knowledge, no European court has ever held a
telecommunications services provider liable for content transmitted over its
network, we can give no assurances that no laws or regulations will be adopted
that will impose such liability, or that any future court rulings will not
impose such liability. Any future regulation of the Internet could impose
restrictions on the way we conduct our business and could seriously affect our
business.

     An overview of the regulatory framework in the individual markets where we
operate or intend to operate is described below. This discussion is intended to
provide a general outline, rather than a comprehensive discussion of the more
relevant regulations and current regulatory posture of these jurisdictions. We
require licenses, authorizations or registrations in all countries in which we
operate to provide our services. Licenses, authorizations and/or registrations
have been obtained in The Netherlands and Belgium and we have received an
International Facilities License in the United Kingdom. We intend to apply for
such licenses and registrations in Luxembourg and France in the near future.
Although we expect that these licenses and registrations will be granted, there
can be no assurance that we will be able to obtain such licenses, authorizations
or registrations or that our operations will not become subject to other
regulatory authorization or registration requirements in the countries in which
we operate or plan to operate.

THE NETHERLANDS

     The Telecommunications Act of 1998 provides the current regulatory
framework in The Netherlands. This new telecommunications act came into force on
December 15, 1998, and remedied the old legislative and
                                       15
<PAGE>   21

regulatory patchwork that had existed as a result of the implementation of a
series of EC directives. The new telecommunications act contains provisions that
give registered telecommunication services providers rights-of-way, subject to
certain conditions, thereby facilitating the construction of the VersaTel
Network.

     As part of the liberalization of the Netherlands telecommunications market,
the new independent supervisory authority, OPTA, was established by the Ministry
of Traffic and Waterways. OPTA started its activities on August 1, 1997. OPTA's
main tasks include ensuring compliance with the telecommunications laws and
regulations in The Netherlands, granting licenses for telecommunications
activities and resolving disputes among market participants, such as disputes
regarding interconnection rates. The rulings of OPTA, to date, have given us
confidence that new providers of telecommunications services will be granted
fair and equal access to the market in The Netherlands.

     The Telecommunications Act also requires providers of public
telecommunications services to comply with the specific privacy provisions
contained in the act, which are based on the privacy directive of December 1997.
In general, providers of public telecommunications services must ensure the
protection of personal data and privacy of subscribers and remove the processed
data on subscribers with respect to the actual use of the network. In The
Netherlands, ISPs are considered to be providers of public telecommunications
services referred to in the Telecommunications Act. As a result, ISPs are also
bound by the specific privacy provisions for providers of public
telecommunications services contained in the Telecommunications Act.

     In August 1997, we obtained one of the first Netherlands registrations to
operate as a telecommunications service provider of public voice telephony
(other than KPN Telecom). In September 1997, we obtained an infrastructure
license with rights-of-way for the construction and operation of
telecommunications facilities in a limited geographic area. In December 1998, we
obtained the first authorizations under the new telecommunications act to
operate as a public telecommunications services provider and network operator.
We have received licenses which allow us to test point-to-multipoint radio
technology in The Netherlands. It is expected that The Netherlands Government
will conduct an auction of five frequency blocks in the 26 Giga Hertz band, of
two frequency blocks each of the 3.5 and 2.6 Giga Hertz bands for this
point-to-multipoint radio technology (fixed-wireless access) in 2000. It is also
expected that The Netherlands Government will conduct an auction of licenses to
provide third-generation UMTS technology mobile telecommunications licences in
2000.

     Since our founding in October 1995, we have adopted a proactive regulatory
strategy. In October 1996, we successfully challenged KPN Telecom's use of our
invoice records to offer our customers additional discounts. In a warning letter
to KPN Telecom, the Directorate for Competition (DG IV) of the EC held this to
be an abuse of power by KPN Telecom. Not only did the EC require KPN Telecom to
stop using information regarding the calling behavior of customers for
competitive activities, such as approaching our customers with discounts and
other special offers, it also questioned the legitimacy of KPN Telecom's
discount plans for business customers. The EC requires that such discounts be
based on actual cost savings and not on predatory pricing tactics. OPTA, to whom
the EC had delegated this matter, has recently ruled that these discount plans
indeed violate competition law principles and has required KPN Telecom to change
them.

     We were one of the first voice telephony competitors in The Netherlands to
interconnect with KPN Telecom and to implement a carrier select code in all of
KPN Telecom's telephone switches. The introduction of carrier pre-selection in
The Netherlands, which was introduced on January 1, 2000, allows customers the
option to pre-select a carrier other than KPN Telecom for all their
international and national long distance calls. We continue to seek to obtain
lower interconnection rates from KPN Telecom. In July 1998, OPTA required KPN
Telecom to reduce its origination and termination charges by approximately 55%
and 30%, respectively, and in December 1998 that such reduced rates should apply
through to December 31, 1999. These rates may be increased retroactively for the
period from January 1, 2000 to December 31, 2000. The terms and conditions of
interconnection have had and will continue to have a material effect on the
competitive position of VersaTel.

     In December 1998, OPTA issued a ruling on KPN Telecom's national long
distance end-user tariffs, which were deemed contrary to the principles on cost
orientation. As a result, KPN Telecom lowered its end-user tariffs for its
national long distance services by approximately 10% in January 1999 and by
approximately 20% in May 1999. It is expected that OPTA's ruling will have some
negative effects on competition in The Netherlands.

                                       16
<PAGE>   22

     In December 1998, VersaTel filed a complaint with OPTA asserting that the
limited access provided by KPN Telecom to the KPN Telecom network hampered
VersaTel's growth. Our customers often experienced busy signals when they tried
to dial into the VersaTel Network through our access code. Other Netherlands
telecommunications services providers voiced similar complaints. OPTA ruled that
KPN Telecom must allow us access to their entire interconnection network. In
addition, OPTA ruled that KPN Telecom would be responsible for the additional
costs associated with the implementation of such ruling. The ruling does not
affect KPN Telecom's access rates.

     In March 1999, OPTA issued a ruling, requiring KPN Telecom to offer
unbundled access to local customer access lines at the MDF in KPN Telecom's
central exchange offices. Unbundled local access enables us to offer a high
speed access to end-users that are not directly connected to our network.

     In September 1999, the mobile operators KPN Telecom and Libertel were found
to have significant market power which effectively means that other companies
such as VersaTel can request transparent and non-discriminatory interconnection
with the networks of these operators. Libertel has however objected to this
finding which has consequently suspended its effect until such time as a
decision is made as to the validity of such objection. We have in turn objected
to such suspension and are awaiting a decision as to whether it should continue
to apply.

BELGIUM

     Belgium started the liberalization of its telecommunications market in 1991
with an amendment to the Belgian public post and telecommunications act. It
provided the basis for the privatization of Belgacom, and allowed new entrants
to the telecommunications services market to provide all services, with the
exception of voice telephony, upon obtaining a license. At the same time a new
regulatory entity was introduced, the Belgium Institute for Post and
Telecommunications (Belgisch Instituut voor Post en Telecommunicatie), under the
Ministry of Economy and Telecommunications.

     A further amendment to this act was adopted by the Belgian Parliament in
December 1997, to implement the liberalization of voice telephony and
infrastructure. The amended act was published in the Belgian Official Journal on
January 19, 1998, but in order to implement the amended act certain
administrative regulations are required. To prevent any delays in providing
access to the market for new entrants, the Ministry of Economy and
Telecommunications issued a notice which opened the way for temporary licenses
for service providers and infrastructure operators.

     On the basis of the amended telecommunications act, we applied for a
license to construct and operate public telecommunications infrastructure and a
license to provide voice telephony nationwide. Both licenses were granted in
June 1998. For marketing purposes, we have reserved the same carrier select code
"1611" as we currently use in The Netherlands. In August, 1998, we obtained
interconnection with Belgacom for carrier selection and call termination
services in advance of concluding a definitive interconnect agreement in
November 1998.

     In July 1998, various Royal Decrees were published to replace the temporary
regime with a definitive one. On that basis, we had to file new applications for
an infrastructure license and a license for voice services. On November 9, 1998,
we were the first alternative telecommunications services provider to obtain a
definitive license for the provision of voice services. On December 21, 1998, we
obtained a definitive infrastructure license in Belgium and thereby obtained
rights of way in all of Belgium and a special interconnect tariff which is 15%
below the tariff for non-facilities based voice service providers.

     Pursuant to the new telecommunications act, Belgacom was required as of
January 1, 2000, to introduce number portability and carrier pre-selection
(equal access). However, we expect the implementation to commence by July 2000.
Belgacom is also expected to approve radio local-access and auction
fluid-generation UMTS mobile telecommunications licenses by the end of 2000.

     The Belgisch Instituut voor Post en Telecommunicatie is also expected to
grant licenses for the utilization of point-to-multipoint systems for broadband
fixed wireless access. However, the procedure of assignment has not

                                       17
<PAGE>   23

been chosen by the Belgisch Instituut voor Post en Telecommunicatie. VersaTel
intends to file applications once such procedures are implemented.

     In September 1999, Belgacom introduced a number of new discount schemes
which VersaTel deems to be anti-competitive. VersaTel filed a complaint at the
relevant court dealing with competition issues requesting the court to suspend
these discount schemes. A ruling on this complaint is expected in 2000.

GERMANY

     The German Telecommunications Act of July 25, 1996, ended the legal
monopoly of Deutsche Telekom AG for the provision of voice telephony and of
public telecommunications networks, and immediately liberalized all
telecommunications activities, but postponed effective liberalization of voice
telephony until January 1, 1998. Since January 1, 1998, the German
telecommunications market has been completely open to competition and a new
regulatory authority, the Regulierungsbehorde fur Telekommunikation und Post
("RTP"), was installed. The German Telecommunications Act has been complemented
by several Ordinances. The most significant Ordinances concern license fees,
rate regulation, interconnection, universal service, frequencies and customer
protection.

     Under the German regulatory scheme, the RTP can grant licenses in four
license classes. A license is required for operation of transmission lines that
extend beyond the limits of a property and that are used to provide
telecommunications services for the general public. The licenses required for
the operation of transmission lines are divided into 3 infrastructure license
classes: mobile telecommunications (license class 1); satellite (license class
2); and telecommunications services for the general public (license class 3). In
addition to the infrastructure licenses, an additional license is required for
operation of voice telephony services on the basis of self-operated
telecommunications networks (license class 4). A class 4 license does not
include the right to operate transmission lines. Licensees that operate
transmission lines crossing the boundary of a property have the right to install
transmission lines on, in and above public roads, squares, bridges and public
waterways without payment; however, when installing transmission lines a
planning agreement must be obtained from the relevant authorities. The RTP
establishes license fees, and the level of fees imposed on licensees is the
subject of several complaints to the RTP and German courts. VEW Telnet has
obtained both a class 3 license and a class 4 license for the Westfalia-Lippe
region.

     Fixed Network Market:  The RTP approved, among other things, distance-based
interconnection rates which Deutsche Telekom can charge alternative network
operators to interconnect their network and route their traffic through the
network of Deutsche Telekom. The more points of interconnection ("POIs") a
carrier establishes and connects with the network of Deutsche Telekom, the
shorter are the distances Deutsche Telekom carries the traffic and the lower are
the distance-based interconnection rates such carrier has to pay to Deutsche
Telekom.

     The current standard draft interconnection agreement and the network
concept of Deutsche Telekom requires that carriers interconnecting with Deutsche
Telekom establish 23 POIs within certain time frames. Such migration concept
might lead to further investments by us in the future. The delivery periods to
receive E1 interconnection connections from Deutsche Telekom are very long and
might postpone the growth of our business in Germany in the future.

     The RTP has extended the current rate regime, which expired on December 31,
1999, for an interim period until a new regime receives the RTP's approval. It
is expected that the new interconnection regime will contain element-based rates
instead of distance-based rates as well as several changes in the standard
interconnection agreements. The RTP announced that it might consider Deutsche
Telekom not in all segments of the market as a market dominating carrier. These
segments would fall outside the scope of the rate regulation regime and Deutsche
Telekom would no longer be obliged to request prior approval of its rates from
the RTP.

     Internet/Data Services:  A broad variety of local and nationwide Internet
access and content providers offer their services in the German market. Internet
access charges have decreased in recent months and alternative carriers operate
their own backbone networks but are still to a large extent dependent on the
interconnection rates to address the traffic to their subscribers.

                                       18
<PAGE>   24

     Local Loop:  In the local loop (access to the subscriber lines), the market
position of Deutsche Telekom two years after liberalization is still extremely
strong and only a limited number of competitors are currently operating. These
alternative carriers focus mainly on business customers and are active primarily
in the metropolitan areas with a high density of inhabitants. With the
allocation of Wireless Local Loop point-to-multipoint frequencies to alternative
carriers in the fall of 1999, the RTP expects that competition in the local loop
will increase in the near future. In addition, Deutsche Telekom is in the
process of selling its broadcasting cable network which has been split for this
purpose into nine regions. The broadcasting network is considered after further
investments by the new owners as the second alternative network in the local
loop. These networks will compete in the future with VEW Telnet's network.

LUXEMBOURG

     The Luxembourg telecommunications market has been liberalized since July 1,
1998, six months after liberalization in most other EU Member States. Until that
date, P&T Telecom Luxembourg, a state-owned company, had a 100% monopoly in the
provision of basic voice telephony and telecommunications infrastructure. A new
regulatory entity, the Luxembourg Institute of Telecommunications (Institut
Luxembourgeois des Telecommunications), has been installed to oversee the newly
deregulated market. Under this new regulatory regime, competition is expected to
develop along the same lines as in the other Benelux countries.

     In the second quarter of 1998, the Institut Luxembourgeois des
Telecommunications, in co-operation with the Ministry of Telecommunications,
published most of the secondary legislation and rulings with the intention to
provide a full liberalization of the telecommunications market. However, in the
third quarter of 1998, the EC initiated an infringement procedure against
Luxembourg asserting the insufficient implementation of the liberalization
directives and certain other directives. It primarily concerned the definition
of "universal service," the vocal telephony licensing procedure, the financing
of the Luxembourg Institute of Telecommunications and the adaptation of the
Luxembourg law in line with the EC Satellite Directive. In most instances, the
situation was assessed as resulting mainly from delays in the adoption of the
secondary legislation.

     In January 1999, the Luxembourg government started a consultation period
which may lead to an assignment procedure for frequencies to operate
point-to-multipoint systems for broadband fixed wireless access.

INTELLECTUAL PROPERTY

     We have registered the trademark "VersaTel" with the Benelux trademark
bureau (Benelux Merkenbureau). Applications for similar registrations are
pending in the other EU Member States. We have obtained rights to the Internet
domain name "www.versatel.com" and initiated formal registration procedures with
Internic, the European Union domain registration authority.

     We have been operating our free Internet service under the Zon name since
September 1999 and have applied for trade mark registration of the Zon name and
logo. Sun Microsystems has contested our use of the Zon name and we are
currently in discussion with them on this matter. We can give no assurance that
we will reach a satisfactory agreement with Sun Microsystems enabling us to
continue to use the Zon name, nor that our applications will be successful or
that the Zon name and logo will not be successfully attacked by third parties
alleging prior rights or that the trade mark is otherwise valid.

EMPLOYEES

     As of December 31, 1999, VersaTel had 902 full-time employees and
approximately 180 full-time consultants. In addition, we employ approximately 55
temporary employees at any given time. None of our employees is represented by a
labor union or covered by a collective bargaining agreement, and we have never
experienced a work stoppage. We consider our employee relations to be good.

                                       19
<PAGE>   25

                                   VERSAPOINT

VERSAPOINT

     On March 8, 2000, we entered into a joint venture agreement with NorthPoint
Communications Group, Inc., a provider of high-speed, local data network
services in the United States, to form a new company, VersaPoint. VersaPoint
intends to deploy DSL equipment and sell DSL services on a wholesale basis to
Internet Service Providers and communications companies throughout the Benelux
and Northwest Germany, and eventually across Western Europe. Pursuant to the
joint venture agreement, we have agreed to purchase DSL services, when
available, from VersaPoint, and VersaPoint has agreed to lease lines, when
available, from VersaTel. VersaTel also has agreed to allow VersaPoint to
install its DSL equipment in more than 50 central office locations in The
Netherlands and Germany and to allow VersaPoint to lease VersaTel's existing
transmission lines in those areas. NorthPoint has agreed to provide VersaPoint
with certain management services to implement VersaPoint's strategy. We expect
that VersaPoint will launch its services by the end of the third quarter of
2000. By purchasing DSL services from VersaPoint, we believe we will accelerate
our ability to offer DSL services to business and residential customers
throughout our target market.

SHAREHOLDERS' AGREEMENT

     In connection with the formation of VersaPoint we have entered into a
shareholders' agreement with Northpoint Communications Group, Inc. and
NorthPoint B.V. i.o. relating to the funding, ownership and governance of the
VersaPoint joint venture.

     Funding.  The shareholders' agreement provides that VersaPoint N.V. is to
be incorporated with an authorized capital of 1 billion class A and class B
shares each and 500 million class C shares. We are required to make an initial
cash capital contribution of E50 million in return for 500 million class A
shares. NorthPoint is required to make an initial cash capital contribution of
E50 million and will receive 500 million class B shares. The shareholders'
agreement requires that half of this initial capital contribution must be made
at the date of incorporation of VersaPoint N.V., which is expected to be March
31, 2000. The shareholders' agreement sets forth the procedures by which
additional funding for VersaPoint may be obtained, and, in addition, stipulates
that:

     (i)  any additional funding shall, as much as possible, be in the form of
          debt financing and

     (ii) any equity financing shall be approved by NorthPoint and us.

     Ownership.  All class A shares of VersaPoint shall be issued only to us or
one of our subsidiaries and all class B shares shall be issued only to
NorthPoint or one of its subsidiaries. In certain circumstances, NorthPoint and
we will be entitled to maintain the percentage ownership in VersaPoint, through
the acquisition of additional shares, at the time of an issuance of additional
shares. Subject to both NorthPoint and our approval, a third-party may acquire
equity of VersaPoint only in the form of class C shares. Any person who acquires
class C shares must become a party to the shareholders' agreement and must agree
to be bound by its terms. Each share of VersaPoint shall be entitled to one vote
and the rights attached to class A and class B shares will be equivalent.

     The shareholders' agreement also provides that if either NorthPoint or we
receive an offer to purchase all or part of the shares of VersaPoint held by
either of us, the shareholder that receives the offer must first offer those
shares subject to the offer to the other shareholder on the same terms. The
non-offering shareholder can elect to purchase the shares offered by the
offering shareholder or it can require that any party who purchases the offering
shareholder's shares of VersaPoint must also purchase a proportionate amount of
its own shares on the same terms. In addition, NorthPoint and we shall not be
permitted to acquire class C shares from any person unless the other is given an
opportunity to purchase a proportionate amount of the class C shares.

     Governance.  VersaPoint will have a supervisory board that will, for so
long as NorthPoint and we each hold 10% of the outstanding share capital of
VersaPoint, consist of one member nominated by each of us and NorthPoint. In
addition, another supervisory board member may be nominated by each of us and
NorthPoint for each additional 20% of the share capital of VersaPoint that we
and NorthPoint hold. As a result, on the incorporation of VersaPoint, it is
expected that there will be three supervisory board members appointed by each of
NorthPoint and us. Other shareholders of NorthPoint will not have any rights to
appoint supervisory board

                                       20
<PAGE>   26

members. The right to appoint the chairman of the supervisory board shall
alternate between NorthPoint and us. We may however lose this right if our
ownership of VersaPoint falls below 50%, as may NorthPoint if its ownership in
VersaPoint falls below the same level. The first chairman of the supervisory
board will be nominated by us.

     The management board of VersaPoint shall consist of members appointed at a
general meeting of shareholders and shall be responsible for the operations of
VersaPoint. The shareholders will determine the size of the management board and
one member of the management board, determined by the shareholders, shall be the
chief executive officer of VersaPoint.

     All resolutions of the shareholders require the approval of the majority of
the votes cast at a general meeting of shareholders in which at least a majority
of the class A shares, held by us, and the class B shares, held by NorthPoint,
are represented and are also voted in favor of the resolution. Certain matters
will require the approval of both NorthPoint and us. These matters include:

     -  the appointment, supervision and dismissal of a member of the management
        board,

     -  the adoption of an annual operating plan and budget that is inconsistent
        with the previously adopted annual operating plan and budget,

     -  the issuance of additional shares or the repurchase of outstanding
        shares,

     -  an amendment of the articles of association of VersaPoint or the
        dissolution or liquidation of VersaPoint,

     -  the declaration or payment of a dividend and

     -  the appointment of auditors.

     Certain decisions of the management board require the approval of the
shareholders of VersaPoint. These include decisions related to certain matters
not contemplated in the annual operating plan and budget of VersaPoint, entering
into a new business or a material change in business strategy, significant
matters related to any subsidiary of VersaPoint and entering into or terminating
significant agreements with other parties. Other decisions of the management
board, including significant decisions that are contemplated by the annual
operating plan and budget of VersaPoint, require approval of the supervisory
board.

     The shareholders' agreement includes a non-competition provision that
prevents NorthPoint and us from competing, directly or indirectly, with
VersaPoint, which will market its DSL services to wholesale customers throughout
Western Europe. However, in certain circumstances and subject to certain
procedures, we have the right to engage in the business to be conducted by
VersaPoint in order to build and operate our MDF sites and other DSL assets
where our involvement is incidental to our telecommunications operations. The
shareholders' agreement also provides mechanisms for the sale of certain of our
MDF sites and DSL assets to VersaPoint.

     The shareholders' agreement shall remain in force indefinitely, and is
subject to amendment or termination if incompatible or inconsistent with the
listing of the shares of VersaPoint on a stock exchange.

COMMERCIAL SERVICES AGREEMENT

     In connection with the creation of VersaPoint and entering into a
shareholder's agreement with NorthPoint and its subsidiary NorthPoint B.V. i.o.,
we have entered into a commercial services agreement with VersaPoint and
NorthPoint to provide VersaPoint with the necessary telecommunications
infrastructure and management, sales and marketing expertise to deploy its DSL
-- digital subscriber lines -- services throughout Europe.

     The commercial services agreement requires us to, among other things,
provide VersaPoint with all the necessary technology and information to order
unbundled digital loops from incumbent local exchange carriers, to make
available MDF -- main distribution frame -- space that we have leased at the
central offices of incumbent local exchange carriers and for us to make our
colocation and data centers and our transport and transmission services over our
network available to VersaPoint on terms that are at least as favorable as
offered by us to third-party customers. VersaPoint will be required, where our
co-location and data centers and our transport and transmission services are
competitive, to use our centers and services. We are also required, to the
extent

                                       21
<PAGE>   27

possible, to allow VersaPoint to benefit from the agreements we have entered
into with vendors, contractors and incumbent local exchange carriers as our
affiliate. In addition, we are required to second to VersaPoint an interim chief
operating officer, interim chief financial officer, interim human resources
director, interim regulatory director and at least an additional 15 other
employees for up to 12 months.

     NorthPoint is required to provide VersaPoint with certain DSL related
technology and services and also allow VersaPoint to benefit, to the extent
possible, from the agreements it has entered into with its vendors and
contractors as its affiliate. NorthPoint is also required to second to
VersaPoint an interim chief executive officer, interim chief information
officer, interim technical director, interim commercial director and at least an
additional 15 other employees for up to 12 months.

     NorthPoint and our employees seconded to VersaPoint will continue to be
paid by their respective employers. VersaPoint will reimburse NorthPoint and us,
as the case may be, for the salary paid to such employee, including any
retirement and benefit plan payments (but excluding benefits received by such
employee under employee stock option plans).

     All the proprietary information developed by VersaPoint, even where based
on the proprietary information of NorthPoint or us, shall be owned by
VersaPoint. NorthPoint and we will have the right to use this proprietary
information developed by VersaPoint, subject to the terms of a license agreement
and the payment of a license fee. We have granted VersaPoint a royalty-free
license to use "Versa" as part of its corporate name. Such license shall
terminate as soon as we no longer hold shares of VersaPoint and, at that time,
VersaPoint shall cease to use "Versa" as part of or in its trade name.

     The term of the commercial services agreement shall be for ten years and
will automatically renew thereafter for one year periods. It can be terminated
by consent of all parties or in the event of a material breach.

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<PAGE>   28

                  CERTAIN RISKS WHICH MAY AFFECT OUR BUSINESS

Our history of substantial net losses may continue indefinitely and make it
difficult to fund our operations.

     For the year ended December 31, 1999 we had a loss from operating
activities of NLG 212.3 million and negative EBITDA of NLG 154.1 million. For
the year ended December 31, 1998, we had a loss from operating activities of NLG
46.5 million and negative EBITDA of NLG 40.0 million. For the year ended
December 31, 1997, we had a loss from operating activities of NLG 19.3 million
and negative EBITDA of NLG 16.0 million. In addition, we had an accumulated
deficit of NLG 528.5 million and NLG 92.3 million as of December 31, 1999 and
December 31, 1998, respectively. We expect to continue to incur significant
further operating losses for the foreseeable future as we incur additional costs
in the build out of our network, our expansion into Germany, the expansion of
our marketing and sales force and the introduction of new communications
services and products, including our Internet and DSL services. In addition, the
acquisitions of Svianed and VEW Telnet have caused, and the proposed acquisition
of KomTel will further cause us to incur additional operating losses. Although
we have experienced revenue growth since we commenced operations in 1995, there
can be no assurance our revenues will continue to grow. You should also be aware
that the prices of voice, data and Internet communications services have fallen
significantly in Europe in recent years, and as competition increases, we expect
that prices will continue to decline. As the cost of providing services
decreases, we expect these price reductions to be at least partially offset, but
you should be aware that we cannot be certain that we will achieve or, if
achieved, be able to maintain operating profits in the future.

Our substantial indebtedness may hinder our growth and put us at a competitive
disadvantage.

     We have substantial indebtedness. In May 1998, we issued and sold units
consisting of $225,000,000 13 1/4% Senior Notes due 2008 and warrants to
purchase 3,000,000 (as adjusted) ordinary shares of VersaTel (the "First High
Yield Offering"). In December 1998, we issued and sold units consisting of
$150,000,000 13 1/4% Senior Notes due 2008 and warrants to purchase 2,000,000
(as adjusted) ordinary shares of VersaTel (the "Second High Yield Offering"). In
July 1999, we issued and sold $180,000,000 11 7/8% Senior Dollar Notes due 2009
and E120,000,000 11 7/8% Senior Euro Notes due 2009 (the "Third High Yield
Offering"), which was used in part to refinance interim loans (the "Interim
Loans") used for the purpose of financing in part our acquisition of Svianed. In
December 1999 we issued and sold 15,000,000 ordinary shares and E300,000,000 4%
Senior Convertible Notes due 2004 (the "First Convertible Notes Offering"),
which was used in part to fund capital expenditures related to VEW Telnet, the
roll-out of our DSL Network, as well as working capital and other general
corporate purposes. As of December 31, 1999, our total long-term obligations
(including current portion) were approximately NLG 2,118.9 million. Subject to
limits imposed by our indebtedness, we may continue to incur substantial
additional indebtedness because the indentures governing the notes issued in the
First High Yield Offering (the "First Notes"), the notes issued in the Second
High Yield Offering (the "Second Notes"), the notes issued in the Third High
Yield Offering (the "Third Notes"; and together with the First Notes and the
Second Notes, the "High Yield Notes"), as well as the convertible notes issued
in the First Convertible Note Offering (the "Convertible Notes") do not limit
the amount of indebtedness that we may incur to finance the cost of the
development of our network.

Covenants in our debt agreements restrict our ability to borrow and invest,
which could impair our ability to expand or finance our future operations.

     The indentures governing the High Yield Notes contain a number of covenants
that impose significant operating and financial restrictions on us and our
subsidiaries. These restrictions significantly limit, and in some cases
prohibit, among other things, our and certain of our subsidiaries' ability to
incur more indebtedness, create liens on assets, enter into business
combinations or engage in certain activities with our subsidiaries. These
covenants will also likely prohibit us from paying dividends or making other
distributions in respect of the ordinary shares for the foreseeable future. A
failure to comply with these restrictions would constitute a default under the
indentures governing the High Yield Notes, as well as under the Convertible
Notes, and as a consequence the High Yield Notes and the Convertible Notes could
become immediately due and payable, which would seriously adversely affect our
business and our shareholders' equity.

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<PAGE>   29

     Our high level of indebtedness and the limits imposed by our indebtedness
could have the following effects, among others:

      --   we may have difficulty in paying the interest on our outstanding debt
           and any newly incurred debt,

      --   we may have difficulty finding sources of financing for working
           capital, our capital expenditure requirements and the interest
           payments on our outstanding debt,

      --   we will be unable to use a significant portion of our cash flow in
           our business and we may be unable to react to industry or economic
           changes, because of the portion of cash flow directed to paying
           interest and principal on our debt, and

      --   we may be unable to react as quickly to changes in our business as
           our competitors who have less debt and financial restrictions, which
           may put us at a disadvantage and make us more vulnerable to adverse
           changes in economic conditions.

     We are currently holding a substantial amount of cash which is being
maintained in U.S. government securities and European commercial paper.

Despite current levels of indebtedness, we may still be able to incur
substantially more indebtedness, which could intensify the risks described
above.

     The indentures governing the High Yield Notes and the terms of the
Convertible Notes do not limit the amount of indebtedness that may be incurred
to finance the cost of development of our network and for certain other purposes
and permit us to incur a significant amount of additional indebtedness in the
future. In addition, our failure to comply with the covenants and restrictions
contained in the agreements governing any additional borrowings could trigger
defaults under such agreements. If we incur additional indebtedness, the related
risks that we now face could intensify. We anticipate that we will incur
additional indebtedness in the future.

Possible inability to meet our debt service obligations may result in our
outstanding indebtedness becoming due and payable.

     Our consolidated net interest expense for the year ended December 31, 1999
NLG 128.9 million. Our EBITDA for the year ended December 31, 1999 was
approximately NLG (154.1) million. Unlike the holders of the First Notes and the
Second Notes, the holders of the Third Notes and Fourth Notes and, the
Convertible Notes, do not have the benefit of any securities placed in escrow to
fund any interest payments on such Notes. Accordingly, we will have to increase
substantially our net cash flow in order to meet our debt service obligations.
In addition, after May 15, 2001, we will no longer be able to rely on cash that
has been set aside in escrow to meet our debt service obligations on the First
Notes and the Second Notes. There is no certainty that we will be able to
generate sufficient cash flow from operating activities to pay interest and
principal on the High Yield Notes, the Convertible Notes or any other
outstanding debt. Our ability to improve our operating performance and financial
results will depend not only on our ability to successfully implement our
business plan, but also upon economic, financial, competitive, regulatory and
other factors beyond our control, including fluctuations in exchange rates and
general economic conditions in the Benelux, Germany, and the rest of Europe. If
we are unable to meet the repayment obligations, we may have to refinance our
indebtedness, including the High Yield Notes and the Convertible Notes, sell our
assets or obtain new financing. We cannot assure you that any such refinancing
would be possible or that any such sales of assets or additional financing could
be achieved. If we cannot refinance or otherwise satisfy our debt obligations we
will be in default under such obligations, which could in turn result in the
High Yield Notes, the Convertible Notes and other indebtedness becoming
immediately due and payable. Any default under the High Yield Notes or the
Convertible Notes would have a material adverse effect on our shareholders'
equity.

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<PAGE>   30

WE WILL NEED TO OBTAIN CONSIDERABLE CAPITAL TO EXPAND OUR NETWORK WHICH MAY NOT
BE AVAILABLE ON ACCEPTABLE TERMS
     We will require significant amounts of capital to further develop and
expand our network, our sales and marketing efforts and our product and service
offerings, including our DSL and Internet services. We expect that the capital
raised from the initial public offering of our ordinary shares completed in July
1999 (the "Initial Public Offering") the offering of 15,000,000 ordinary shares
completed in December 1999 (also referred to as the New Equity Offering, and
together with the Initial Public Offering referred to as the Equity Offerings),
the High Yield Offerings and the Convertible Notes Offerings, together with
other available financing and cash flow from operations, will be sufficient to
fund our current capital requirements and anticipated losses for at least the
next 12 to 18 months. However, we continually re-evaluate our business
objectives and are considering further acquisitions, expansions of our services
and acceleration of our current plans and we may raise additional capital during
the next 12 months. In the past, we have raised substantially more capital more
quickly than we had originally anticipated for similar reasons. We also have
substantial discretion with respect to how we use the proceeds we raise.
Although we believe that this additional capital would enable us to accelerate
our expansion plans, we cannot assure you that we will utilize these additional
proceeds effectively. Pending such utilization, we will invest the proceeds in
cash, government securities, or short term, investment grade interest bearing
investments permitted under the terms of the indentures governing the High Yield
Notes so as to avoid becoming an investment company under the U.S. Investment
Company Act of 1940. We are currently holding a substantial amount of cash from
our prior offerings.

     If these sources are not sufficient or if our plans or assumptions change
or prove to be incorrect, we may have to delay or abandon some of our
development and expansion plans or we may have to seek additional financing
earlier than anticipated. We may not be able to obtain additional financing or
we may not be able to obtain it on a timely basis or on terms favorable to us.
Our current debt obligations also restrict our ability to raise additional
financing and our subsequent use of any such additional financing. In addition,
any such additional financing is likely to be subject to additional financial
restrictions. A failure to acquire additional capital on acceptable terms may
seriously and adversely affect our business.

WE MAY ENCOUNTER DELAYS IN IMPLEMENTING ELEMENTS OF OUR BUSINESS STRATEGY, WHICH
COULD ADVERSELY AFFECT OUR GROWTH
     Our future success depends upon our ability to expand and operate our
telecommunications network and our ability to successfully develop our existing
and new products and services. Our success will depend specifically on our
ability to obtain and maintain, among other things:

     -  experienced and qualified management and staff,

     -  additional switch, MDF and co-location sites,

     -  interconnection with the networks of PTTs and other carriers,

     -  necessary licenses,

     -  additional transmission facilities and

     -  the necessary easements and rights-of-way from property owners,
        competitors and various levels of government.

     We are not certain that our current cost estimates are correct or that we
will meet our current development schedule relating to construction of the
network. In 1998, we experienced a delay in obtaining rights-of-way on
approximately 60 kilometers of public property due to the uncertainty expressed
by some local governmental authorities as to the implications of a new
Netherlands telecommunications act. Although we ultimately obtained these
rights-of-way, these delays prevented us from completing part of our network
within our originally anticipated time frame. We and certain other carriers are
currently experiencing difficulties in obtaining a right-of-way necessary to
extend our networks to Brussels. In addition, we experienced additional delays
in the planned construction of the network due to flooding resulting from severe
weather conditions. More recently, we have experienced more delays and
difficulties than we had anticipated in connecting customer premises to
completed segments of our local access networks, forcing us to lease expensive
transmission capacity from third parties in the interim. We also have
experienced delays in migrating traffic generated by Svianed, one of our

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<PAGE>   31

recent acquisitions, onto our network, requiring us to maintain more expensive
leased line capacity. The successful implementation of our construction and
expansion strategy will be subject to a variety of other risks, including:

     -  operating and technical problems,

     -  regulatory uncertainties,

     -  delays in the full implementation of the European Commission directives
        regarding telecommunications liberalization,

     -  competition,

     -  the availability of capital and

     -  the risk of damage to software and hardware resulting from adverse
        weather conditions, fire, power loss, natural disasters and other
        causes.

     Any significant increase in costs or any further delay in the schedule
could have a material adverse effect on our financial condition. Even if we
successfully develop our network, we cannot assure you that we will be able to
operate it efficiently.

     We have entered into agreements for the design and construction of key
components of our network. However, we have not entered into definitive
agreements relating to the development and construction of significant other
portions of our network and we cannot guarantee you that we will enter into
these agreements. Even if we enter into such agreements, we cannot be certain
that the development and construction will proceed as planned or will be
completed efficiently. In the past, we have been unsatisfied with some of such
arrangements. Further, our network depends on technology and products obtained
from vendors who also supply our competitors. Such vendors may stop supplying us
and we might not be able to find suitable replacements.

     The development of our network is based on our projections of the growth in
traffic volumes and routing preferences and the most cost-effective means of
constructing our network. If our projections prove to be incorrect, it could
have a material adverse effect on our business.

IF WE FAIL TO MANAGE OUR RAPID GROWTH, OUR BUSINESS WILL BE ADVERSELY AFFECTED

     Our growth strategy has placed and will continue to place a significant
strain on our management resources. In particular, our acquisitions and their
integration, including our acquisitions of VEW Telnet, Svianed, SpeedPort,
VuurWerk and ITinera, will require a significant amount of management time and
resources. Our ability to manage this growth will require us to substantially
enhance our management, financial and information systems and effectively
develop and train our rapidly increasing number of employees. Our billing system
was identified by our auditors in 1998 as a potential weakness in our system of
internal controls and has since been replaced by a system designed by Saville
Systems. Consequently we have, among other things, revised our financial
collection of data and call billing procedures. In addition, we have introduced
a customer care system designed by Clarify. We have experienced delays in
implementing the Saville system and full implementation of such system will take
longer than originally anticipated. As a result of these delays, we have been
forced to rely on upgrades of our current system. These upgrades have not always
been successful, and in 1999 and early 2000 we had difficulties in invoicing
customers promptly. These difficulties included problems with invoicing
customers as a result of a year 2000 specific problem. Although we believe we
have corrected the problem, we cannot assure you that these problems will not
recur, and any such recurrance could have a material adverse effect on customer
relations and results of operations. In addition, we will need to transfer the
data collection, billing and customer care functions of our recently acquired
businesses onto our systems which may cause delays in our collection and billing
procedures and cause additional implementation costs.

     Managing our growth will become even more challenging as we expand our
target markets and increase our product and service offerings. Our inability to
achieve or effectively manage this growth could materially and adversely affect
our business.

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WE MAY HAVE DIFFICULTIES IN UPGRADING AND PROTECTING OUR NETWORK

     The success of our network also depends on our continued ability to provide
high-quality telecommunication services by upgrading our systems and protecting
our network from external damage. As we grow, the timing and implementation of
these upgrades will become more important. We cannot guarantee you that the
quality and availability of our services will not be disrupted because of our
inability to make timely or error-free upgrades to our network. Also, our
network may be subject to external damage, in particular from construction work,
but also from events such as floods and other accidents that can disrupt
service. In particular, the construction of our Benelux network was delayed due
to significant rain and flooding of our ducts in The Netherlands during the last
three months of 1998. While we have established design and management techniques
to address any disruptions that may occur, any prolonged difficulty in accessing
our network may threaten our relationship with our customers and have a material
adverse impact on our business.

     In connection with our recent acquisition of VEW Telnet, we entered into a
network maintenance agreement with VEW Telnet's former parent VEW Energie and,
as a result, we will be dependent on VEW Energie to maintain and protect a
portion of our network.

OUR MARGINS HAVE DECREASED RECENTLY BECAUSE OF OUR NEED TO LEASE TRANSMISSION
CAPACITY TO SUPPORT OUR INCREASING CUSTOMER BASE

     We have aggressively pursued new customers and as a result have expanded
our customer base faster than we have been able to roll out our network. While
we believe that over the long term this will result in higher levels of revenue
and profitability, in the short term this situation has forced us to lease
expensive transmission capacity from third parties. We have also experienced
delays in migrating traffic generated by Svianed onto our network, requiring us
to maintain more expensive leased lines. As a consequence, our margins have
deteriorated in recent quarters, and we expect that they will continue to
decrease until we complete our network rollout and can migrate the customers
that are connected to our network by these leased lines to our own network.

FAILURE TO COMPLETE THE KOMTEL ACQUISITION MAY ADVERSELY AFFECT OUR EXPANSION
PLANS IN GERMANY

     We have recently agreed to acquire 80% of the outstanding common shares of
KomTel, a leading alternative fiber network operator in the Schleswig-Holstein
and Hamburg regions of Northern Germany. Although the closing of the acquisition
is anticipated to occur in the second quarter of 2000, we can provide no
assurance that the closing will not be delayed or the agreement terminated prior
to closing. The completion of the offerings is not conditional on the closing of
the KomTel acquisitions. If the Komtel acquisition is not completed, we may have
difficulty implementing our expansion plans in Germany and identifying an
alternative investment opportunity offering comparable returns and benefits to
our current business.

WE MAY HAVE DIFFICULTY INTEGRATING OUR ACQUIRED BUSINESSES

     We have brought senior managers of many of our acquired businesses into our
management team and are relying on these individuals to assist us in integrating
these acquired businesses with our existing operations. There can be no
guarantee that we will be able to attract and retain managers from any newly
acquired businesses or be successful in integrating any new managers and
businesses from our recent acquisitions. In connection with the acquisition of
VEW Telnet, we may suffer unexpected delays and costs in the integration of VEW
Telnet due to our lack of prior operating experience in Germany. In addition, we
will need to devote certain of our senior managers to running the VEW Telnet
business acquired and integrating it into our operations. Accordingly, these
managers will not be able to focus on managing our existing operations.

     We expect to realize operating synergies as a result of our recent
acquisitions. However, there is no assurance that we will be able achieve such
benefits or that the expected benefits will be realized within the time frame we
contemplate.

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<PAGE>   33

EXPANSION OF OUR DSL BUSINESS WILL REQUIRE US TO MAKE SIGNIFICANT CAPITAL
INVESTMENTS AND MAY POSE SIGNIFICANT TECHNICAL AND OPERATIONAL CHALLENGES

     The expansion of our DSL business will require a significant capital
investment. Because our DSL business is relatively new, we have limited
operating and financial data upon which to evaluate this business. Our DSL
business is in a developmental stage and is operating in a new and rapidly
evolving market. Some of the risks we face in establishing a successful DSL
business include:

     -  the timing and willingness of the former monopoly telecommunications
        services providers in the European Union, commonly known as PTTs, to
        provide us with central office space and the prices, terms and
        conditions on which they make the space available to us. Central office
        space is an important factor in our DSL strategy because we must secure
        physical space from these entities for our equipment in order to provide
        our services in our targeted markets;

     -  our ability to identify, access and initiate service in our target
        regions,

     -  our ability to succeed in securing the unbundled lines or telephone
        wires that connect each DSL end-user to our equipment located in the
        central offices of the PTTs,

     -  PTTs have in the past imposed significant obstacles on our ability to
        efficiently install our services, and we expect that they will continue
        to do so, particularly as our DSL services will be a source of
        significant competition for their lucrative business of providing leased
        fiber optic lines. In particular, these PTTs must cooperate with us for
        (a) the provision and maintenance of transmission facilities, and (b)
        the use of their technology and capabilities to meet certain
        telecommunication needs of our customers and to maintain our service
        standards and

     -  certain tests indicate that some types of DSL technology may cause
        interference with and be interfered with by other signals present in
        PPTs' copper plant, usually with lines in close proximity. Such
        interference concerns have been, and we expect may in the future
        continue to be, used by the PTTs as a reason to delay the development of
        our services.

     The DSL business is expected to be extremely competitive. COLT Telecom, for
example, recently announced its intention to significantly expand its DSL
business efforts throughout Europe.

WE MUST ESTABLISH AND ENHANCE OUR ZON BRAND IN ORDER TO COMPETE EFFECTIVELY IN
THE FREE INTERNET SERVICE MARKET

     We believe that in order to develop Zon into a viable business, we must
continue to invest significant marketing and other resources in order to
establish, maintain and enhance the Zon brand. We have been operating our free
Internet service under the Zon name since September 1999 and have applied for
trade mark registration of the "Zon" name and logo. Sun Microsystems has
contested our use of the Zon name and we are currently in discussion with them
on this matter. We cannot assure you that we will reach a satisfactory agreement
with Sun Microsystems enabling us to continue to use the Zon name, nor that our
applications will be successful or that the Zon name and logo will not be
successfully attacked by third parties alleging prior rights or that the trade
mark is otherwise valid. In order to attract and retain users and to promote and
maintain our brand or future brands we may need to substantially increase our
marketing and development expenditures. Our ability to raise financing for these
activities, on a stand-alone basis or otherwise, is limited by the terms of our
current debt instruments. Our business could be adversely affected if our
efforts are unproductive or if we cannot increase our brand awareness.

THE COMPETITION FOR USERS IN THE INTERNET SERVICE MARKET IS VERY INTENSE AND MAY
RESULT IN A DECREASE IN OUR USER BASE AND IN OUR REVENUE

     Our Internet division operates in the Internet services market, which is
extremely competitive. Our Internet competitors include many large companies
that have substantially greater market presence and greater financial,
technical, marketing and other resources. Our Internet operations compete for
registered and other users, and, consequently, e-commerce and advertising
revenue, directly or indirectly, with the following categories of companies:

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<PAGE>   34

     -  traditional providers of Internet access in the Benelux which currently
        charge for Internet access, such as Planet Internet, World Online, World
        Access, Chello, Sky Net and Online Internet,

     -  online service providers which charge for Internet access, consisting
        primarily of U.S. providers such as AOL and Compuserve,

     -  other free online services in the Benelux such as Freeler, Wanadoo,
        Wish, Freebel and NOK NOK,

     -  some Benelux retailers who offer free Internet access, such as My Web,

     -  universal and specialised Internet sites containing comprehensive
        information and services, or portals, consisting primarily of U.S. sites
        such as Yahoo!, Excite, Lycos, Infoseek and Netscape,

     -  Internet communities, such as Geocities and FortuneCity and

     -  high speed and broadband Internet access providers in the Benelux.

     As a result of this competition, our Internet division's user base, as well
as our connectivity, e-commerce and advertising revenue may decrease, which
could have a material adverse effect on our operations.

COMPETITION IS HEIGHTENED BY THE RAPID GROWTH IN THE NUMBER OF LOW COST AND FREE
PROVIDERS OF INTERNET ACCESS

     Our Internet division's competition in the Internet area is likely to
increase because the Internet services market has no substantial barriers to
entry, low or no switching costs for registered users and no switching costs for
other users. Numerous companies have introduced free Internet access in the
Benelux, while some existing online services have stopped charging access fees.
Because VersaTel Internet's registered users have a variety of no-cost
alternatives to our service, they may have more than one Internet account or may
switch to another free Internet access provider if they are unable to gain
access to our service. As a result, usage of VersaTel Internet's services by
registered users may decrease and/or our customer turnover may increase. This
would reduce our connectivity, e-commerce and advertising revenues and may make
it more difficult for us to attract and retain advertisers.

THE MARKET FOR INTERNET ADVERTISING IS UNCERTAIN AND OUR ADVERTISING REVENUE MAY
DECREASE

     We expect to derive a substantial amount of revenue from advertising.
However, the demand and market acceptance for Internet advertising is uncertain.
There are currently no standards for the measurement of the effectiveness of
Internet advertising. If such standards do not develop, existing advertisers may
not continue their levels of Internet advertising. Furthermore, advertisers that
have traditionally relied upon other advertising media may be reluctant to
advertise on the Internet. VersaTel Internet's business would be adversely
affected if the market for Internet advertising fails to develop or develops
more slowly than expected.

     Different pricing models are used to sell advertising on the Internet. It
is difficult to predict which, if any, will emerge as the industry standard.
This makes it difficult to project our future advertising rates and revenue. Our
advertising revenue could also be adversely affected if we are unable to adapt
to new forms of Internet advertising. Moreover, software programs that limit or
prevent advertising from being delivered to an Internet user's computer are
available. Widespread adoption of this software would adversely affect the
commercial viability of Internet advertising and adversely affect our revenues.

     Furthermore, we believe that the number of Internet companies relying on
Web-based advertising revenue will increase greatly in the future. In addition,
VersaTel Internet also competes for advertisers and advertising revenue with
traditional forms of media such as newspapers, magazines, radio and television.
Accordingly, it is likely that VersaTel Internet will face increased
competition, resulting in increased pricing pressures on our advertising rates
which could in turn have a material adverse effect on our business, results of
operations and financial condition.

                                       29
<PAGE>   35

VERSATEL INTERNET'S ABILITY TO COLLECT PERSONAL DATA ON ITS REGISTERED USERS MAY
BE RESTRICTED AND MAY HINDER OUR ABILITY TO GENERATE E-COMMERCE OR ADVERTISING
REVENUE

     We must comply with applicable data protection legislation, which limits
our ability to collect and use personal information relating to our users.
Increased awareness on the part of the public of privacy issues and changes to
legislation with which we may have to comply could impact our ability to use
such personal information for the benefit of our business, which could affect
our financial results.

VERSATEL INTERNET MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USERS'
PERSONAL INFORMATION

     If third parties penetrate our security or otherwise misappropriate our
users' personal information or credit card information, we could be subject to
liability. These liabilities could include claims for unauthorised purchases
with credit card information, impersonation or other similar fraud claims. They
could also include claims for violation of data protection rights. If such
claims are not settled, they could result in litigation which could have an
adverse effect on our business.

INTERNET SECURITY CONCERNS COULD HINDER E-COMMERCE

     The need to transmit confidential information securely over the Internet
has been a significant barrier to electronic commerce and communications over
the Internet. VersaNet's business may be affected by problems caused by computer
viruses, security breaches and other inappropriate uses of our network, such as
e-mail spamming, or junk e-mail. Any well-publicized compromise of security
could deter people from using the Internet or using it to conduct transactions
that involve transmitting confidential information. VersaTel Internet may incur
significant costs to protect itself against the threat of security breaches or
to alleviate problems caused by such breaches. In addition, alleviating these
problems may cause interruptions, delays or cessation in service to our users,
which could cause them to stop using our service or assert claims against
VersaTel Internet or cause us to lose revenues for the time our site is not
operational.

ONE CUSTOMER REPRESENTS A SIGNIFICANT PORTION OF OUR REVENUES

     As a result of our acquisition of Svianed in June 1999, 17.5% of our
revenues for the year ended December 31, 1999, on a combined pro forma basis
with Svianed and VEW Telnet, would have come from the Gak group of companies.
The Gak group is under contract to use our data services until May 2001. We
cannot assure you that we will be able to retain the Gak group as a customer
after May 2001 or that our revenues from the Gak group would not thereafter be
significantly curtailed. We cannot assure you that any such lost revenues could
be replaced. A loss of the revenues derived from the Gak group, without
significant replacement revenue from other sources could have a material adverse
effect on our business.

OUR LIMITED HISTORY AND EXPERIENCE COULD PLACE US AT A DISADVANTAGE TO
ESTABLISHED COMPETITORS AND MAY NOT BE A RELIABLE BASIS FOR EVALUATING OUR
PROSPECTS

     We were founded in October 1995 and, as a result, we have limited
experience as an operating company and have generated only limited revenues. We
entered the Belgian market in the third quarter of 1998 and intend to enter the
Luxembourg market this year. In both of these markets, we have limited or no
operating experience and services had previously been provided primarily by the
national PTTs. Through our acquisition of VEW Telnet in December 1999, we have
also entered the German market in which we have no prior operating experience.
Through our acquisitions of CS Net in November 1998, SpeedPort and VuurWerk in
May 1999, and Svianed and ITinera in June 1999, and our launch of Zon in August
1999, we have entered several markets for Internet-based services which
represent new and rapidly developing markets for us. Accordingly, you should
consider our prospects in light of the risks, expenses and delays inherent in
establishing operations in markets with long established competitors and other
recent entrants and the risks associated with establishing operations in new
technologically advanced industries.

                                       30
<PAGE>   36

IF WE DO NOT ADAPT TO THE RAPID CHANGES IN THE TELECOMMUNICATIONS INDUSTRY, WE
COULD LOSE CUSTOMERS OR MARKET SHARE

     The European telecommunications industry is changing rapidly due to, among
other factors, liberalization, privatization of PTTs, technological
improvements, expansion of telecommunications infrastructure and the
globalization of the world's economies and trade. Such changes may happen at any
time and can significantly affect our operations. We cannot assure you that one
or more of these factors will not occur as we expect or will not have unforeseen
effects which could have a material adverse effect on us. We also cannot assure
you that, even if these factors turn out as anticipated, our strategy will be
successful in this rapidly evolving market.

     The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new products and services, and
increased availability of transmission capacity, as well as the increasing
utilization of Internet-based technologies for voice and data transmission. Our
success will depend substantially on our ability to predict which of the many
possible current and future networks, products and services will be important to
finance, establish and maintain. In particular, as we further expand and develop
our network, we will become increasingly exposed to the risks associated with
the relative effectiveness of our technology and equipment. The cost of
implementation of emerging and future technologies, such as technologies
relating to our DSL service or UMTS wireless technology, could be significant,
and we cannot assure you that we will select appropriate technology and
equipment or that we will obtain appropriate new technology on a timely basis or
on satisfactory terms. Our failure to obtain effective technology and equipment
may adversely affect our ability to offer competitive products and services and
the viability of our operations and could result in us losing customers or
market share.

THE LOSS OF OUR KEY PERSONNEL COULD AFFECT OUR GROWTH AND FUTURE SUCCESS

     Our success depends in significant part on the continued employment of
certain of our key executive officers, including Gary Mesch, our managing
director, Greg Mesch, our vice president for corporate development, Raj
Raithatha, our vice president for finance and chief financial officer, Larry
Hendrickson, our vice president for technology and chief technology officer and
Marc van der Heijden, our vice president for legal and regulatory affairs. We
have not yet identified or hired a complete management team to support our
acquisition of VEW Telnet and certain of our senior managers will need to devote
substantial time to running the acquired business and integrating it into our
operations. We will also need to hire increasing numbers of qualified technical,
sales and marketing, and support personnel to successfully implement our
expansion plans. We do not have any "key person" insurance. There is intense
competition for qualified personnel in our industry in Europe and the limited
availability of qualified individuals could become an issue of increasing
concern in the future. Our financial condition depends upon qualified personnel
implementing a successful business plan. The loss of any of the individuals
listed above or our inability to identify, attract and retain other necessary
qualified personnel could adversely affect our business.

WE ARE DEPENDENT ON OUR COMPETITORS TO PROVIDE OUR CUSTOMERS WITH ACCESS TO OUR
NETWORK

     We do not own most of the telecommunications transmission infrastructure
that we presently use. We use extensively the telecommunications transmission
infrastructure of other carriers in the Benelux and Germany and we depend on
interconnection agreements with these carriers to connect our customers to our
own network. Most of these carriers are our competitors. Svianed in particular
currently depends heavily upon leased lines procured from KPN Telecom.
Interconnection rates fluctuate and may be increased as a result of cost
increases on the side of the dominant providers. For example, the Dutch
regulator OPTA approved an increase in interim rates for the 1999-2000 period
for interconnection. Definitive rates will only be known at the end of 2000.

     Our profitability significantly depends on our ability to achieve access,
on a timely basis and at attractive rates, to the facilities of our competitors,
who may try to limit such access. In particular, the expansion of our DSL
business beyond the current trial phase depends upon access to co-location
facilities and existing copper infrastructure controlled by the PTTs.

     Our dependence on third parties to provide our customers with access to our
network makes us susceptible to price fluctuations, service disruptions and
cancellations that are outside of our control. These occurrences
                                       31
<PAGE>   37

historically have resulted in the loss of some customers and could result in
customer losses in the future. For example, in October 1998, we experienced two
temporary disruptions as a result of a malfunction in the software of KPN
Telecom, which led to customers temporarily having to switch off our network. We
believe that we lost a limited number of customers due to those service
disruptions. Such disruptions may occur from time to time in the future.
Recently, certain Dutch mobile operators have instituted call-blocking to
prevent lower cost refiling alternatives for fixed-to-mobile calls.

     Svianed's network is comprised of leased lines from KPN Telecom and
Internet uplinks from UUNet. Svianed's profitability depends on its ability to
continue to have access to the facilities of KPN Telecom and UUNet.

WE EXPECT TO ENCOUNTER INCREASING COMPETITION FROM DOMINANT MARKET PARTICIPANTS
AND NEW ENTRANTS

     The European telecommunications industry is a very competitive market that
is subject to both the continued dominance of PTTs and the arrival of new
entrants.

     PTTs have significant competitive advantages over non-PTT market
participants which include:

     -  cost advantages as a result of economies of scale,

     -  greater financial resources, market presence and network coverage,

     -  greater brand name recognition, customer loyalty and goodwill,

     -  control over domestic transmission lines and control over the access to
        these lines by other participants, and

     -  close ties to national regulatory authorities that may be reluctant to
        adopt policies that would adversely affect their competitive position.

     Our policy in this competitive environment has been to price our products
and services at a discount to the PTTs and to offer high-quality customer
service, products and services. However, the prices of long distance calls in
most of our markets have decreased substantially and our larger competitors have
been able to use their greater financial resources to create severe price
competition. We believe that prices will continue to decrease for the
foreseeable future and that PTTs and other providers will continue to improve
their product offerings, which will increase these competitive pressures.

     Our competition in the Benelux and Germany also comes from newer market
entrants including MCI WorldCom, Telfort, GTS/Esprit Telecom, COLT Telecom and
other more recent Internet-based competitors. Further, we believe that, as a
result of the introduction of the euro, there will be a greater transparency in
prices in our market which may lead to further price competition. Sustained
price competition could have a material adverse effect on our business.

EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR BUSINESS

     A significant portion of our indebtedness is denominated in U.S. dollars.
However, our revenues have been and will continue to be denominated in Dutch
guilders, Belgian francs, Deutsche marks and, increasingly, in euros. Therefore,
our ability to pay the interest and principal due on the Notes will be affected
by changes in the exchange rates between the U.S. dollar and the euro.

     We denominate our financial reports in Dutch guilders while we maintain
significant U.S. dollar denominated assets and liabilities, so our reported
results of operations may be significantly affected by exchange rate movements.
Furthermore, we will become subject to greater foreign exchange fluctuations if
we expand our operations outside the Benelux and Germany and begin to receive
revenues denominated in currencies other than from countries that have adopted
the euro as their currency.

                                       32
<PAGE>   38

ANY INABILITY TO IDENTIFY FUTURE ACQUISITION OPPORTUNITIES AND TO PURSUE SUCH
OPPORTUNITIES MAY HINDER OUR GROWTH

     As part of our business strategy, we may enter into strategic alliances
with, or make investments in, companies in business areas that are complementary
to our current operations. Any such future strategic alliances, acquisitions or
investments would involve risks. Our strategy presents risks inherent in
assessing the value, strengths and weaknesses of acquisition and investment
opportunities, and in integrating and managing newly acquired operations and
improving their operating efficiency. In addition, such acquisitions and
investments could divert our resources and consume the time of our management.
We cannot assure you that any desired strategic alliance, acquisition or
investment can be made in a timely manner or on terms and conditions acceptable
to us. We cannot assure that we will be successful in identifying attractive
acquisition candidates, completing and financing additional acquisitions on
favorable terms, or integrating the acquired businesses or assets into our
existing operations.

WE MAY ENCOUNTER DELAYS, OPERATIONAL PROBLEMS AND INCREASED COST IF WE ARE
UNABLE TO ACQUIRE KEY EQUIPMENT FROM OUR MAJOR SUPPLIERS

     We are dependent on third party suppliers of hardware and software
components, including Nortel, Cisco, Nokia, Newbridge, Siemens, Hewlett Packard,
Microsoft and Netscape. Although we attempt to maintain a number of vendors for
each product, a failure by a supplier to deliver quality products to us on a
timely basis or our inability to develop alternate sources if and as required
could result in delays which could have a material adverse effect on us.

     Our recourse against suppliers who fail to deliver products to us on a
timely basis is restricted by contractual liability limitations in supply
agreements and purchase orders and, in many cases, by practical considerations
relating to our desire to maintain good relationships with suppliers. Moreover,
we cannot be sure that we will be able to obtain such products on the scale we
require at an affordable cost or at all. Neither can we be certain that our
suppliers will not enter into exclusive arrangements with our competitors or
stop selling their products or components to us at commercially reasonable
prices or at all. Any failure of our sole or limited-source suppliers to provide
products or components that comply with our standards could have a material
adverse effect on us.

OBSTACLES ASSOCIATED WITH THE EFFECTIVE IMPLEMENTATION OF THE LIBERALIZATION IN
THE EUROPEAN TELECOMMUNICATIONS MARKETS MAY ADVERSELY AFFECT OUR BUSINESS

     The European telecommunications industry is subject to a significant degree
of regulation. The national governments of the EU Member States were required to
pass legislation to liberalize the telecommunications markets within their
countries to implement European Commission directives. Although most of the EU
Member States have now implemented the required legislation, they have done so
on an inconsistent, and sometimes unclear, basis. In addition, the legislation
and/or its implementation has, in certain circumstances, imposed significant
obstacles on the ability of carriers to proceed with the necessary licensing
process. Such barriers include requirements that carriers make significant
capital commitments to build infrastructure, complete extensive application
documentation and pay significant license fees. Implementation has also been
slow in certain EU Member States as a result of such EU Member State's failure
to dedicate the resources necessary to have a functioning regulatory body in
place. Although we have obtained the necessary licenses, authorizations and
registrations to operate our business in the jurisdictions in which we currently
operate, we will have to obtain additional licenses and authorizations if we
expand our business to other countries. We are not certain that we will be able
to obtain such licenses and authorizations on a timely basis. The above factors
and other potential obstacles associated with the effective implementation of
liberalization could have a material adverse effect on our operations by
preventing us from expanding our operations as quickly as currently intended.

     There are currently few laws and regulations that specifically regulate
communications on the Internet. European and U.S. government authorities and
agencies are considering laws and regulations that address issues such as user
privacy, infringement pricing, on-line content regulation, intellectual property
ownership and taxation of on-line products and services. The EU has adopted two
directives that impose restrictions on the collection and use of personal data,
guaranteeing citizens of EU Member States the right of access to their data,

                                       33
<PAGE>   39

the right to know where the data originated and the right to recourse in the
event of unlawful processing. However, to the best of our knowledge, no European
court has ever held a telecommunications services provider liable for content
transmitted over its network, although we cannot assure you that laws or
regulations will not be adopted that will impose such liability, or that any
future court rulings will not impose such liability. Any future regulation of
the Internet that imposes restrictions on the way we conduct our business could
seriously adversely affect our business, financial condition and results of
operations.

CHANGE OF CONTROL MAY CAUSE DEFAULT UNDER OUR INDENTURES

     Pursuant to the terms of our outstanding series of notes, each holder can
require us to repurchase its notes in the event a change of control of VersaTel.
However, our existing contractual obligations or an inability to obtain adequate
resources may prevent us from offering to repurchase such notes. Our failure to
offer to repurchase the notes would be an event of default under the indentures
governing the Notes and would, therefore, materially adversely affect our
business.

VOLATILITY OF SHARE PRICES

     Recently, stock markets in the United States and Europe have experienced
significant price and volume fluctuations and the market prices of securities of
telecommunications service providers and technology companies, particularly
Internet-related companies, have been highly volatile. Investors may lose all or
part of their investment. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation in
the United States has often been instituted against such a company. The
institution of such litigation against us could result in substantial costs and
a diversion of our management's attention and resources, which could materially
adversely affect our business, results of operations and financial conditions.

ANTITAKEOVER PROVISIONS COULD DELAY OR PREVENT A CHANGE IN CONTROL

     Our articles of association provide for the possible issuance of preference
shares A, preference shares B and one priority share. Such shares may be issued
pursuant to a resolution of the general meeting of shareholders. However, our
management board has obtained from the shareholders at a general meeting the
authority to issue preference shares and the priority share subject only to the
prior approval of the supervisory board. The issuance of preference shares or
the priority share may deter or prevent a takeover attempt, including an attempt
that might result in a premium over the market place for our ordinary shares:

      --  Preference shares A and preference shares B.  Upon obtaining authority
          from the general meeting of shareholders to issue preference shares,
          our management board is expected to grant a call option on preference
          shares, which in the case of preference shares B will not exceed 100%
          of all our other outstanding shares, to an independent foundation
          (stichting) to be established under Netherlands law. In the event of a
          threatened hostile take-over bid, the foundation may exercise this
          option. The issuance of such preference shares could therefore inhibit
          a change of control.

      --  Priority share.  Upon obtaining authority from the general meeting of
          shareholders to issue the priority share, our management board is
          expected to grant a call option on the priority share to an
          independent foundation (stichting) to be established under Netherlands
          law. In the event of a threatened hostile take-over bid, the
          foundation may exercise this option. The priority share carries
          special voting rights. The issuance of this priority share could
          therefore inhibit a change of control.

PAYMENTS OF DIVIDENDS

     We have never declared or paid any cash dividends on our ordinary shares.
We currently intend to retain any future earnings to finance operations, expand
our network, repay outstanding obligations and finance future acquisitions.
Therefore, we do not expect to pay any dividends in the foreseeable future. In
addition, the indentures governing the High Yield Notes severely limit, and for
the foreseeable future effectively prohibit, our ability to pay cash dividends
on our capital stock.

                                       34
<PAGE>   40

WE MAY BE CLASSIFIED AS AN INVESTMENT COMPANY

     We may qualify as an investment company under the U.S. Investment Company
Act of 1940, as amended, because we may own investment securities that have a
value exceeding 40% of our unconsolidated assets not including U.S. government
securities and we may not qualify for any exemption under the Investment Company
Act. If we qualify as an investment company and choose not to register with the
Commission, we may not, among other things, be allowed to conduct a public
offering of securities in the United States in the future which would materially
adversely affect our ability to raise additional capital.

     In order to avoid registering as an investment company, we are relying on
Rule 3a-2, which provides a temporary exemption from investment company status
for a period of up to one year from the receipt of funds, provided that we have
bona fide intent to be engaged primarily, as soon as reasonably possible and in
any event at the end of one year, in a business other than that of investing,
reinvesting, owning, holding or trading in securities. We may not rely on Rule
3a-2 more than once in any three-year period.

     In order to ensure that we do not qualify as an investment company at the
end of our one-year exemption, we may have to invest proceeds from our offerings
in U.S. government securities. Such investments, if not hedged, would expose us
to currency exchange rate fluctuations since most of our obligations are
non-dollar denominated. The cost of any hedge of this currency exchange rate
exposure would be significant.

PASSIVE FOREIGN INVESTMENT COMPANY CONSEQUENCES

     For the year 1998, we were a "passive foreign investment company" (a
"PFIC") for U.S. federal income tax purposes. Although we were not a PFIC for
1999, there is a significant possibility that we may become a PFIC in 2000. This
will depend upon the sources of our income and the relative values of our
passive assets (such as cash) and our non-passive assets (such as goodwill). We
currently hold a substantial amount of cash as working capital. Furthermore, the
value of our goodwill is a function of the trading price of our shares and
therefore is subject to significant change throughout the year. A decrease in
the market value of our shares therefore could cause us to become a PFIC. U.S.
Holders that own Shares, ADSs or Warrants at any time during a taxable year for
which we are a PFIC will be subject to a complex set of rules under the Internal
Revenue Code and, generally, could in effect be subject to additional tax upon
certain distributions by us or upon a sale or other disposition of such Shares,
ADSs or Warrants. We urge investors to consult their own tax advisors regarding
the application of the PFIC rules to their particular circumstances.

ORIGINAL ISSUE DISCOUNT CONSEQUENCES

     Holders of the Second Notes will be required to include original issue
discount and stated interest on their Second Notes in gross income for such
purposes. See "Item 7: Taxation -- U.S. Tax Considerations" for a more detailed
discussion of the U.S. federal income tax consequences for the holders of the
Second Notes.

                        ITEM 2:  DESCRIPTION OF PROPERTY

     Our principal executive offices are located at Paalbergweg 36, 1105 BV
Amsterdam-Zuidoost, The Netherlands. The lease agreement for this location will
expire in May 2003. We recently entered into a lease agreement for a new head
office in Amsterdam. We will move most of our employees to this new office
space, which is located at Hullenbergweg 111, 1101 CL Amsterdam-Zuidoost, The
Netherlands in April 2000. The new lease agreement will expire on February 1,
2010.

     Our Belgian offices are located at Noorderlaan 133 in Antwerp. The lease
agreement for this location will expire in May 2007.

     Our German offices are located at Unterste Wilms Strasse 29, 44143
Dortmund, Germany. The building is owned by VEW Energie, the former owner of VEW
Telnet. The agreement between us and VEW Energie for the acquisition of VEW
Telnet also provided for continuing use of VEW Energie buildings, including the
building in which these offices are located, on mutually agreeable terms.

                                       35
<PAGE>   41

     VuurWerk has offices located at Richard Holkade 10, 2033 PZ Haarlem, The
Netherlands. The lease agreement for these offices expires in December 2005.

     CS Net has offices located at Brugweg 56, 2741 KZ Waddinxveen, The
Netherlands. The lease agreement for these offices expires in August 2006.

     SpeedPort has offices located at Entrada 111-114, 1096 6EA Amsterdam. The
lease agreement for these offices expires in January 2005.

     ITinera has offices located at Dam 171, 8500 Kortrijk, Belgium. The lease
agreement for these offices expires in August 2006.

                           ITEM 3:  LEGAL PROCEEDINGS

     VersaTel has filed complaints in the past with the European Commission,
OPTA and the Minister of Transport and Waterways of The Netherlands, as part of
its regulatory strategy. We also make routine filings with the regulatory
agencies and governmental authorities in the countries in which we operate or
intend to operate.

     Cromwilld, one of the shareholders of the Company, objected to the 1998
recapitalization as described in the Company's Form 20-F (filed with the
Securities and Exchange Commission on March 30, 1999), and to the issuance of
the two tranches of units consisting of warrants and senior notes as described
in the Form 20-F, and threatened to challenge in court certain of the Company's
actions in connection therewith. In January 1999, Cromwilld filed, pursuant to
article 2:345 of the Netherlands Civil Code, a petition with the Enterprise
Chamber of the Court of Appeals in Amsterdam requesting the appointment of one
or more experts to investigate the management and affairs of the Company. In May
1999, the Enterprise Chamber denied Cromwilld's request.

     On July 20, 1999, the Company entered into, along with its shareholders and
certain other parties, a Settlement Agreement with Cromwilld Limited, in order
to resolve disputes arising out of a pre-existing shareholders' agreement and
other matters. The major terms of the Settlement Agreement provide for:

     -  the transfer of 146,988 of our ordinary shares held by Telecom Founders
        B.V. to Cromwilld;

     -  the issuance of 200,000 shares of the Company on July 20, 1999 to
        Cromwilld at a price of NLG 7.50 per ordinary share;

     -  the ability for Cromwilld to include 1,800,000 of its ordinary shares in
        the initial public offering of the Company;

     -  certain piggyback registration rights in favor of Cromwilld that will
        take effect 180 days from the date of the initial public offering of the
        Company;

     -  the payment by us of $300,000 for Cromwilld's fees and expenses related
        to the Settlement Agreement and certain other matters;

     -  the acknowledgment by all parties to the shareholders' agreement of the
        Company that the shareholders' agreement will be terminated concurrently
        with the closing of the initial public offering of the Company;

     -  the withdrawal by Cromwilld of its pending legal proceedings against the
        Company and its shareholders;

     -  Cromwilld's full cooperation with the initial public offering of the
        Company; and

     -  the obligation of the Company's shareholders, including Cromwilld, to
        procure the resignation or dismissal of Cromwilld's nominee, Denis
        O'Brien, from the Supervisory Board of the Company, after the completion
        of the initial public offering.

     As of December 31, 1999, all of the terms of the Settlement Agreement,
except with respect to certain piggyback registration rights provided to
Cromwilld (which have not yet taken effect), have been completed.

     VersaTel is from time to time involved in routine litigation in the
ordinary course of business. We believe that no currently pending litigation to
which VersaTel is a party will have a material adverse effect on our financial
position or results of operations.
                                       36
<PAGE>   42

                         ITEM 4:  CONTROL OF REGISTRANT

     VersaTel was incorporated under the law of The Netherlands on October 10,
1995, as a private company with limited liability, referred to as besloten
vennootschap met beperkte aansprakelijkheid or a B.V. VersaTel converted its
legal structure from a B.V. to a public company with limited liability, referred
to as naamloze vennootschap or an N.V., on October 15, 1998. VersaTel has its
corporate seat in Amsterdam, The Netherlands. VersaTel is registered under
number 33272606 at the Commercial Register in Amsterdam, The Netherlands.

     On April 13, 1999, VersaTel effected a 2-for-1 stock split. On July 14,
1999, a general meeting of shareholders approved an amendment to VersaTel's
articles of incorporation to provide for, among other things, a consolidation of
its Class A shares and Class B shares into one single class of ordinary shares
and the possible issuance of preference shares A, preference shares B and a
priority share.

     The authorized share capital of VersaTel was increased on December 22, 1999
to NLG 18.5 million, consisting of 175 million ordinary shares with a par value
of NLG 0.05 each, 20 million preference shares A with a par value of NLG 0.05
each, 175 million preference shares B with a par value of NLG 0.05 each and one
priority share with a par value of NLG 0.05. The authorized capital of VersaTel
may further be increased by a shareholders' resolution and subsequent amendment
of the articles of association. The issued capital must at all times at least
equal 20.0% of the authorized capital.

     As of December 31, 1999, 79,224,986 ordinary shares are issued and
outstanding. The following table sets forth information regarding the beneficial
ownership of the ordinary shares of VersaTel as of December 31, 1999, by each
beneficial owner of 5.0% or more of the ordinary shares and by the executive
officers and directors of VersaTel as a group.

<TABLE>
<CAPTION>
                                                                NUMBER      PERCENT OF SHARES
NAME OF BENEFICIAL OWNER                                      OF SHARES      OUTSTANDING(1)
------------------------                                      ----------    -----------------
<S>                                                           <C>           <C>
NeSBIC Venture Fund C.V.(2).................................  15,162,896          19.1%
Paribas Deelnemingen N.V....................................   7,282,340           9.2
Cromwilld Limited...........................................   5,853,036           7.4
Telecom Founders B.V.(3)....................................   5,663,568           7.1
                                                              ----------          ----
  Total.....................................................  33,961,840          42.8%
All directors and executive officers as a group(4)..........   7,603,568           9.6%
</TABLE>

---------------

(1)  Percentages do not reflect the issuance of an aggregate of 130,000 shares
     approved for issuance by our shareholders in connection with earn-out
     obligations relating to the acquisitions of SpeedPort and ITinera. Does not
     give effect to dilution from the exercise of warrants covering 4,441,022
     ordinary shares issued in the First High Yield Offering and the Second High
     Yield Offering that have not been exercised as of December 31, 1999 or to
     options outstanding to employees covering 5,204,760 ordinary shares (all as
     adjusted to give effect to the 2-for-1 stock split on April 13, 1999).

(2)  Includes 1,274,510 ordinary shares held by NeSBIC Groep B.V., an affiliate
     of NeSBIC Venture Fund C.V.

(3)  Telecom Founders B.V., a Netherlands company, is a wholly owned subsidiary
     of Relyt Holdings N.V., a Netherlands Antilles company owned by R. Gary
     Mesch. The Company understands that Telecom Founders B.V. has issued
     depositary receipts representing a substantial portion nearly half of its
     shareholding in VersaTel to certain persons, including officers and
     directors of VersaTel.

(4)  Reflects (i) 5,663,568 shares held by Telecom Founders B.V., beneficial
     ownership of which may be attributed to Mr. R. Gary Mesch and other
     executive officers of VersaTel upon the exchange of their depositary
     receipts in the Company, and (ii) 1,940,000 shares issued as a result of
     options exercised by certain executive officers.

                       ITEM 5:  NATURE OF TRADING MARKET

     The Company's ordinary shares are currently listed on the Amsterdam Stock
Exchange and the American Depository Shares (ADSs) of the Company are listed on
the Nasdaq National Market, each under the symbol

                                       37
<PAGE>   43

"VRSA." On December 30, 1999, the last reported sale price of our ordinary
shares on the Amsterdam Stock Exchange was NLG 35.00. On December 31,1999, the
last reported sale price of our ADSs, each representing one ordinary share, on
the Nasdaq National Market was $34 15/16. The warrants are not listed on any
exchange.

     The High Yield Notes and the Convertible Notes are eligible for trading in
the PORTAL market by qualified institutional buyers. In addition, the First
Notes, Second Notes, and Third Notes are listed on the Luxembourg Stock
Exchange. However, the liquidity of any market for the High Yield Notes and the
Convertible Notes will depend upon the number of holders of such Notes, our
performance, the market for similar securities and the prospects for our
industry generally. Also, the market for non-investment grade debt has been
subject to substantial price swings. Therefore, we cannot make any assurances
that an active trading market will develop or, if a market develops, what the
liquidity of that market will be.

               ITEM 6:   EXCHANGE CONTROLS AND OTHER LIMITATIONS
                           AFFECTING SECURITY HOLDERS

     There are no legislative or other legal provision currently in force in the
Netherlands or arising under the Articles of Association restricting the payment
of dividends to holders of VersaTel's ordinary shares or ADSs not resident in
The Netherlands, except for regulations restricting the remittance of dividends
and other payments in compliance with European Union sanctions.

     Netherlands law does not impose restrictions that would affect the
remittance of interest or other payments to nonresident holders of the Notes or
any other foreign exchange controls.

                               ITEM 7:  TAXATION

                         NETHERLANDS TAX CONSIDERATIONS

     The following discussion, subject to the limitations set forth therein,
describes the material Netherlands tax consequences of the acquisition,
ownership and disposition of the Shares and the acquisition, ownership,
disposition and conversion of the Notes, and is the opinion of Arthur Andersen,
special Netherlands tax counsel (belastingadviseurs) to VersaTel. This opinion
represents Arthur Andersen's interpretation of existing law. This opinion does
not address the income taxes imposed by any political subdivision of The
Netherlands or any tax imposed by any other jurisdiction. This opinion does not
discuss all the tax consequences that may be relevant to the holders in light of
their circumstances or to holders that are subject to special treatment under
applicable law and is not intended to be applicable in all respects to all
categories of investors. Changes in VersaTel's organizational structure or the
manner in which VersaTel conducts its business may invalidate this opinion.
Changes in the applicable laws may invalidate this opinion and this opinion will
not be updated to reflect such subsequent changes. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THEIR
ACQUIRING, OWNING AND DISPOSING OF THE SHARES AND THE ACQUISITION, OWNERSHIP,
DISPOSITION AND CONVERSION OF THE NOTES.

SUBSTANTIAL INTEREST

     A shareholder that owns, either via shares, warrants, conversion rights or
options, directly or indirectly, 5% or more of any class of shares, or 5% or
more of the total issued share capital of a company (a "Substantial Interest"),
is subject to special rules. Profit participation rights which give the holder
rights to all 5% or more of the annual profit or 5% or more of the liquidation
proceeds of the target company will also qualify as substantial interest. A
deemed substantial interest is present if (part of) a substantial interest has
been disposed of, or is deemed to have been disposed of, on a non-recognition
basis and the shareholder continues to own share in the company. With respect to
individuals, attribution rules exist in determining the presence of a
Substantial Interest. In the situation that a shareholder has or is deemed to
have a Substantial Interest in a Company, then all the Notes, Warrants and
Shares or ADSs such shareholder holds will form a part of this Substantial
Interest. Unless indicated otherwise, the term "shareholder", as used herein,
includes individuals and entities (as defined under

                                       38
<PAGE>   44

Netherlands tax law) holding ordinary shares, but does not include any such
person having a Substantial Interest in VersaTel.

TAX CONSEQUENCES FOR RESIDENTS OR DEEMED RESIDENTS OF THE NETHERLANDS

DIVIDEND WITHHOLDING TAX

     Dividends that VersaTel distributes are subject to withholding tax at a
rate of 25%, unless:

     1. the participation exemption applies and the ordinary shares are
        attributable to the business carried out in The Netherlands, or

     2. dividends are distributed to a qualifying EU corporate shareholder
        satisfying the conditions of the EU directive, or

     3. the rate is reduced by treaty.

     Dividends may include:

     -  distributions of cash,

     -  distributions of property in kind,

     -  constructive dividends,

     -  hidden dividends,

     -  liquidation proceeds in excess of our recognized paid-in capital,

     -  consideration for the repurchase of Warrants, Shares and/or ADSs by us,
        in excess of our recognized paid-in capital,

     -  proceeds from the redemption of shares in excess of our recognized
        paid-in capital,

     -  stock dividends equal to their nominal value (unless distributed out of
        our recognized paid-in share premium), and

     -  the repayment of paid-in capital not recognized as capital.

     The term "recognized paid-in capital" or "share premium relates to our
paid-in capital or share premium as recognized for Netherlands tax purposes.

     Generally, a shareholder that resides, or is deemed to reside, in The
Netherlands will be allowed a credit against Netherlands income tax or
corporation tax for the tax withheld on dividends paid on ordinary shares. A
legal entity resident in The Netherlands that is not subject to Netherlands
corporate income tax may, under certain conditions, request a refund of the tax
withheld.

     Dividends VersaTel pays to a corporate shareholder that qualifies for the
"participation exemption" (as defined in Article 13 of The Netherlands
Corporation Tax Act 1969 (the "Corporation Tax Act")) will not be subject to the
dividend withholding tax if the ordinary shares are attributable to the
shareholder's business carried out in The Netherlands. A resident corporate
shareholder will qualify for the participation exemption if, among other things,
the resident shareholder owns generally at least 5% of the nominal paid-up
capital.

INTEREST WITHHOLDING TAX

     The Netherlands will not levy withholding taxes from resident holders on
any payments under the Notes.

INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM SHARES
OR ADSS

     If the Shares or ADSs are held by an individual who resides, or is deemed
to reside, in The Netherlands, income derived from the Shares or ADSs is subject
to Netherlands income tax on a net income basis at graduated rates. An
individual generally is entitled to a dividend exemption of NLG 1,000 a year
(NLG 2,000 a year for married couples). Ordinary shares distributed to
individual shareholders from our share premium account (as
                                       39
<PAGE>   45

recognized for Netherlands tax purposes) are also exempt from Netherlands income
tax. The dividend exemption is not available to an individual shareholder if the
ordinary shares:

     1. are attributable to a trade or business carried on by the shareholder,
        or

     2. form part of a Substantial Interest.

     Dividends accruing to individual shareholders that hold a Substantial
Interest are subject to income tax at a rate of 25% on a net basis.

     Dividends received from Shares or ADSs or ordinary shares by an entity that
resides, or is deemed to reside, in The Netherlands will be subject to
Netherlands corporation tax on a net basis unless the company's shareholding
qualifies for the participation exemption. Dividends received from ordinary
shares by a pension fund as defined in the Corporation Tax Act are not subject
to Netherlands corporation tax.

INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM NOTES

     If the Notes are held by an individual who resides, or is deemed to reside,
in The Netherlands, income derived from the Notes is subject to Netherlands
income tax on a net income basis at graduated rates. An individual generally is
entitled to an interest exemption of NLG 1,000 a year (NLG 2,000 a year for
married couples) The interest exemption is not available to an individual
shareholder if the Notes are:

     1. attributable to a trade or business carried on by the shareholder, or

     2. form part of a Substantial Interest.

     Interest received from Notes by a corporate holder that resides, or is
deemed to reside, in The Netherlands will be subject to Netherlands corporation
tax on a net basis if the notes are (deemed) attributable to a trade or business
carried on (or deemed to be carried on) by the holder. Interest received from
Notes by a pension fund as defined in the Corporation Tax Act is not subject to
Netherlands corporation tax.

INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM WARRANTS

     The issue of the Warrant to an individual, not carrying on a business, nor
having a Substantial Interest in VersaTel, who reside, or is deemed to reside in
The Netherlands, constitutes taxable income on the value of the Warrant, if the
related Note is issued at par. If the related Note is issued below par, the
difference is taxable at (partial) redemption, The holding period of the Warrant
does not constitute taxable income.

     The value of the Warrant held by an individual holder, not carrying on a
business, nor having a Substantial Interest in VersaTel, will not constitute
taxable income, if the interest percentage on the related Note is not lower than
0.5% of the market interest rate.

     For individual holders carrying on a business, and corporate holders the
Warrant constitutes a business asset, creating taxable income depending on
subsequent value increase or decrease.

CAPITAL GAINS REALIZED FROM THE SALE OR EXCHANGE OF SHARES OR ADSS

     Capital gains derived from the sale, conversion or disposition of Shares or
ADSs by an individual shareholder who resides, or is deemed to reside, in The
Netherlands are not subject to Netherlands income tax, provided:

     1. the Shares or ADSs were not acquired directly or indirectly by VersaTel
        or a subsidiary of VersaTel,

     2. the shareholder did not have a (deemed) Substantial Interest in
        VersaTel's share capital at the time of the sale or exchange, and

     3. the Shares or ADSs were not assets of a business.

     Capital gains realized by an individual shareholder that is a resident or a
deemed resident of The Netherlands on the disposal of Shares or ADSs forming
part of a (deemed) Substantial Interest are subject to tax at a rate of 25%.
Capital gains realized by an individual resident shareholder from the sale or
exchange of Shares or ADSs
                                       40
<PAGE>   46

forming part of the assets of a shareholder's business are subject to tax on a
net income basis at the progressive income tax rates.

     If the Shares or ADSs are held by an entity that is a resident or a deemed
resident of The Netherlands, capital gains realized from the sale or exchange of
the Shares or ADSs are subject to corporation tax if the Shares are (deemed)
attributable to a trade or business carried on (or deemed to be carried on) by
the holder, unless the shareholding qualifies for the participation exemption.
If the Shares or ADSs are held by a qualifying pension fund, gains realized from
the sale or exchange of ordinary shares are exempt from Netherlands corporation
tax.

Capital Gains realized from the Sale or Exchange of Notes

     Capital gains derived from the sale of the Notes by an individual holder
will not be subject to individual income tax provided the individual holder does
not own a (deemed) substantial interest in VersaTel and provided the Notes are
not assets of a business. Any interest or accretion received on the Notes and
any interest accrued in the period between the date of the latest interest
payment and the date of disposal of the Notes by individuals will be subject to
Netherlands individual income tax.

     Capital gains derived from the sale of the Notes, interest and accretion
received by a corporate holder that resides, or is deemed to reside, in The
Netherlands will be subject to Netherlands corporate income tax if the notes are
(deemed) attributable to a trade or business carried on (or deemed to be carried
on) by the holder.

Capital Gains realized from the Sale or Exercise of Warrants

     The taxation of capital gains realized from the sale or exercise of
Warrants will be the same as the taxation of capital gains realized from the
sale of Shares or ADSs described above, except for the participation exemption
which does not apply to capital gains realized from the sale or exchange of
Warrants.

Net Wealth Tax

     An individual who resides, or is deemed to reside, in The Netherlands
generally will be subject to a net wealth tax at a rate of 0.7% on the fair
market value of the Notes, Warrants, Shares and/or ADSs.

Gift Tax and Inheritance Tax

     Netherlands gift tax or inheritance tax will be due with respect to a gift
or inheritance of Notes, Warrants, Shares and/or ADSs from a person who resided,
or was deemed to have resided, in The Netherlands at the time of the gift or his
or her death. Netherlands tax will be due in the case of a gift of Notes,
Warrants Shares and/or ADSs by an individual who at the time of the gift was
neither resident nor deemed to be resident in The Netherlands, if such
individual dies within 180 days after the date of the gift, while being resident
or deemed resident in The Netherlands. A Dutch national is deemed to have been
resident in The Netherlands if he or she was a resident in The Netherlands at
any time during the ten years preceding the date of the gift or the date of his
or her death. For gift tax purposes, each person (regardless of nationality) is
deemed to be a Netherlands resident if he or she was a resident in The
Netherlands at any time during the 12 months preceding the date of the gift. The
ten-year and 12-month residency rules may be modified by treaty.

     Liability for payment of the gift tax or inheritance tax rests with the
donee or heir, respectively. The rate at which these taxes are levied is
primarily dependent on the fair market value of the gift or inheritance and the
relationship between the donor and donee or the deceased and his or her heir(s).
Exemptions may apply under specific circumstances.

TAX CONSEQUENCES FOR NON-RESIDENTS OF THE NETHERLANDS

     This subsection applies to U.S. Holders (as defined below).

                                       41
<PAGE>   47

DIVIDEND WITHHOLDING TAX

     Dividends VersaTel distributes are subject to withholding tax at a rate of
25%, unless:

     1. the participation exemption applies and the ordinary shares are
        attributable to the business carried out in The Netherlands, or

     2. dividends are distributed to a qualifying EU corporate shareholder
        satisfying the conditions of the EU directive, or

     3. the rate is reduced by treaty.

     Dividends may include: distributions of cash, distributions of property in
kind, constructive dividends, hidden dividends, liquidation proceeds in excess
of our recognized paid-in capital, consideration for the repurchase of Warrants,
Shares and/or ADSs by us, in excess of our recognized paid-in capital, proceeds
from the redemption of shares in excess of our recognized paid-in capital, stock
dividends equal to their nominal value (unless distributed out of our recognized
paid-in share premium), and the repayment of paid-in capital not recognized as
capital.

     The term "recognized paid-in capital" or "share premium" relates to our
paid-in capital or share premium as recognized for Netherlands tax purposes.

     A non-resident shareholder may benefit from a reduced dividend withholding
tax rate pursuant to an income tax treaty in effect between the shareholder's
country of residence and The Netherlands. Under most Netherlands income tax
treaties, the withholding tax rate is reduced to 15% or less, provided that:

     1. the recipient shareholder does not have a permanent establishment in The
        Netherlands to which the ordinary shares are attributable, and

     2. the recipient shareholder is the beneficial owner of the dividends.

     Under the Income Tax Treaty of December 18, 1992 concluded between The
Netherlands and the United States (the "Treaty"), dividends we pay to a resident
of the United States generally will be subject to a dividend withholding tax
rate of 15%. The rate may be reduced to 5% if the beneficial owner is a United
States corporation that directly holds 10% or more of the voting power in our
Company. The Treaty exempts from withholding tax dividends received by exempt
pension trusts and exempt organizations, under conditions as defined in the
Treaty. Except in the case of exempt organizations, dividends paid may benefit
from the reduced dividend withholding tax rate (or exemption from dividend
withholding tax) by filing the proper forms in advance of the dividend payment.
Exempt organizations remain subject to the statutory withholding rate of 25% and
must file a return to claim a refund of the tax withheld.

     A shareholder may not claim Treaty benefits unless:

     1. the shareholder is a "resident" of the United States, as that term is
        defined in the Treaty, and

     2. Article 26 (the "treaty shopping rules") does not preclude the
        shareholder's ability to claim Treaty benefits.

     The withholding of tax on dividend distributions on Shares or ADSs to a
non-resident corporate shareholder carrying on a business through a Netherlands
permanent establishment is not required as long as:

     1. The Netherlands participation exemption applies, and

     2. the Shares or ADSs form a part of the permanent establishment's business
        assets.

     To qualify for the participation exemption, this entity should hold
generally at least 5% of our nominal paid-up capital and the Shares or ADSs must
form a part of the permanent establishment's business assets.

INTEREST WITHHOLDING TAX

     The Netherlands will not levy withholding taxes from non-resident holders
on payments under the Notes.

                                       42
<PAGE>   48

INDIVIDUAL INCOME TAX AND CORPORATION INCOME TAX ON INCOME DERIVED FROM
NOTES, WARRANTS, SHARES AND/OR ADSS

     A non-resident holder of Notes, Warrants, Shares and/or ADSs will not be
subject to Netherlands income tax on interest and/or dividends received from
VersaTel, provided such holder does not or has not:

     1. carried on a business in The Netherlands through a permanent
        establishment or a permanent representative that includes in its assets
        the Notes, Warrants, Shares and/or ADSs,

     2. held a Substantial Interest in VersaTel's share capital or, in the event
        the non-resident holder has held a Substantial Interest in VersaTel,
        such interest was a business asset in the hands of the holder,

     3. shared directly (not through the beneficial ownership of shares or
        similar securities) in the profits of an enterprise managed and
        controlled in The Netherlands that owned or was deemed to have owned the
        Notes, Warrants, Shares and/or ADSs, and

     4. carried out employment activities in The Netherlands or served as a
        director or board member of any entity resident in The Netherlands, or
        served as a civil servant of a Netherlands public entity with which the
        holding of the Notes, Warrants, Shares and/or ADSs was connected.

     Income derived from Shares or ADSs by a non-resident corporate shareholder,
carrying on a business through a permanent establishment in The Netherlands, are
not subject to Netherlands corporation tax, provided:

     1. The Netherlands participation exemption applies, and

     2. the Shares or ADSs are attributable to the business carried out in The
        Netherlands.

     To qualify for the participation exemption, the shareholder must generally
hold at least 5% of our nominal paid-up capital and meet other requirements.

CAPITAL GAINS REALIZED FROM THE SALE OR EXCHANGE OF NOTES, WARRANTS, SHARES
AND/OR ADSS

     A non-resident holder of Notes, Warrants, Shares and/or ADSs will not be
subject to Netherlands income tax on capital gains derived from the sale,
conversion or disposition of Notes, Warrants, Shares and/or ADSs, provided the
non-resident holder does not have or has not:

     1. carried on a business in The Netherlands through a permanent
        establishment or a permanent representative that included in its assets
        the Notes, Warrants, Shares and/or ADSs,

     2. held a Substantial Interest in VersaTel's share capital or, in the event
        the non-resident holder has held a Substantial Interest in VersaTel,
        such interest was a business asset in the hands of the holder,

     3. shared directly (not through the beneficial ownership of shares or
        similar securities) in the profits of an enterprise managed and
        controlled in The Netherlands which owned or was deemed to have owned
        Notes, Warrants, Shares and/or ADSs, and

     4. carried out employment activities in The Netherlands, or served as a
        director or board member of any entity resident in The Netherlands, or
        served as a civil servant of a Netherlands public entity, with which the
        holding of the Notes, Warrants, Shares and/or ADSs was connected.

     Capital gains derived from the sale, conversion or disposition of Shares or
ADSs by a non-resident corporate shareholder, carrying on a business through a
permanent establishment in The Netherlands, are not subject to Netherlands
corporation tax, provided:

     1. The Netherlands participation exemption applies, and

     2. the Shares or ADSs are attributable to the business carried out in The
        Netherlands.

     To qualify for the participation exemption, the shareholder must generally
hold at least 5% of our nominal paid-up capital and meet other requirements.

                                       43
<PAGE>   49

     Under most Netherlands tax treaties, the right to tax capital gains
realized by a non-resident shareholder from the sale or exchange of Shares or
ADSs is in many cases allocated to the shareholder's country of residence.

NET WEALTH TAX

     A non-resident individual shareholder will not be subject to Netherlands
net wealth tax in respect of the Notes, Warrants, Shares and/or ADSs provided
the non-resident shareholder does not or has not:

     1. carried on a business in The Netherlands through a permanent
        establishment or a permanent representative that included in its assets
        the Notes, Warrants, Shares and/or ADSs, and

     2. shared directly (not through the beneficial ownership of shares or
        similar securities) in the profits of an enterprise managed and
        controlled in The Netherlands, which owned or was deemed to have owned
        Notes, Warrants, Shares and/or ADSs.

GIFT TAX AND INHERITANCE TAX

     A gift or inheritance of Notes, Warrants, Shares and/or ADSs from a
non-resident holder will not be subject to Netherlands gift tax or inheritance
tax in the hands of the donee or heir provided the non-resident holder was not:

     1. a Dutch national who has been resident in The Netherlands at any time
        during the 10 years preceding the date of gift or the date of death or,
        in the event he or she was resident in The Netherlands during such
        period, the non-resident holder was not a Dutch national at the time of
        gift or death;

     2. solely for the purpose of the gift tax, a resident of The Netherlands at
        any time during the 12 months preceding the time of the gift (however,
        in case of a gift by an individual who at the time of the gift was
        neither resident nor deemed to be resident in The Netherlands and such
        individual dies within 180 days after the date of the gift, while being
        resident or deemed to be resident in The Netherlands, such tax will be
        due);

     3. engaged in a business in The Netherlands through a permanent
        establishment or a permanent representative which included in its assets
        Notes, Warrants, Shares and/or ADSs; and

     4. shared directly (not through the beneficial ownership of shares or
        similar securities) in the profits of an enterprise managed and
        controlled in The Netherlands which owned or is deemed to have owned
        Notes, Warrants, Shares and/or ADSs.

TAX REFORM 2001

     In The Netherlands a major tax reform is pending which should become
effective as of January 1, 2001. It will in particular change the taxation in
relation to Notes, Warrants, Shares and/or ADSs held by individual holders
resident or deemed resident of The Netherlands which are not part of a so-called
substantial interest. According to the proposed legislation Netherlands
individual resident holders or deemed Netherlands resident holders of Notes,
Warrants, Shares and/or ADSs will be taxed annually on a deemed income of 4% of
the average annual value of the Notes, Warrants, Shares and/or ADSs at a rate of
30%, regardless whether any interest and/or dividend is received, capital gains
are realized or capital losses are suffered. On the other hand, the net wealth
tax will be abolished. Since this legislation is still pending, it may be
subject to change.

EUROPEAN UNION PROPOSAL

     In 1998 the European Commission submitted to the Council of Ministers of
the European Union a proposal requiring paying agents in an EU Member State to
withhold tax at a minimum rate of 20% from interest, discount and premium
payments to individuals residing in other EU Member States or institute an
information exchange system to report these payments to the tax authorities of
the other EU Member State. The tax would not be withheld if an individual due
such payments provides the paying agent a certificate obtained from the tax
authorities of the EU Member State in which the individual is resident,
confirming that the authorities are aware of the payment due to the individual.
The information exchange system would require a member state to supply
                                       44
<PAGE>   50

other member states the details of any payments made by paying agents within its
jurisdiction to individuals resident in such other member states. If the
proposal is adopted, it will apply to payments made after December 31, 2000.

                            U.S. TAX CONSIDERATIONS

     The following discussion describes the material U.S. federal income tax
consequences that may be relevant to the purchase, ownership and disposition of
Shares, Notes, ADSs or Warrants to a prospective purchaser that is a U.S. Holder
(as defined below). This discussion is based on the Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed Treasury regulations
("Regulations"), administrative and judicial interpretations thereof, all as in
effect on the date hereof and all of which are subject to change, possibly with
retroactive effect, and differing interpretations. In addition, this discussion
deals only with Shares, Notes, ADSs and Warrants held by a U.S. Holder as
capital assets within the meaning of Section 1221 of the Code. This discussion
does not address all of the tax consequences that may be relevant to prospective
purchasers of Shares, Notes, ADSs or Warrants in light of their particular
circumstances or to persons subject to special tax rules, such as insurance
companies, financial institutions, dealers in securities or foreign currencies,
tax-exempt investors, persons holding Shares, Notes, ADSs or Warrants as a
position in a "straddle," conversion or other integrated transaction, persons
owning, directly, indirectly or constructively, 10% or more of the total
combined voting power of all classes of the Company's stock or persons whose
functional currency (as defined in Section 985 of the Code) is not the U.S.
dollar. Prospective purchasers of Shares, Notes, ADSs or Warrants should consult
with their own tax advisors regarding the application of the U.S. federal income
tax laws to their particular situations as well as to any additional tax
consequences of purchasing, holding or disposing of Shares, Notes, ADSs or
Warrants, including the applicability and effect of the tax laws of any state,
local or foreign jurisdiction.

     As used in this section, the term "U.S. Holder" means a beneficial owner of
a Share, Notes, ADS or Warrant who or that is for U.S. federal income tax
purposes (i) a citizen or individual resident of the United States, (ii) a
corporation or partnership created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate the
income of which is subject to U.S. federal income taxation regardless of its
source or (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 U.S.
persons have the authority to control all substantial decisions of the trust.

     In general, for U.S. federal income tax purposes, U.S. Holders of American
depositary receipts evidencing ADSs will be treated as the owners of the Shares
represented by the ADSs.

WARRANTS

EXERCISE OF WARRANTS

     Upon the exercise of a Warrant, a U.S. Holder will not recognize gain or
loss (except to the extent of cash, if any, received in lieu of the issuance of
fractional Shares) and will have an adjusted tax basis in the Shares acquired
pursuant to such exercise equal to such U.S. Holder's tax basis in the Warrant
plus the exercise price of the Warrant. The holding period for such Shares so
acquired will commence on the date after the date of exercise of the Warrant. If
any cash is received in lieu of fractional Shares, the U.S. Holder will
recognize gain or loss in an amount and of the same character that such U.S.
Holder would have recognized if such U.S. Holder had received such fractional
Shares and then immediately sold them for cash back to the Company.

SALE, EXCHANGE OR OTHER DISPOSITION OF WARRANTS

     Subject to the discussion in "Passive Foreign Investment Company" ("PFIC")
below, the sale, exchange or other disposition of a Warrant will generally
result in the recognition of capital gain or loss to the U.S. Holder in an
amount equal to the difference between the amount realized and such U.S.
Holder's tax basis in the Warrant. As a result of certain limitations under the
foreign tax credit provisions of the Code, a U.S. Holder may be unable to claim
a foreign tax credit for Netherlands withholding taxes, if any, imposed on the
proceeds received upon a sale, exchange or other disposition of Warrants.

                                       45
<PAGE>   51

LAPSE

     If a Warrant expires unexercised, a U.S. Holder will recognize a capital
loss equal to such U.S. Holder's tax basis in the Warrant. Such capital loss
may, subject to certain limitations, be used to offset capital gains, if any,
otherwise realized by a U.S. Holder.

ADJUSTMENTS

     Under Section 305 of the Code, adjustments to the exercise price or
conversion ratio of the Warrants which occur under certain circumstances, or the
failure to make such adjustments, may result in the receipt of taxable
constructive dividends by a U.S. Holder to the extent of the Company's current
or accumulated earnings and profits, regardless of whether there is a
distribution of cash or property, if such change has the effect of increasing
the holder's proportionate interest in the earnings and profits or assets of the
Company. In general, anti-dilution adjustments are not treated as resulting in
taxable constructive dividends.

SHARES AND ADSS

CASH DISTRIBUTIONS

     Subject to the PFIC discussion below, to the extent that a distribution on
Shares or ADSs (other than liquidating distributions and certain distribution in
redemption of Shares or ADSs) is paid to a U.S. Holder out of the Company's
current or accumulated earnings and profits (as determined for U.S. federal
income tax purposes), such distribution will be includible in the U.S. Holder's
gross income as foreign source dividend income in an amount equal to the U.S.
dollar value of such distribution (without reduction for any applicable foreign
withholding tax). Therefore, in the event that any foreign tax is withheld from
a distribution on the Shares or ADSs, a U.S. Holder generally will be required
to report gross income in an amount greater than the cash received (although, as
discussed below, such U.S. Holder may be eligible to claim a deduction or a
foreign tax credit in respect of such foreign tax). To the extent that the
amount of any distribution on the Shares or ADSs exceeds the current and
accumulated earnings and profits of the Company (as determined for U.S. federal
income tax purposes), a U.S. Holder's pro rata share of such excess amount would
be treated first as a nontaxable return of capital that would be applied against
and would reduce the U.S. Holder's tax basis in its Shares or ADSs (but not
below zero), and then as gain from the sale or exchange of property.
Distributions in excess of the Company's current and accumulated earnings, and
profits (as determined for U.S. federal income tax purposes) generally will not
give rise to foreign source income and a U.S. Holder may be unable to claim a
foreign tax credit in respect of any Netherlands or other foreign withholding
tax imposed on such distributions unless (subject to applicable limitations) the
U.S. Holder has other foreign source income in the appropriate category for
foreign tax credit purposes. The Company believes that it does not presently
have current or accumulated earnings and profits for U.S. federal income tax
purposes. However, the Company cannot predict whether it will have any such
earnings and profits for future taxable years.

     Subject to certain conditions and limitations (including certain minimum
holding period requirements), the U.S. dollar value of the foreign income taxes,
if any, withheld from a distribution to a U.S. Holder on the Shares or ADSs as
calculated on the date of any such foreign withholding may be claimed as a
credit against the U.S. Holder's U.S. federal income tax liability.
Alternatively, a U.S. Holder may claim a deduction for such amount of foreign
income taxes withheld in a taxable year, but only if such U.S. Holder does not
elect to claim a foreign tax credit in respect of any foreign taxes paid by it
in the taxable year. However, with respect to any withholding tax that may be
imposed by The Netherlands, because Netherlands tax law may not require the
Company to remit the full amount of such withholding tax to The Netherlands
taxing authorities, U.S. Holders may be limited in their ability to deduct or
credit such Netherlands withholding tax for U.S. federal income tax purposes.
Dividends on Shares or ADSs generally will constitute "passive income" or, in
the case of certain U.S. Holders, "financial services income" for U.S. foreign
tax credit purposes. Special rules apply to certain individuals whose foreign
source income during the taxable year consists entirely of "qualified passive
income" and whose creditable foreign taxes paid or accrued during the taxable
year do not exceed $300 ($600 in the case of a joint return).

                                       46
<PAGE>   52

     The rules relating to foreign tax credits are extremely complex and the
availability of a foreign tax credit depends on numerous factors. U.S. Holders
of Shares or ADSs should consult their own tax advisors concerning the
application of the U.S. foreign tax credit rules to their particular situations.

     The U.S. dollar value of any distribution to a U.S. Holder on Shares or
ADSs that is paid in a foreign currency will be calculated by reference to the
exchange rate in effect at the time the distribution is received by the U.S.
Holder (or a nominee, custodian or other agent of the U.S. Holder). A U.S.
Holder generally should not recognize any foreign currency gain or loss if such
foreign currency is converted into U.S. dollars on the day received. If a U.S.
Holder does not convert such foreign currency into U.S. dollars on the date of
receipt, however, such Holder may recognize foreign currency gain or loss (which
generally will be taxable as ordinary income or loss) upon a subsequent sale or
other disposition of the foreign currency.

     A corporate U.S. Holder will not be entitled to a dividends received
deduction with respect to distributions on Shares or ADSs by the Company.

SALE, EXCHANGE OR OTHER DISPOSITION OF SHARES OR ADSS

     Except as otherwise noted in the PFIC discussion below, a U.S. Holder
generally will recognize capital gain or loss on the sale or other disposition
(including a redemption) of Shares equal to the difference between the amount
realized on that sale or other disposition and the U.S. Holder's adjusted tax
basis in the Shares. Subject to the PFIC discussion below, such gain or loss
generally will be capital gain or loss and, in the case of an individual U.S.
Holder, the maximum marginal U.S. federal income tax rate applicable to that
gain will be lower than the maximum marginal U.S. federal income tax rate
applicable to ordinary income if that U.S. Holder's holding period of those
Shares exceeds one year. Gain or loss recognized by a U.S. Holder generally will
be treated as from sources within the United States for U.S. foreign tax credit
limitation purposes. The deductibility of capital losses is subject to
limitations.

     A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on any gain realized on the sale or exchange of Shares unless
that gain is effectively connected with the conduct by that Non-U.S. Holder of a
trade or business in the United States.

PASSIVE FOREIGN INVESTMENT COMPANY STATUS

     In general, a foreign corporation will be classified as a PFIC with respect
to a U.S. Holder if, for any taxable year in which the U.S. Holder held ordinary
shares, either (i) at least 75% of its gross income for the taxable year
consists of passive income or (ii) at least 50% of the average value (determined
on the basis of a quarterly average) of the corporation's assets in a taxable
year is attributable to assets that produce or are held for the production of
passive income. For this purpose, passive income generally includes dividends,
interest, royalties, rents (other than rents and royalties derived from the
active conduct of a trade or business and not derived from a related person),
annuities and gains from assets that produce passive income. The Company was a
PFIC for its 1998 taxable year, but was not a PFIC for its 1999 year. Because
this is a factual determination that must be made annually, there is a
significant possibility that the Company may become a PFIC for its 2000 year.
This will depend upon the sources of the Company's income and the relative
values of the Company's passive assets such as cash and its non-passive assets,
including goodwill. The Company has substantial passive assets in the form of
cash from previous offerings. Furthermore, since the goodwill of a
publicly-traded corporation such as the Company is largely a function of the
trading price of is shares, the valuation of that goodwill is subject to
significant change throughout each year. Accordingly, it is possible that the
Company may become a PFIC due to changes in the nature of its income or its
assets, or as the result of a decrease in the trading price of its shares.

     If the Company were a PFIC, a special tax regime would apply to both (a)
any "excess distribution" by the Company (generally, the U.S. Holder's ratable
share of distributions in any year that are greater than 125% of the average
annual distributions received by such U.S. Holder in the three preceding years
or its holding period, if shorter) and (b) any gain realized on the sale or
other disposition (including a pledge) of the ordinary shares. Under this
regime, any excess distribution and realized gain would be treated as ordinary
income and would be subject to tax as if (a) the excess distribution or gain had
been realized ratably over the U.S. Holder's holding period, (b) the amount
deemed realized had been subject to tax in each year of that holding period at
the highest
                                       47
<PAGE>   53

applicable tax rate in effect for that year, and (c) the interest charge
generally applicable to underpayments of tax had been imposed on the taxes
deemed to have been payable in those years.

     A U.S. Holder of Shares could elect, provided the Company complies with
certain reporting requirements, to have the Company treated, with respect to
that U.S. Holder's Shares, as a "qualified electing fund" ("QEF"). If such an
election is made in the first taxable year that a U.S. Holder holds or is deemed
to hold the Company's stock and for which the Company is determined to be a
PFIC, such electing U.S. Holder would include annually in gross income (but only
for each year that the Company actually meets the PFIC income or asset test) its
pro rata share of the Company's annual ordinary earnings and annual net capital
gains (at ordinary and capital gain rates, respectively), whether or not such
amounts are actually distributed to the U.S. Holder. These amounts would be
included in income by an electing U.S. Holder for its taxable year in which or
with which the Company's taxable year ends.

     The QEF election is made on a shareholder-by-shareholder basis and can be
revoked only with the consent of the IRS. The Company will supply the PFIC
annual information statement to all shareholders for each year, if any, in which
it determines that it is a PFIC. Prospective investors should consult their own
tax advisors concerning the advisability and timing of making a QEF election. In
addition, certain classes of investors, such as regulated investment companies,
may be subject to special rules and should consult their own tax advisors
concerning the application of U.S. federal income tax rules governing PFICs in
their particular circumstances.

     In certain circumstances, a U.S. Holder, in lieu of being subject to the
PFIC rules discussed above, may make an election to include gain on the stock of
a PFIC as ordinary income under a mark-to-market method provided that such stock
is regularly traded on a qualified exchange. Under recently finalized
regulations, the AEX should constitute a qualified exchange.

     U.S. HOLDERS OF ORDINARY SHARES ARE URGED TO CONSULT THEIR OWN TAX ADVISERS
CONCERNING THE APPLICATION OF THE PFIC RULES (INCLUDING THE ADVISABILITY AND
TIMING OF MAKING THE QEF OR MARK-TO-MARKET ELECTION).

NOTES

     Interest paid on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time it is received or accrued, depending on the U.S.
Holder's method of accounting for U.S. federal income tax purposes.

     In the case of interest paid in euros to a U.S. Holder that uses the cash
method of tax accounting, the amount includable in income by such U.S. Holder
will be the U.S. dollar value of that interest payment, based on the exchange
rate in effect on the date of receipt, regardless of whether the payment is in
fact converted into U.S. dollars. No foreign currency gain or loss will be
recognized with respect to the receipt of such interest payment.

     In the case of interest paid in euros to a U.S. holder that uses the
accrual method of tax accounting, such U.S. Holder will be required to include
in income the U.S. dollar value of the amount of interest accrued on a Note
during an accrual period. Such a U.S. Holder may determine the amount of the
interest to be recognized in accordance with either of two methods. Under the
first method, the amount of interest accrued will be based on the average
exchange rate in effect during the interest accrual period or, with respect to
an accrual period that spans two taxable years, the part of the period within
the taxable year. Under the second method, the U.S. Holder may elect to
determine the amount of interest accrued on the basis of the exchange rate in
effect on the last day of the accrual period or, in the case of an accrual
period that spans two taxable years, the exchange rate in effect on the last day
of the part of the period within the taxable year. If the last day of the
accrual period is within five business days of the date the interest payment is
actually received, electing U.S. Holders may instead translate that accrued
interest at the exchange rate in effect on the day of actual receipt. Any
election to use the second method will apply to all debt instruments held by
such U.S. Holder at the beginning of the first taxable year to which the
election applies or thereafter acquired by the U.S. Holder, and will be
irrevocable without the consent of the U.S. Internal Revenue Service.

     A U.S. Holder utilizing either of the foregoing two methods will recognize
ordinary income or loss with respect to accrued interest on the date of receipt
of the interest payment (including a payment attributable to accrued but unpaid
interest upon the sale or retirement of a Note). The amount of ordinary income
or loss will equal the difference between the U.S. dollar value of the foreign
currency payment received (determined on the
                                       48
<PAGE>   54

date the payment is received) in respect of the accrual period and the U.S.
dollar value of interest that has accrued during that accrual period (as
determined under the method utilized by the U.S. Holder).

     Euros received as interest on the Notes will have a tax basis equal to
their U.S. dollar value at the time the interest payment is received. Gain or
loss, if any, realized by a U.S. Holder on a sale or other disposition of that
foreign currency will be ordinary income or loss and will generally be income
from sources within the United States for foreign tax credit limitation
purposes.

     Interest (and, with respect to the Second Notes, OID) on the Notes will be
treated as foreign source income for U.S. federal income tax purposes, which may
be relevant in calculating a U.S. Holder's foreign tax credit limitation for
U.S. federal income tax purposes. The limitation on foreign taxes eligible for
the United States foreign tax credit is calculated separately with respect to
specific classes of income. For this purpose, the interest on the Notes should
generally constitute "passive income" or, in the case of certain U.S. Holders,
"financial services income".

     A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on interest (and, with respect to the Second Notes, OID)
received or accrued on the Notes, unless that income is effectively connected
with the conduct by that Non-U.S. Holder of a trade or business in the United
States.

  SECOND NOTES

     The Second Notes were issued with original issue discount ("OID").
Regardless of their method of accounting, U.S. Holders of the Second Notes will
be required to include an amount equal to the sum of "daily portions" of such
OID attributable to each day during the taxable year on which the U.S. Holder
holds the Second Note in income for federal income tax purposes as it accrues,
in accordance with a constant yield method based on a compounding of interest,
before the receipt of cash payments attributable to such income. Under this
method, U.S. Holders of the Second Notes generally will be required to include
in income increasingly greater amounts of OID in successive accrual periods.

     The daily portions of OID required to be included in a U.S. Holder's gross
income in a taxable year will be determined on a constant yield basis by
allocating to each day a pro rata portion of the OID on such Second Note that is
attributable to the "accrual period" in which such day is included. Accrual
periods with respect to a Second Note may be of any length selected by the U.S.
Holder and may vary in length over the term of the Second Note as long as (1) no
accrual period is longer than one year and (2) each scheduled payment of
interest or principal on the Second Note occurs on either the final or first day
of an accrual period.

     The amount of the OID attributable to each accrual period will be the
difference between (1) the product of the "adjusted issue price" of the Second
Note at the beginning of such accrual period and the "yield to maturity" of the
Second Note (stated in a manner appropriately taking into account the length of
the accrual period), and (2) qualified stated interest allocable to the accrual
period. The "yield to maturity" is the discount rate that, when used in
computing the present value or all payments to be made under the Second Note,
produces an amount equal to the issue price of the Second Note (specified in the
Offering Memorandum for the Second Notes). The adjusted issue price of a Second
Note at the beginning of an accrual period is equal to the issue price of the
Second Note, increased by an OID accrued during prior accrual periods and
decreased by any cash payment (other than qualified stated interest) received
with respect to the Second Note on or before the first day of the accrual
period. Accordingly, a U.S. Holder of a Second Note will be required to include
OID thereon in gross income for U.S. federal income tax purposes in advance of
the receipt of cash in respect of such income. The amount of OID allocable to an
initial short accrual period may be computed using any reasonable method if all
other accrual periods, other than a final short accrual period, are of equal
length. The amount of OID allocable to the final accrual period at maturity of
the Second Note is the difference between (x) the amount payable at the maturity
of the Second Note (other than qualified stated interest) and (y) the Note's
adjusted issue price as of the beginning of the final accrual period.

                                       49
<PAGE>   55

  MARKET DISCOUNT; ACQUISITION PREMIUM

     If a U.S. Holder purchases a Note for an amount that is less than the
"revised issue price" of the Note at the time of acquisition, the amount of such
difference will be treated as "market discount" for U.S. federal income tax
purposes, unless such difference is less than a specified de minimis amount. The
"revised issue price" of a debt obligation generally equals the sum of its issue
price and the total amount of OID includable in the gross income of all Holders
for periods before the acquisition of the debt obligation by the current Holder
(without regard to any reduction in such income resulting from acquisition
premium) and less any cash payments in respect of such debt obligation (other
than qualified stated interest). Under the market discount rules, a U.S. Holder
will be required to treat any principal payment on, or any gain on the sale,
exchange, retirement or other disposition of, a Note as ordinary income to the
extent of the market discount which has not previously been included in income
and is treated as having accrued on such Note at the time of such payment or
disposition. If a U.S. Holder makes a gift of a Note, accrued market discount,
if any, will be recognized as if such U.S. Holder has sold such Note for a price
equal to its fair market value. In addition, the U.S. Holder may be required to
defer, until the maturity of the Note or, in certain circumstances, the earlier
disposition of the Note in a taxable transaction, the deduction of a portion of
the interest expense on any indebtedness incurred or continue to purchase or
carry such Note.

     Any market discount will be considered to accrue on a straight-line basis
during the period from the date of acquisition to the maturity date of the Note,
unless the U.S. Holder elects to accrue market discount on a constant interest
method. A U.S. Holder of a Note may elect to include market discount in income
currently as it accrues (on either a straight-line basis or constant interest
method), in which case the rules described above regarding the deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, is irrevocable and applies to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
Internal Revenue Service.

     U.S. Holder who purchases a Note for an amount that is greater than the
adjusted issue price of such Note, but that is less than or equal to the sum of
all amounts payable on the Note after the purchase date, will be considered to
have purchased such Note at an "acquisition premium." Under the acquisition
premium rules of the code and the OID Regulations, the amount of OID which such
U.S. Holder must include in its gross income with respect to such Note for any
taxable year will be reduced for each accrual period by an amount equal to the
product of (1) the amount of OID otherwise includable for the period and (2) a
fraction, the numerator of which is the acquisition premium and the denominator
of which is the OID remaining from the date the Note was purchased to its
maturity date.

  SALE, EXCHANGE OR RETIREMENT OF THE NOTES

     A U.S. Holder's tax basis in a Note will generally equal its "U.S. dollar
cost", reduced by the amount of any payments received by the U.S. Holder with
respect to the Note that are not interest payments. The U.S. dollar cost of a
Note purchased with a foreign currency will generally be the U.S. dollar value
of the purchase price on the date of purchase.

     A U.S. Holder will generally recognize gain or loss on the sale, exchange
or retirement of a Note equal to the difference between the amount realized on
the sale, exchange or retirement (except to the extent such amount is
attributable to accrued interest (and, with respect to the Second Notes, OID),
which will be taxable as ordinary income) and the adjusted tax basis of the
Note. The amount realized on the sale, exchange or retirement of a Note for an
amount of foreign currency will be the U.S. dollar value of that amount on (i)
the date payment is received in the case of a cash basis U.S. Holder or (ii) the
date of disposition in the case of an accrual basis U.S. Holder.

     Gain or loss recognized by a U.S. Holder on the sale, exchange or
retirement of a Note that is attributable to changes in currency exchange rates
relating to the principal thereof will be ordinary income or loss and will equal
the difference between the U.S. dollar value of the U.S. Holder's purchase price
of the Note in foreign currency determined on the date of the sale, exchange or
retirement, and the U.S. dollar value of the U.S. Holder's purchase price of the
Note in foreign currency determined on the date the U.S. Holder acquired the
Note. The foregoing foreign currency gain or loss will be recognized only to the
extent of the total gain or loss realized by
                                       50
<PAGE>   56

the U.S. Holder on the sale, exchange or retirement of the Note, and will
generally be treated as from sources within the United States for U.S. foreign
tax credit limitation purposes.

     Any gain or loss recognized by a U.S. Holder in excess of foreign currency
gain or loss recognized on the sale, exchange or retirement of a Note would
generally be U.S. source capital gain or loss. In the case of an individual U.S.
Holder, any such gain will be subject to preferential U.S. federal income tax
rates if that U.S. Holder satisfies certain prescribed minimum holding periods.
The deductibility of capital losses is subject to limitations.

     A U.S. Holder will have a tax basis in any foreign currency received on the
sale, exchange or retirement of a Note equal to the U.S. dollar value of the
foreign currency at the time of the sale, exchange or retirement. Gain or loss,
if any, realized by a U.S. Holder on a sale or other disposition of that foreign
currency will be ordinary income or loss and will generally be income from
sources within the United States for foreign tax credit limitation purposes.

     A Non-U.S. Holder generally will not be subject to U.S. federal income or
withholding tax on any gain realized on the sale, exchange, or retirement of
Notes unless that gain is effectively connected with the conduct by that
Non-U.S. Holder of a trade or business in the United States.

BACKUP WITHHOLDING TAX AND INFORMATION REPORTING REQUIREMENTS

     U.S. backup withholding tax and information reporting requirements
generally apply to certain payments to certain nonexempt holders. Information
reporting generally will apply to payments of dividends or interest on (as the
case may be), and to proceeds from the sale or redemption of Notes or Shares by
a payor within the United States to a holder of Notes or Shares (other than an
"exempt recipient", including a corporation, a payee that is a Non-U.S. Holder
that provides an appropriate certification and certain other persons). A payor
within the United States will be required to withhold 31% of any payments of
dividends or interest on (as the case may be), and of the proceeds from the sale
or redemption of Notes or Shares within the United States to a holder (other
than an "exempt recipient") if that holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with those backup withholding
tax requirements. The amount of any backup withholding from a payment to a U.S.
Holder will be allowed as a credit against the U.S. Holder's U.S. federal income
tax liability.

     Final United States Treasury Regulations relating to backup withholding and
information reporting have been issued that modify certain of the foregoing
rules with respect to payments on Notes or Shares made after December 31, 2000.
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE APPLICATION
OF THE BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS, INCLUDING THE
NEW REGULATIONS, WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.

                                       51
<PAGE>   57

                        ITEM 8:  SELECTED FINANCIAL DATA

     The selected financial data for VersaTel, presented below, as of and for
the five fiscal years ended December 31, 1995, 1996, 1997, 1998 and 1999 have
been derived from the Audited Financial Statements of VersaTel, which have been
audited by Arthur Andersen, independent public accountants. You should read the
information set forth below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations" and the Financial Statements included elsewhere in this Annual
Report.

<TABLE>
<CAPTION>
                                                          FISCAL YEAR ENDED DECEMBER 31,
                                             --------------------------------------------------------
                                             1995     1996     1997      1998            1999
                                             -----   ------   -------   -------   -------------------
                                              NLG     NLG       NLG       NLG       NLG        $(1)
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>     <C>      <C>       <C>       <C>        <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................     52    6,428    18,896    39,561    129,000     58,904
Operating expenses:
Cost of revenue excluding depreciation and
  amortization.............................    117    4,954    17,405    31,821    100,615     45,943
Selling, general and administrative........    538    5,485    17,527    47,733    182,483     83,326
Depreciation and amortization..............     11      453     3,237     6,473     58,206     26,578
                                             -----   ------   -------   -------   --------   --------
Total operating expenses...................    666   10,892    38,169    86,027    341,304    155,847
                                             -----   ------   -------   -------   --------   --------
Loss from operations.......................   (614)  (4,464)  (19,273)  (46,466)  (212,304)   (96,943)
Interest expense, net......................      1      269       534    25,810    128,943     58,878
Currency loss (gain).......................     --       --        53    (5,146)    96,267     43,957
                                             -----   ------   -------   -------   --------   --------
Net loss before income taxes...............   (615)  (4,733)  (19,860)  (67,130)  (437,514)  (199,778)
                                             =====   ======   =======   =======   ========   ========
Provision for income taxes.................     --       --        --        (7)       962        439
                                             -----   ------   -------   -------   --------   --------
Net loss before minority share.............   (615)  (4,733)  (19,860)  (67,137)  (436,552)  (199,339)
Minority share.............................     --       --        --        --       (372)      (170)
                                             -----   ------   -------   -------   --------   --------
Net loss...................................   (615)  (4,733)  (19,860)  (67,137)  (436,180)  (199,169)
Net loss per share (Basic and Diluted).....  (0.09)   (0.47)    (1.10)    (2.06)     (8.56)     (3.91)
Weighted average number of shares
  outstanding..............................  6,654   10,008    18,084    32,622     50,929     50,929
</TABLE>

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31,
                                            ---------------------------------------------------------
                                            1995    1996     1997      1998             1999
                                            ----   ------   -------   -------   ---------------------
                                            NLG     NLG       NLG       NLG        NLG        $(1)
                                                                 (IN THOUSANDS)
<S>                                         <C>    <C>      <C>       <C>       <C>         <C>
BALANCE SHEET DATA:
Cash and restricted cash..................   160    4,443     1,495   583,570   2,315,724   1,057,408
Working capital (excluding cash and
  restricted cash)........................   436   (2,704)  (24,774)  (46,851)   (227,904)   (104,066)
Capitalized finance cost..................    --       --        --    28,750      62,265      28,432
Property, plant and equipment, net........   224    2,340    13,619    38,608     512,790     234,151
Construction in progress..................    --       --        --    46,019     180,271      82,316
Goodwill..................................    --       --        --     4,556     434,072     198,206
Total assets..............................   820    8,160    19,331   723,397   3,665,035   1,673,532
Total long-term obligations (including
  current portion)........................   614    4,185     8,492   688,796   2,222,832   1,014,992
Total shareholders' equity (deficit)......  (120)     146   (18,214)  (34,073)  1,118,757     510,848
</TABLE>

                                       52
<PAGE>   58

<TABLE>
<CAPTION>
                                                       FISCAL YEAR ENDED DECEMBER 31,
                                       --------------------------------------------------------------
                                        1995      1996     1997       1998              1999
                                       -------   ------   -------   --------   ----------------------
                                         NLG      NLG       NLG       NLG         NLG         $(1)
                                                        (IN THOUSANDS, EXCEPT RATIO)
<S>                                    <C>       <C>      <C>       <C>        <C>          <C>
OTHER FINANCIAL DATA:
SG&A as a percentage of revenue......   1194.2%    85.3%     92.8%     120.7%       141.5%      141.5%
EBITDA(2)............................     (603)  (4,011)  (16,036)   (39,993)    (154,098)    (70,365)
Capital expenditures.................      213    2,569    14,516     77,255      383,014     174,892
CASH FLOW DATA:
Net cash provided by (used in)
  operating activities...............     (715)  (1,718)    5,765    (37,322)    (154,462)    (70,531)
Net cash used in investing
  activities.........................     (234)  (2,569)  (14,516)  (112,036)  (1,041,322)   (475,489)
Net cash provided by financing
  activities.........................    1,109    8,571     5,807    520,008    2,993,942   1,367,097
</TABLE>

---------------

(1)  Solely for the convenience of the reader, Dutch guilder amounts have been
     translated into U.S. dollars at the Noon Buying Rate on December 31, 1999
     of NLG 2.19 per $1.00.

(2)  EBITDA consists of earnings (loss) before interest expense, income taxes,
     depreciation, amortization and foreign exchange gain (loss). EBITDA is
     included because management believes it is a useful indicator of a
     company's ability to incur and service debt. EBITDA should not be
     considered as a substitute for operating earnings, net income, cash flow or
     other statements of operations or cash flow data computed in accordance
     with U.S. GAAP or as a measure of a company's results of operations or
     liquidity. Funds depicted by this measure may not be available for
     management's discretionary use (due to covenant restrictions, debt service
     payments, the expansion of the VersaTel Network, and other commitments).
     Because all companies do not calculate EBITDA identically, the presentation
     of EBITDA contained herein may not be comparable to other similarly
     entitled measures of other companies.

                ITEM 9:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with
the Financial Statements contained elsewhere in this Annual Report. See
"Selected Financial Data." Certain information contained below and elsewhere in
this Annual Report, including information with respect to our plans and strategy
for our business, may include forward-looking statements. See "Cautionary
Statement for Purposes of the "Safe Harbor" Provisions of the United States
Private Securities Litigation Reform Act of 1995."

OVERVIEW

     We are a rapidly growing, competitive communications network operator in
our target market of the Benelux and Northwest Germany. We are a leading
alternative to the former monopoly telecommunications carriers in these regions.
Our objective is to become the leading fully integrated provider of local
access, facilities-based broadband services, including voice, data and Internet
services, to customers in our target market. We provide high-quality,
competitively priced telecommunications, data and Internet services to four
targeted market segments:

     -  Business Services -- small- and medium-sized businesses located
        throughout our target market.

     -  Local Access Services -- high bandwidth users within our target market
        located near to and who may be directly connected with our network.

     -  Data Services -- high bandwidth data customers with multiple sites
        throughout our target market.

     -  Carrier Services -- other telecommunications, data and Internet service
        providers.

     As of December 31, 1999, we had over 30,000 customers and over 900
employees. Our revenues grew from NLG 39.6 million for the year ended December
31, 1998 to NLG 129.0 million for the year ended December 31,

                                       53
<PAGE>   59

1999. After giving pro forma effect to the acquisitions of Svianed and VEW
Telnet our revenues would have been NLG 197.3 for the year ended December 31,
1999.

     Our growth to date has been driven by the continued increase in the number
of minutes of use for voice and, particularly, the increase in data and Internet
traffic, primarily as a result of our acquisition of Svianed and the continued
development of our data and Internet businesses. In addition, we expect revenues
to increase further as a result of our acquisition in December 1999 of VEW
Telnet and our continuing expansion into Germany. We anticipate that net losses
also will continue to increase due to increasing selling, general and
administrative costs related to the expansion of our business, the short-term
leasing of access capacity, higher borrowing costs and increased depreciation
and amortization costs resulting from the continuing build-out of our network.
Currency fluctuations between the euro and the U.S. dollar also may have an
adverse impact on our results of operations.

REVENUES

     Historically, our revenues were derived primarily from the provision of
long distance telecommunications services in The Netherlands and more recently
in Belgium. VersaTel's customer base predominately consists of small- and
medium-sized businesses and to a lesser extent residential customers. With the
acquisition of Svianed, we started to generate revenues from data services from
larger-sized customers such as GAK-Group, which accounted for 15.6% of our 1999
revenues. With the acquisition of VEW Telnet, we have begun deriving revenues
from Germany. We also provide carrier services to other telecommunications, data
and Internet service providers.

     Until our acquisition of Svianed, our revenues had been derived primarily
from minutes of telecommunications traffic billed. The percentage of our
revenues that consist of fixed monthly fees has increased substantially as a
result of our increased bandwidth services resulting from the acquisition of
Svianed. With the acquisition of VEW Telnet, we expect this percentage to
further increase as we continue to deploy our network and expand our data and
Internet service offerings. The following table sets forth the total revenues
attributable to our operations for the years ended December 31, 1997, December
31, 1998, and December 31, 1999, as well as our total number of customers for
telephony services, based on the number of invoices issued, as of December 31,
1997, December 31, 1998, and December 31, 1999. As a result of our recent
acquisitions, however, our total number of customers, is more than 30,000 as of
December 31, 1999.

<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1997        1998        1999
                                                              -------    --------    --------
                                                                    (NLG IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
REVENUES
  Business customers
     Telephony..............................................  16,948      34,472      69,844
     Data...................................................      --          --      31,093
     Internet...............................................      --         897      10,891
  Residential customers
     Telephony..............................................      11         386         893
     Internet...............................................      --          --         630
  Wholesale customers.......................................   1,937       3,806      15,649
                                                              ------     -------     -------
     Total..................................................  18,896      39,561     129,000
TELEPHONY CUSTOMERS                                                   (AT PERIOD END)
  Business customers........................................   2,014       6,640      15,835
  Residential customers.....................................     230       1,698       3,148
  Wholesale customers.......................................       1           4          45
                                                              ------     -------     -------
     Total..................................................   2,245       8,342      19,028
</TABLE>

                                       54
<PAGE>   60

     In 1997, all our revenues were generated in The Netherlands. In October
1998, VersaTel started generating revenues in Belgium and in December 1999, we
started generating revenues in Germany. The geographical composition of our
revenues in 1997, 1998 and 1999 was as follows:

<TABLE>
<CAPTION>
                                                               1997     1998      1999
                                                              ------   ------    -------
                                                                  (NLG IN THOUSANDS)
<S>                                                           <C>      <C>       <C>
The Netherlands.............................................  18,896   39,324    115,305
Belgium.....................................................      --      237      9,733
Germany.....................................................      --       --      3,962
                                                              ------   ------    -------
  Total.....................................................  18,896   39,561    129,000
</TABLE>

     Historically, small- to medium-sized businesses have generated the majority
of VersaTel's revenues. We have also derived increasing amounts of revenue from
providing services, including switched voice and co-location services, to other
telecommunications, data and Internet service providers. As a result of our
acquisition of Svianed, we derive a substantial portion of our revenues from
providing data and Internet services to larger customers. We have changed our
approach to reaching residential customers by offering carrier select hosting
services to switchless resellers, who themselves target the residential market.
We believe that this approach is a more cost-effective way of reaching
residential customers. As our network expands and as we have available capacity,
we intend to increase our marketing efforts in the carrier services segment to
increase the use of our network and to capture revenues and margins from markets
we do not target directly.

     Our revenues, which are derived both from minutes of communications traffic
billed and fixed broadband and subscription fees, are allocated to the period in
which the traffic has terminated or fees have been generated. The percentage of
our revenues attributable to fixed fees has increased recently, principally as a
result of the Svianed acquisition. In addition, through our own number ranges in
The Netherlands and Belgium, through number portability in The Netherlands and
through Internet traffic generated by Zon, which forms a part of our Internet
division, we generate revenues from terminating minutes. We generally price our
communications services at a discount to the local market prices and expect to
continue this pricing strategy as we expand our operations. In general, prices
for communications services have decreased over the last several years. As a
result, we have experienced and expect to continue to experience declining
revenues per minute. This trend has accelerated as the number of traffic minutes
attributable to internet traffic generated by Zon has increased. KPN Telecom
reduced its prices per minute of telecommunications traffic billed in January
1999, May 1999, October 1999 and January 2000 with reductions of approximately
10.0%, 20.0%, 5.0% and 2.0%, respectively, which are expected to have an adverse
impact on margins in the near term as we have responded by reducing our prices.
In Belgium, Belgacom introduced several discount programs for selected customer
groups, which discounts were subsequently matched by VersaTel. Germany has
experienced similar levels of price reductions. Additionally, we expect to
increase our national billable minutes, which are priced at lower rates than
international minutes. As national and wholesale billable minutes and minutes
attributable to termination of our Internet traffic increase as a percentage of
total billable minutes, average revenue per billable minute will further
decline. However, due to technological improvements, liberalization of the
European telecommunications market and increased available transmission
capacity, both from third parties and as we build out our network, we expect
costs per minute to decline as well. Management believes that the decline of per
minute prices will outpace the decline in per minute costs in the near term,
resulting in downward pressure on operating margins. Management believes that
over the long term, this trend will reverse and operating margins will thereby
improve; however, there can be no assurances that this will occur. If reductions
in costs do not in fact outpace reductions in revenues, we may experience a
substantial reduction in our margins on calls which, absent a significant
increase in billable minutes of traffic carried or increased charges for other
services, would have a material adverse effect on our business and financial
results. In addition, the introduction of the euro has made pricing more
transparent in the European telecommunications market, which may lead to further
competition and price decreases. See "Item 1: Description of Business -- Certain
Factors Which May Affect Our Business -- Competing Against Dominant Market
Participants."

                                       55
<PAGE>   61

COST OF REVENUES

     Our costs of revenues are comprised of origination costs, network costs and
termination costs and are both fixed and variable. Origination costs represent
the cost of carrying traffic from the customer to the VersaTel Network.
Origination charges for calls transported to the VersaTel Network are variable
and are incurred on a per minute basis, including the call set-up charges.
Origination charges for business and residential customers are charged by the
PTT to VersaTel.

     We have experienced a significant decrease in origination costs and expect
that these will continue to decrease significantly over time due to competition
and regulatory orders. In July 1998, the Netherlands regulatory authority
Onafhankelijke Post en Telecommunicatie Autoriteit ("OPTA"), ruled that
origination and termination charges be reduced by 55% and 30%, respectively.
These reductions have been upheld by OPTA in 1999 during an appeal by KPN
Telecom. We expect that the interconnection charges will continue to decrease,
although at a more moderate rate. In addition, as we continue to build out our
network, we intend to connect directly as many business customers as
economically feasible to the network, thereby eliminating our origination
charges for these customers. These decreases would be offset to some extent by
amortization and depreciation charges associated with the continuing build out
of our network. There can be no assurance that the trend in decreasing access
costs will continue. As a result, if origination costs do not continue to
decrease, anticipated decreases in revenues per minute would cause us to
experience a decline in gross margins per billable minute, which would have a
material adverse effect on our business and financial performance. See "Item 1:
Description of Business -- Certain Risk Factors Which May Affect the
Business -- Competing Against Dominant Market Participants."

     Network costs represent the cost of transporting traffic between our
switches and points of interconnection and consist of depreciation and
amortization costs and the cost of leased lines. To date, our network costs have
primarily consisted of the cost of leased lines as well as Internet uplink
costs. Over time, we expect a reduction in the cost of our leased lines as
traffic is shifted onto our owned network. In addition, as we provision
Svianed's traffic onto our network, we will experience a significant reduction
in the cost of leased lines currently attributable to Svianed. This shift of
traffic, however, has not occurred as rapidly as we had originally anticipated
due to our focus on expanding our network to connect new customers and central
office locations to generate new revenues. This has negatively impacted our
operating margins in recent periods. We expect depreciation and amortization
costs to increase due to depreciation of the TelNet network and the continuing
build out of our backbone network. See "-- Depreciation and Amortization."

     Termination costs are the per minute costs associated with using carriers
to carry a call from the point of interconnection to the final destination.
Through least-cost routing, our switches direct calls to the most cost-efficient
carrier for the required destination. As we build out our network to new points
of interconnection, we expect to be able to reduce average termination costs per
minute. For example, once we establish a direct link from Amsterdam to
Rotterdam, we will no longer pay for national termination costs on that route
and will only pay local and regional termination costs from the point of
interconnection in Rotterdam to the final destination in that city. We also
believe that per minute termination costs will continue to decrease due to
several additional factors, including: (i) the incremental build out of our
network, which will increase the number of carriers with which we interconnect;
(ii) the increase of minutes we originate, which should lead to higher volume
discounts available to us; (iii) more rigorous implementation of the EC
directives requiring cost-based termination rates and leased line rates; and
(iv) the emergence of new telecommunication service providers and the
construction of new transmission facilities, which should result in increased
competition. There can be no assurance, however, that the trend of decreasing
termination costs will continue.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     Selling, general and administrative expenses are comprised primarily of
salaries, employee benefits, office and administrative expenses, professional
and consulting fees and marketing costs. These expenses have increased as we
have developed and expanded our workforce, and they are expected to continue to
increase as we expand and establish new operations. Selling, general and
administrative expenses as a percentage of revenue will

                                       56
<PAGE>   62

continue to vary from period to period as a result of start-up costs relating to
expansion into new businesses and regions such as Northwest Germany and
complementary businesses such as Versatel Internet.

     We have grown substantially since our inception and we intend to continue
to grow by adding more sales, marketing and customer support staff and by
establishing additional sales offices. This growth involves substantial training
and start-up costs, a large portion of which will be reflected as fixed costs
and will be recorded as selling, general and administrative charges.
Accordingly, our results of operations will vary depending on the timing and
speed of our expansion strategy and, during a period of rapid expansion,
selling, general and administrative expenses will be relatively higher than
during more stable periods of growth. See "Item 1: Description of
Business -- Sales and Marketing -- Sales and Marketing Staff."

DEPRECIATION AND AMORTIZATION

     We capitalize and depreciate our fixed assets, including switching and
transmission equipment, routers, fiber optic cable, and rights of use, over
periods ranging from two to 30 years. In addition, we capitalize and amortize
the cost of installing dialers at customer sites. The development of our network
will require large capital expenditures and larger depreciation charges in the
future. In particular, our acquisition of Svianed and our recent acquisition of
VEW Telnet can be expected to significantly increase our goodwill amortization
charges in future periods. Increased capital expenditures will adversely affect
our future operating results due to increased depreciation charges and interest
expense. See "Item 1: Description of Business -- Strategy" and "Item 1:
Description of Business -- Network."

FOREIGN EXCHANGE

     We have substantial U.S. dollar denominated assets and liabilities and our
revenues are generated and costs incurred in other currencies, primarily the
Dutch guilder. We are therefore exposed to fluctuations in the U.S. dollar and
other currencies, which may result in foreign exchange gains and/or losses. The
Netherlands, Belgium and Germany have all adopted the euro, and, as a result, we
are no longer exposed to any fluctuations between the Dutch guilder, the Belgian
franc and the Deutsche mark. A number of equipment purchases and consultancy
activities are billed to VersaTel in currencies other than Dutch guilders.

RESULTS OF OPERATIONS

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 31, 1998

     REVENUES increased by NLG 89.4 million to NLG 129.0 million for the fiscal
year ended December 31, 1999 from NLG 39.6 million for the fiscal year ended
December 31, 1998, representing an increase of 226.1%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of
national long distance data and Internet services in The Netherlands, the
acquisition of Svianed, the introduction of national and international long
distance services in Belgium and an increase in wholesale traffic. Included in
the revenues for the year ended December 31, 1999 are the revenues of Svianed,
from the date of the acquisition (June 1, 1999) of NLG 41.5 and the revenues of
VEW Telnet, from the date of the acquisition (December 1, 1999) of NLG 4.0.
Revenues for the fiscal year ended December 31, 1999 as compared to the same
period in 1998 were negatively impacted by frequent price reductions resulting
from competitive pressures.

     The number of customers for telephony services increased by 10,686 to
19,028 as of December 31, 1999 from 8,342 as of December 31, 1998. As a result
of our recent acquisitions, however, our total number of customers, increased to
more than 30,000 as of December 31, 1999. In addition, since the inception of
Zon on August 31, 1999 it has generated over 400,000 subscribers to its Internet
services as of March 15, 2000.

     COST OF REVENUES increased by NLG 68.8 million to NLG 100.6 million for the
fiscal year ended December 31, 1999 from NLG 31.8 million for the fiscal year
ended December 31, 1998, representing an increase of 216.2%. This increase is
primarily the result of an increase in our operations, including increases in
billable minutes, interconnect capacity and short-term network capacity
requirements (leased lines) in Belgium, Internet uplinks and international
leased lines to London and Frankfurt. Leased line costs also increased as a
result of using leased lines to connect customers directly to our backbone
network as demand for our services

                                       57
<PAGE>   63

exceeded our ability to build out these customer connections without
unreasonable delay to the customer. We also experienced delays in migrating
Svianed traffic from leased lines to our backbone network. Finally, our cost of
revenues also has increased as Dutch mobile operators have instituted
call-blocking to prevent lower cost international refiling alternatives for
fixed-to-mobile calls. The acquisitions of Svianed and VEW Telnet added NLG 20.9
million and NLG 2.7 million, respectively, to cost of revenues for the period.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased by NLG 134.8 million
to NLG 182.5 million for the year ended December 31, 1999 from NLG 47.7 million
for the year ended December 31, 1998, representing a 282.3% increase. The
increase was partially due to a one-time, non-cash charge of NLG 27.7 million
during the second quarter of 1999 related to a revaluation of employee stock
options. Excluding this one-time charge the selling, general and administrative
expenses increased by NLG 107.1 million to NLG 154.8 million, representing an
increase of 224.3%, primarily as a result of an increase in the cost of staff
(including temporary personnel and consultants, the use of which increased
significantly during the current year) in the areas of network operations,
customer service, sales and marketing, installation services, accounting
personnel, additional facilities cost, expenses related to the expansion of our
Belgium operations, additional expenses as a result of the acquisitions of VEW
Telnet, Svianed, VuurWerk, ITinera and start-up expenses related to Zon.

     DEPRECIATION AND AMORTIZATION EXPENSES increased by NLG 51.7 million to NLG
58.2 million for the year ended December 31, 1999 from NLG 6.5 million for the
year ended December 31, 1998. This increase primarily resulted from the
expansion of the network, including the expansion of the Nortel DMS-100 switch
in Amsterdam and the deployment of a Nortel DMS 100 switch in Antwerp and
Rotterdam and CISCO data switches in Amsterdam, Rotterdam and Antwerp. The
increase in depreciation and amortization expense also resulted from the
purchase of additional IT-equipment for new customer support systems, an
increase in the number of dialers, the purchase of computer equipment and office
furniture for new employees as well as amortization of goodwill of NLG 20.2
million and 0.5 million as a result of the respective acquisitions of Svianed
and VEW Telnet.

     INTEREST INCOME increased by approximately NLG 16.5 million to NLG 28.3
million for the year ended December 31, 1999 from NLG 11.9 million for the year
ended December 31, 1998. This increase was primarily related to VersaTel's
positive cash balance as a result of the High Yield Offerings and the Initial
Public Offering, as well as the Convertible Note Offering and the Second Equity
Offering.

     INTEREST EXPENSE increased by NLG 119.6 million to NLG 157.3 million for
the year ended December 31, 1999 from NLG 37.7 million for the year ended
December 31, 1998. This increase is primarily related to the accrual of interest
expense on the indebtedness issued in the High Yield Offerings and the
Convertible Note Offering.

     CURRENCY EXCHANGE LOSSES, NET, increased by NLG 101.4 million to NLG 96.3
million for the year ended December 31, 1999 from a net gain of NLG 5.1 million
for the year ended December 31, 1998 due to currency exchange losses on
VersaTel's U.S. dollar denominated liabilities resulting from appreciation of
the U.S. dollar against the euro.

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE FISCAL YEAR ENDED
DECEMBER 31, 1997

     REVENUES increased by NLG 20.7 million to NLG 39.6 million for the fiscal
year ended December 31, 1998 from NLG 18.9 million for the fiscal year ended
December 31, 1997, representing an increase of 109.4%. The growth in revenues
resulted primarily from the addition of new customers, the introduction of
national long distance services in The Netherlands, the acquisition of CS Net
B.V., the introduction of services in Belgium and an increase in wholesale
traffic. Revenues for the fiscal year ended December 31, 1998 as compared to the
same period in 1997 were negatively impacted by general price reductions
initiated by KPN Telecom in May 1998 and July 1998 of approximately 10.0% and
approximately 15.0%, respectively. VersaTel responded to these price reductions
by reducing its own prices and VersaTel's revenues would have been higher
without such price reductions.

                                       58
<PAGE>   64

     Billable minutes of use increased by 98.2 million to 121.6 million for the
fiscal year ended December 31, 1998 from 23.4 million for the fiscal year ended
December 31, 1997, representing an increase of 420.5%. The number of customers
increased by 6,097 to 8,342 as of December 31, 1998 from 2,245 as of December
31, 1997.

     COST OF REVENUES increased by NLG 14.4 million to NLG 31.8 million for the
fiscal year ended December 31, 1998 from NLG 17.4 million for the fiscal year
ended December 31, 1997, primarily reflecting an increase in billable minutes,
increasing interconnect capacity and short-term network capacity requirements
(leased lines) in Belgium. This increase was partially offset by declines in per
minute international termination and origination costs resulting from the
migration of customers from the DISA and VPN codes to the "1611" carrier select
code.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSE increased by NLG 30.2 million
to NLG 47.7 million for the fiscal year ended December 31, 1998 from NLG 17.5
million for the fiscal year ended December 31, 1997, representing a 172.3%
increase. This primarily resulted from an increase in the cost of staff
(including temporary personnel and consultants) in the areas of network
operations, customer service, sales and marketing, installation services,
accounting personnel, a major brand advertising campaign and onetime related
start-up expenses for Belgium operations network expenses.

     DEPRECIATION AND AMORTIZATION EXPENSES increased by NLG 3.3 million to NLG
6.5 million for the fiscal year ended December 31, 1998 from NLG 3.2 million for
the fiscal year ended December 31, 1997. This increase was primarily related to
capital expenditures incurred in connection with the deployment of the Nortel
DMS 100 switches in Amsterdam and Antwerp, the expansion and deployment of the
Network and an increase in the number of dialers installed due to customer
growth and the purchase of computer equipment and office furniture for new
employees.

     CURRENCY EXCHANGE GAINS, NET, increased to NLG 5.1 million for the fiscal
year ended December 31, 1998 from a loss of NLG 0.05 million for the fiscal year
ended December 31, 1997 as a result of the net gains of VersaTel's U.S. dollar
denominated assets and liabilities on the balance sheet.

     INTEREST INCOME increased by NLG 11.9 million to NLG 11.9 million for the
fiscal year ended December 31, 1998 from NLG 0.02 million for the fiscal year
ended December 31, 1997. This increase was primarily related to VersaTel's
positive cash balance as a result of the First Offering and the Second Offering.

     INTEREST EXPENSE increased by NLG 37.1 million to NLG 37.7 million for the
fiscal year ended December 31, 1998 from NLG 0.6 million for the fiscal year
ended December 31, 1997. This increase is primarily related to the accrual of
interest expense on the High Yield Notes.

LIQUIDITY AND CAPITAL RESOURCES

     We have incurred significant operating losses and negative cash flows as a
result of the development of our business and network. Prior to May 1998, we
financed our growth primarily through equity and subordinated loans from our
shareholders. In May 1998, we issued notes and warrants in the First High Yield
Offering and raised net proceeds, after transaction expenses, of $216.2 million,
$80.6 million of which was invested in U.S. government securities placed in
escrow to fund the first six interest payments on the notes issued in the First
High Yield Offering. In December 1998, we issued notes and warrants in the
Second High Yield Offering and raised net proceeds, after transaction expenses,
of $139.5 million, $45.7 million of which was invested in U.S. government
securities placed in escrow to fund the first five interest payments on the
notes issued in the Second High Yield Offering.

     In July 1999, we issued E120,000,000 11 7/8% Senior Euro Notes due 2009 and
$180,000,000 11 7/8% Senior Dollar Notes due 2009 in the Third High Yield
Offering and raised net proceeds, after transaction expenses, of E116.1 million
and $173.9 million, respectively, $152.1 million of which was used to repay
certain interim loans, obtained to acquire Svianed. Concurrently with the Third
High Yield Offering, VersaTel and a number of selling shareholders sold
21,250,000 ordinary shares in the form of Shares and ADSs in the Initial Public
Offering. In August 1999, VersaTel sold an additional 3,187,500 ordinary shares
in connection with an over-allotment option granted to the underwriters in the
Initial Public Offering. VersaTel raised aggregate net proceeds, after
transaction expenses, of the sale of shares and ADSs of E174.5 million and $35.5
million, respectively, in the Initial Public
                                       59
<PAGE>   65

Offering. The ordinary shares have been listed on the AEX under the symbol
"VRSA" and the ADSs have been listed on the NASDAQ National Market under the
symbol "VRSA".

     In December 1999, we issued and sold 15,000,000 ordinary shares for
aggregate net proceeds, after offering expenses, of approximately E506.6 million
in the Second Equity Offering and E300,000,000 of 4% Senior Convertible Notes
due 2004 in a private placement to institutional investors. With respect to the
Convertible Notes offering, we raised aggregate net proceeds, after offering
expenses, of approximately E292.5 million.

     VersaTel has used a significant amount of the net proceeds of the High
Yield Offerings, the Initial Public Offering, the Second Equity Offering and the
Convertible Notes Offering to make capital expenditures related to the expansion
and development of its network, to acquire various companies, to fund operating
losses and for other general corporate purposes.

     To date, VersaTel has made limited use of bank facilities and capital lease
financing. VersaTel may seek to raise senior secured debt financing in the
future to fund the expansion of its network and for general corporate purposes.

     Although we currently maintain significant cash balances, we will require
additional capital to continue funding the expansion and development of our
network and service offerings. In addition to continuing the build out of our
network, we expect that we will need additional capital to expand our local
access network, invest in Internet activities, fund our investment in VersaPoint
and the fiber transmission related to the DSL roll-out as well as for
acquisitions. In addition, we anticipate that we may want to participate in
auctions for UMTS wireless licenses in our target market.

     We are in the process of conducting an offering of approximately 8.5
million of our ordinary shares (approximately 4.25 million of which are to be
sold by certain of our shareholders), approximately E300 million initial
principal amount of convertible notes and approximately E300 million of senior
notes. We expect that the gross proceeds to us of these offerings of
approximately E1,100 million, combined with our existing cash balances, together
with other available financings and cash flows from operations, will provide us
with sufficient capital to fund planned capital expenditures and anticipated
losses for at least the next 12 to 18 months. We expect that we will need to
raise substantial additional funds through public or private financings or from
financial institutions.

     We were required to meet our debt service obligations on the notes issued
in the Third High Yield Offering out of cash reserves and net cash flow on
January 15, 2000. Starting December 17, 2000, we were required to meet our debt
service under the Convertible Notes. In addition, starting November 15, 2001,
our funds that have been placed in escrow to cover interest payments on the
notes issued in the First High Yield Offering and the Second High Yield Offering
will have been exhausted. As a result, we will need to increase substantially
our net cash flow in order to meet our debt service obligations.

     The general rate of inflation has been low in the Benelux and Germany in
recent years. We do not expect that inflationary pressures in the future, if
any, will have a material effect on our results of operations or financial
condition.

     Net cash used in operating activities was NLG 154.5 million for the year
ended December 31, 1999 compared to NLG 37.3 million for the year ended December
31, 1998. This increase was primarily the result of an increase in operating
losses incurred during 1999.

     Net cash used in investing activities was NLG 1,041.3 million in the year
ended December 31, 1999 and NLG 112.0 million in the year ended December 31,
1998. This increase was the result of the acquisitions we completed during the
second quarter of 1999, as well as ongoing capital expenditures to expand our
network and operations.

     Net cash provided by financing activities was NLG 2,993.9 million the year
ended December 31, 1999 and NLG 520.0 million in the year ended December 31,
1998. This increase was primarily the result of the Initial Public Offering, the
Third High Yield Offering, the Second Equity Offering and the Convertible Notes
Offering.

                                       60
<PAGE>   66

      ITEM 9A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our financial department manages our funding, liquidity and exposure to
foreign exchange rate risks. It is our policy not to enter into any transactions
of a speculative nature.

     Our debt obligations that are denominated in U.S. dollars expose us to
risks associated with changes in the exchange rates between the U.S. dollar and
the Dutch guilder and Belgian franc (which currencies are now both pegged to the
euro) in which our revenues are denominated. However, in conjunction with the
First High Yield Offering and the Second High Yield Offering, we have placed in
escrow and pledged for the benefit of the holders of the notes issued in the
First High Yield Offering and the Second High Yield Offering U.S. government
securities sufficient to pay interest due on the notes issued in the First High
Yield Offering and the Second High Yield Offering until and including the
scheduled interest payment on May 15, 2001.

     The notes issued in the First High Yield Offering and the Second High Yield
Offering will mature on May 15, 2008 and the notes issued in the Third High
Yield Offering will mature on July 15, 2009. The Convertible Notes will mature
on December 17, 2004 unless previously redeemed or converted, VersaTel is not
required to make any mandatory redemptions (other than an offer to repurchase
these notes upon a change in control of VersaTel) prior to maturity of these
notes. Since the interest rate on each of the notes issued in the First High
Yield Offering, the Second High Yield Offering, the Third High Yield Offering is
fixed and the effective interest rate on the Convertible Notes increases at
fixed increments, we have limited our exposure to risks due to fluctuations of
interest rates. At December 31, 1999, the fair value of the notes issued in the
First High Yield Offering, the Second High Yield Offering and the Third High
Yield Offering was approximately $718.1 million.

     The costs and expenses relating to the construction of our network and the
development of our sales and marketing resources will largely be in Dutch
guilders, Belgian francs and, increasingly, euros. Therefore, the construction
of our network and the development of our sales and marketing resources will
also be subject to currency exchange rate fluctuations as we exchange the
proceeds from these offerings and the remaining proceeds from the Initial Public
Offering and the High Yield Offerings, to pay our construction costs. However,
as of December 31, 1999 we had exchanged all but $46.9 million of the proceeds
from these offerings into Dutch guilders. Prior to the application of the net
proceeds from these offerings, such funds have been invested in short-term
investment grade securities. VersaTel from time to time hedges a portion of its
foreign currency risk in order to lock into a rate for a given time. In
addition, we may become subject to greater foreign exchange fluctuations as we
continue to expand our operations outside The Netherlands and receive more
revenues denominated in currencies other than Dutch guilders, although the
introduction of the euro has largely eliminated these risks as all three Benelux
countries and Germany have adopted the euro as their legal currency.

                                       61
<PAGE>   67

                 ITEM 10:  DIRECTORS AND OFFICERS OF REGISTRANT

     The members of the supervisory board and the management board of VersaTel
and other significant employees of VersaTel and their respective ages and
positions are set forth below.

MANAGEMENT BOARD

     R. Gary Mesch is the sole managing director (statutair directeur) of
VersaTel.

SUPERVISORY BOARD

<TABLE>
<CAPTION>
NAME                                        AGE                        POSITION
----                                        ---                        --------
<S>                                         <C>    <C>
Leo W. A. M. van Doorne...................  40     Chairman
Johan G. Wackwitz.........................  44     Member
James R. Meadows..........................  47     Member
Sander van Brummelen......................  57     Member
</TABLE>

EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
NAME                                        AGE                        POSITION
----                                        ---                        --------
<S>                                         <C>    <C>
R. Gary Mesch.............................  46     Managing Director
W. Greg Mesch.............................  39     Vice President Corporate Development
Raj Raithatha.............................  37     Vice President Finance and Chief Financial
                                                   Officer
Larry Hendrickson.........................  56     Vice President Technology and Chief Technology
                                                   Officer
Marc A. J. M. van der Heijden.............  40     Vice President Legal and Regulatory Affairs
Frits R. Kunnen...........................  64     Chief Operations Officer
Aad T. Beekhuis...........................  52     Chief Network Officer
</TABLE>

SUPERVISORY BOARD

     Under Netherlands law and the articles of association of VersaTel, the
management of VersaTel is entrusted to the management board (Directie) under the
supervision of the supervisory board (Raad van Commissarissen). Under the laws
of The Netherlands, supervisory directors cannot at the same time be managing
directors of the same company. The primary responsibility of the supervisory
board is to supervise the policies pursued by the management board and the
general course of affairs of VersaTel and its business. In fulfilling their
duties, the members of the supervisory board are required to act in the best
interests of VersaTel and its business.

     Pursuant to the articles of association, the supervisory board consists of
such number of members as may be determined by the general meeting of
shareholders. The members of the supervisory board are appointed by the general
meeting of shareholders. Resolutions of the supervisory board require the
approval of a majority of the members. The supervisory board meets each time
this is deemed necessary by one of its members. Every retiring supervisory
director may be reappointed, provided that such supervisory director has not
attained the age of 72. A member of the supervisory board must retire not later
than on the day of the general meeting of shareholders held in the fiscal year
in which such member reaches the age of 72.

     A member of the supervisory board may at any time be suspended or removed
by the general meeting of shareholders. The members of the supervisory board may
receive such compensation as may be determined by the general meeting of
shareholders.

MANAGEMENT BOARD

     The management of VersaTel is entrusted to the management board under the
supervision of the supervisory board. The articles of association provide that
the management board may from time to time adopt written

                                       62
<PAGE>   68

policies governing its internal organization. Such written policies require the
approval of the supervisory board. In addition, the articles of association list
certain actions which require prior approval of the supervisory board. Such
actions include, among other things: (i) borrowing or lending money; (ii)
participating directly or indirectly in the capital of another company; (iii)
making any investments; and (iv) providing security in the name of VersaTel or
its property.

     The management board consists of such number of members as may be
determined by the general meeting of shareholders. In addition, the general
meeting of shareholders appoints the members of the management board.

     The general meeting of shareholders has the power to suspend or dismiss
members of the management board. The supervisory board also has the power to
suspend members of the management board. If a member of the management board is
temporarily prevented from acting, the remaining members of the management board
shall temporarily be responsible for the management of VersaTel. If all members
of the management board are prevented from acting, a person appointed by the
supervisory board (who may be a member of the supervisory board) will be
temporarily responsible for the management of VersaTel. The compensation and
other terms and conditions of employment of the members of the management board
are determined by the general meeting of shareholders.

BIOGRAPHIES

     R. GARY MESCH has served as Managing Director of VersaTel individually or
through his position as President of Open Skies International Inc. ("Open
Skies") since October 1995. In 1991 he founded and became President of Open
Skies, a telecommunications consultancy with operations based in Amsterdam,
which provided consulting for early stage development of competitive European
telecommunications businesses. From 1991 to 1995 Open Skies advised such clients
as Unisource, PTT Telecom International, Inmarsat, NEC and Eurocontrol. In 1984
he founded and until 1990 he managed the commercial operations of NovaNet, a
Denver-based provider of satellite-based data communications networks. NovaNet
was acquired by ICG Communications in 1993. From 1981 to 1983 he served as
director of sales for Otrona Advanced Systems, a Colorado-based manufacturer of
high performance computer systems. From 1975 to 1981 he served as a senior
systems engineer with Westinghouse Electric. Mr. Gary Mesch holds a B.S. in
Electrical Engineering from the University of Colorado and an M.B.A. from Denver
University.

     LEO W. A. M. VAN DOORNE has served as Chairman of the Supervisory Board of
VersaTel since December 1995. Since 1996, Mr. van Doorne has been the Managing
Director of NeSBIC Groep B.V., a venture capital company and a subsidiary of
Fortis, an international group of more than 200 companies operating in the
fields of insurance, banking and investments. Worldwide, Fortis has over 58,000
employees. From 1994 to 1996 he served as Managing Director of NeSBIC Venture
Management B.V. From 1990 to 1994 he was Regional Director of Banque de Suez
Nederland N.V. Mr. van Doorne serves as a member of the supervisory board of
various other companies. Mr. van Doorne holds a degree in law from the
University of Utrecht.

     JOHAN G. WACKWITZ has served as a member of the Supervisory Board of
VersaTel since August 1998. Mr. Wackwitz is a member of the management board of
COBEPA S.A. and Paribas Deelnemingen N.V. From 1991 to 1993 he was employed by
Paribas in its capital markets division and responsible for the Benelux within
the investment banking group. From 1979 to 1991 he served at various management
positions at Bankers Trust Company. Mr. Wackwitz serves as a member of the
supervisory board of various other companies. Mr. Wackwitz holds a degree in
economics from the Rijks Universiteit Groningen and an M.B.A. from Columbia
University.

     JAMES R. MEADOWS has served as a member of the Supervisory Board of
VersaTel since August 1998. Mr. Meadows has been Senior Vice President and
co-founder of PrimeTEC International, Inc., a U.S.-based international
telecommunications services provider, since 1997. From 1989 to 1997 he served as
Director of Government Affairs at Capital Network System, Inc. (CNSI), a
telecommunications services provider. Mr. Meadows is a member of the Board of
Directors of Lone Star 2000, a public policy foundation, and of Comptel. Mr.
Meadows holds a degree in history from the University of Texas at Austin.

     SANDER VAN BRUMMELEN has served as a member of the Supervisory Board of
VersaTel since July 1999. Mr. Van Brummelen has been a Managing Director of Gak
Holding since 1996. From 1992 to 1996 he served as

                                       63
<PAGE>   69

a principal director of Gak and from 1982 to 1992 he served as IT director of
Gak. From 1979 to 1982 he served in managing positions at KPN Telecom. Mr. van
Brummelen serves as a member of the supervisory boards of various other
companies. Mr. van Brummelen holds a degree in technical engineering from the
University of Delft.

     W. GREG MESCH has served as Vice President Corporate Development since
October 1999. He has served as Chief Operations Officer of VersaTel from April
1998 to October 1999. From VersaTel's inception in 1995 until August 1998, he
served as a member of the Supervisory Board of VersaTel nominated by Telecom
Founders and has performed operations consulting roles for VersaTel. From 1993
to 1997, Mr. Mesch was the Chief Operations Officer of Esat Telecom plc, a
public company listed on NASDAQ. From 1986 to 1992, he served as Chief Executive
Officer of Nova Net, a Denver-based provider of satellite-based data
communications networks, which he founded with his brother Mr. Gary Mesch. Mr.
Mesch has been a Director of In-Touch Associates Ltd., a U.K.-based
telecommunications consulting firm, since 1997 and is an Advisory Board Member
to NeSBIC Converging Technologies Fund. Mr. Mesch has an M.B.A. from Denver
University.

     RAJ RAITHATHA has served as Vice President Finance and Chief Financial
Officer of VersaTel since April 1998. From 1994 to April 1998 he served as Chief
Financial Officer and Director of Business Development of ACC Corp.'s European
Operations. From 1992 to 1994 he served as Finance Director of Bay Trading
Company. From 1989 to 1992 he served as divisional finance director at
Securiguard Group plc and from 1987 to 1989 he was financial controller at
Harrison Willis. From 1983 to 1987 he was employed by KPMG Peat Marwick. Mr.
Raithatha holds a degree in economics and mathematics from the University of
Cardiff, Wales.

     LARRY HENDRICKSON has served as Vice President Technology and Chief
Technology Officer of VersaTel since April 1998. From 1994 to 1998 he was senior
consultant and partner of DDV Telecommunications Strategies, a Benelux-based
telecommunications consulting company, and from 1993 to 1994 he was an
independent telecommunications consultant. From 1986 to 1993 he served at
various management positions at Cincinnati Bell, including President of Europe
Group, President and Chief Executive Officer of LDN Communications (Cincinnati
Bell) and President of the Mobile Communications Division of Cincinnati Bell
Information Systems. From 1964 to 1986 he was employed by AT&T. Mr. Hendrickson
holds a B.S. in management from the Massachusetts Institute of Technology and
completed the Advanced Management Program at Harvard Business School.

     MARC A.J.M. VAN DER HEIJDEN has served as Vice President Legal and
Regulatory Affairs of VersaTel since June 1998. Mr. van der Heijden has served
as regulatory counsel to VersaTel on matters of telecommunications law and
regulatory policy since October 1995 as an independent consultant. As an
independent consultant on telecommunications law he has acted as advisor to the
EC, the governments of The Netherlands and the United Kingdom, and various
telephone companies such as France Telecom and KPN Telecom, and financial
institutions such as ABN AMRO and Nederlandse Investerings Bank. He worked as an
expert for KPMG Peat Marwick on bidding processes for mobile telephony and sale
of cable companies. Mr. Van der Heijden holds a degree in law.

     FRITS R. KUNNEN has served as Chief Operations Officer since October 1999.
He has served as Director Special Assignments from October 1998 to October 1999.
Mr. Kunnen has served in these capacities pursuant to a consultancy agreement.
In 1991, he founded Sharp Electronics Benelux B.V., for which he served as
President and Chief Executive Officer from 1991 to 1997. From 1990 to 1991 he
served as Managing Director and Member of the Group Council of the Samas Group
N.V., where he was responsible for the Office Equipment and Software divisions.
From 1989 to 1990 he was Interim Manager of the Defense and Control Systems
Division and finally as Director of Far East Operations of Philips N.V., where
he was responsible for the divestment of this division. From 1960 to 1989 he
served as Group Product Manager, Regional Manager and Director of the Components
Division of Philips N.V. Mr. Kunnen holds a degree in electronics from the
University of Delft.

     AAD T. BEEKHUIS has served as Chief Network Officer since March 2000. From
April 1999 to March 2000 Mr. Beekhuis served as Project Director of KPN Telecom
responsible for the strategy and rollout program for the ADSL network. From July
1998 to March 1999 he served as Project Director with Nokia where he was
responsible for launch of the BEN mobile network in The Netherlands. From 1995
to 1998 Mr. Beekhuis served as a Project Manager responsible for rollout of the
fixed communications network, and later as an Interim Manager responsible for
TelFort's rollout of its mobile network. From 1993 to 1995 Mr. Beekhuis served
as a
                                       64
<PAGE>   70

Managing Director with RAM Mobile Data C.V. From 1973 to 1993, he worked in
strategic marketing, sales and other positions at KPN Telecom.

                ITEM 11:  COMPENSATION OF DIRECTORS AND OFFICERS

     The total aggregate compensation for the Supervisory Board of the Company
as a group for 1999 was NLG 86,458. The total aggregate compensation (including
amounts paid pursuant to management and consulting agreements) of all executive
officers (including the Managing Director) of the Company as a group for 1999
was NLG 2,831,323. See "Item 13: Interest of Management in Certain
Transactions -- Additional Agreements."

     During 1999, VersaTel did not accrue any amounts to provide pension,
retirement and similar benefits to the executive officers of the Company or to
any of the Managing or Supervisory Directors of the Company.

    ITEM 12:  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     The Company has established four stock option plans: the 1997 Stock Option
Plan (the "1997 Plan"), the 1998 Stock Option Plan (the "1998 Plan"), the 1999
Stock Option Plan (the "1999 Plan") and the 2000 Stock Option Plan (the "2000
Plan").

1997 STOCK OPTION PLAN

     In December 1996, our shareholders approved the 1997 Stock Option Plan. The
1997 Plan provides for the grant of options to certain key employees of VersaTel
to purchase ordinary shares of VersaTel. Under the 1997 Plan, no options have
been granted with an expiration date of more than five years after the granting
of the option. The option exercise price is determined in the particular grant
of the option.

     As of December 31, 1999, 398,000 options to purchase 398,000 ordinary
shares had been granted under the 1997 Plan.

1998 STOCK OPTION PLAN

     In March 1998, our shareholders approved the 1998 Stock Option Plan. The
1998 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price is determined in the particular
grant of the option. We reserved 5,000,000 ordinary shares for issuance under
the 1998 Plan.

     As of December 31, 1999, 5,000,000 options to purchase 5,000,000 ordinary
shares have been granted under the 1998 Plan and the Company does not intend to
grant any more options under the 1998 Plan. As of December 31, 1999, 1,940,000
options granted under the 1999 Plan had been exercised for a total of 1,940,000
shares.

1999 STOCK OPTION PLAN

     In January 1999, our shareholders approved the 1999 Stock Option Plan. The
1999 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price determined in the particular
grant of the option. We have reserved 2,500,000 ordinary shares for issuance
under the 1999 Plan.

     As of 31 December 1999, 1,908,500 options to purchase 1,908,500 ordinary
shares have been granted under the 1999 Plan. VersaTel expects to grant the
remaining 591,500 options under the 2000 Plan.

2000 STOCK OPTION PLAN

     In December 1999, our supervisory board approved the 2000 Stock Option
Plan. The 2000 Plan allows VersaTel to grant options to employees to purchase
ordinary shares of VersaTel. The option period will commence at the date of the
grant and will last five years. The option exercise price shall be determined by
VersaTel. We have reserved 3,000,000 ordinary shares for issuance under the 2000
Plan.
                                       65
<PAGE>   71

     We granted 200,000 options to purchase ordinary shares under the 2000 Plan
in March 2000. We expect to grant the remaining 2,800,000 options to purchase
ordinary shares under the 2000 Plan along with the 591,500 options remaining
from the 1999 Plan.

     As of the date of this offering memorandum, there have been 4,750,000
options granted to our executive officers. No options have been granted to any
of our supervisory board members.

            ITEM 13:  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

SETTLEMENT AGREEMENT

     On July 20, 1999, the Company entered into, along with its shareholders and
certain other parties, a Settlement Agreement with Cromwilld Limited in order to
resolve disputes arising out of a pre-existing shareholders' agreement and other
matters. See "Item 3: Legal Proceedings".

CONSULTING SERVICES

     Mr. Greg Mesch is a director of In-Touch Associates Ltd., a London-based
telecommunications consulting company that performs services for VersaTel. The
amounts paid by VersaTel in respect of these services are not material. Mr. Greg
Mesch was paid L15,000 in 1999 for his services to In-Touch Associates Ltd.

LOANS TO DIRECTORS AND OFFICERS

     As of the date hereof no loans were outstanding from VersaTel to any of its
directors or officers.

                                       66
<PAGE>   72

                                    PART II

              ITEM 14:  DESCRIPTION OF SECURITIES TO BE REGISTERED

                                Not applicable.

                                    PART III

                   ITEM 15:  DEFAULTS UPON SENIOR SECURITIES

                                     None.

            ITEM 16:  CHANGES IN SECURITIES AND CHANGES IN SECURITY
                           FOR REGISTERED SECURITIES

                                     None.

                                    PART IV

                         ITEM 17:  FINANCIAL STATEMENTS

                                Not Applicable.

                         ITEM 18:  FINANCIAL STATEMENTS

     Reference is made to Item 19(a) for a list of all financial statements
filed as a part of this Annual Report on Form 20-F.

                                       67
<PAGE>   73

                  ITEM 19:  FINANCIAL STATEMENTS AND EXHIBITS

(A)  LIST OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                          <C>
Report of Independent Public Accountants -- VersaTel Telecom
  International N.V.........................................     F-2
Report of Independent Public Accountants -- VEW Telnet
  GmbH......................................................     F-3
Consolidated Balance Sheets as of December 31, 1998 and
  1999......................................................     F-4
Consolidated Statements of Operations for the Years Ended
  December 31, 1997, 1998 and 1999..........................     F-5
Consolidated Statements of Shareholders' Equity for the
  Years Ended December 31, 1997, 1998 and 1999..............     F-6
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1997, 1998 and 1999..........................     F-7
Notes to Financial Statements...............................     F-8
</TABLE>

(B) LIST OF EXHIBITS

     The following is the list of exhibits attached to this Annual Report on
Form 20-F.

<TABLE>
<CAPTION>
EXHIBIT NO.                            DESCRIPTION
-----------                            -----------
<S>            <C>
1              -- Deed of Incorporation and Articles of Association (as
                  amended) of the Company
2(1)           -- Indenture, dated May 27, 1998, between VersaTel and
               United States Trust Company of New York, as Trustee
3(2)           -- Indenture, dated December 3, 1998, between VersaTel and
               United States Trust Company of New York, as Trustee
4(1)           -- Escrow Agreement, dated May 27, 1998, between VersaTel
               and United States Trust Company of New York, as Trustee and
                  Escrow Agent
5(2)           -- Escrow Agreement, dated December 3, 1998, between
               VersaTel and United States Trust Company of New York, as
                  Trustee and Escrow Agent.
6              -- Principal Paying Agent, Conversion Agent, Conversion
               Calculation Agent and Registrar Agreement, dated December
                  17, 1999 between VersaTel and ING Bank N.V.
7              -- Shareholders Agreement, dated March 8, 2000, among
               VersaTel, Northpoint Communications Group, Inc., Northpoint
                  B.V.i.o. and VersaPoint N.V. i.o.
8              -- Commercial Services Agreement, dated March 8, 2000, among
               Northpoint Communications Group, Inc., VersaTel and
                  VersaPoint N.V. i.o.
</TABLE>

---------------

(1)  Previously filed as an exhibit to the VersaTel's Registration Statement on
     Form F-4 (File Number 333-59979) initially filed with the Securities and
     Exchange Commission on July 27, 1998 and incorporated herein by reference.

(2)  Previously filed as an exhibit to the VersaTel's Registration Statement on
     Form F-4 (File Number 333-70449) initially filed with the Securities and
     Exchange Commission on January 12, 1999 and incorporated herein by
     reference.

                                       68
<PAGE>   74

     Pursuant to the requirements of Section 12 of the Securities and Exchange
Act 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                             VERSATEL TELECOM INTERNATIONAL N.V.

                                             By: /s/ R. GARY MESCH

          ----------------------------------------------------------------------
                                                Name: R. Gary Mesch
                                                Title: Managing Director

                                             By: /s/ RAJ RAITHATHA

          ----------------------------------------------------------------------
                                                Name: Raj Raithatha
                                                Title: Chief Financial Officer

Dated: March 17, 2000

                                       69
<PAGE>   75

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                             -------
<S>                                                          <C>
Report of Independent Public Accountants -- VersaTel Telecom
  International N.V.........................................     F-2
Report of Independent Public Accountants -- VEW Telnet
  GmbH......................................................     F-3
Consolidated Balance Sheets as of December 31, 1998 and
  1999......................................................     F-4
Consolidated Statements of Operations for the Years Ended
  December 31, 1997, 1998 and 1999..........................     F-5
Consolidated Statements of Shareholders' Equity for the
  Years Ended December 31, 1997, 1998 and 1999..............     F-6
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1997, 1998 and 1999..........................     F-7
Notes to Consolidated Financial Statements..................     F-8
</TABLE>

                                       F-1
<PAGE>   76

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To VersaTel Telecom International N.V.

     We have audited the accompanying consolidated balance sheets as of December
31, 1998 and 1999 of VERSATEL TELECOM INTERNATIONAL N.V. and the consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1999 financial statements of VEW Telnet GmbH,
which statements reflect total assets and total revenues of 7.1% and 2.7% of the
related consolidated totals. Those statements were audited by another auditor
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for this entity, is based solely on the report of the other
auditor.

     We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands which do not differ in any significant respect from
United States generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation. We believe that our audits and the report
of the other auditor provide a reasonable basis for our opinion.

     In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of VersaTel Telecom International N.V. as of December 31,
1998 and 1999 and the result of their operations and their cash flows for each
of the years in the period ended, in conformity with United States generally
accepted accounting principles.

ARTHUR ANDERSEN

Amsterdam, The Netherlands

March 15, 2000

                                       F-2
<PAGE>   77

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To: VersaTel International N.V.

     We have audited the balance sheet of VEW Telnet Gesellschaft fur
Telekommunikation und Netzdienste mbH, Dortmund, as of December 31, 1999 and the
statements of operations, shareholders' equity and cash flows for the one month
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

     We conducted our audit in accordance with auditing standards generally
accepted in Germany which do not differ in any significant respect from United
States generally accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation. We believe that our audit provides a
reasonable basis for our opinion.

     VEW Telnet Gesellschaft fur Telekommunikation and Netzdienste mbH, Dortmund
is a wholly owned subsidiary of the VersaTel group. The financial statements of
the company were prepared for consolidation purposes. As described in Note 2,
VersaTel Telecom International N.V., Amsterdam, Niederlande, the ultimate Parent
of VEW Telnet Gesellschaft fur Telekommunikation und Netzdienste mbH, Dortmund,
has guaranteed the continued financial support of the Company through January 1,
2001.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VEW Telnet Gesellschaft fur
Telekommunikation und Netzdienste mbH, Dortmund, as of December 31, 1999, and
the results of its operations and cash flows for the one month ended December
31, 1999, in conformity with United States generally accepted accounting
principles.

Dusseldorf, February 11, 2000

BDO Deutsche Warentreuhand
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft

<TABLE>
<S>                                            <C>
Dr. Nehles                                     Geis
Wirtschaftsprufer                              Wirtschaftsprufer
</TABLE>

                                       F-3
<PAGE>   78

                      VERSATEL TELECOM INTERNATIONAL N.V.

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                1999        1998
                                                              ---------    -------
                                                                 NLG         NLG
<S>                                                           <C>          <C>
                                      ASSETS
Current Assets:
  Cash......................................................  2,170,172    372,014
  Restricted cash, current portion..........................     98,241     89,752
  Accounts receivable, net..................................     29,479      7,902
  Inventory, net............................................      4,470      1,083
  Unbilled revenues.........................................     29,136      4,014
  Prepaid expenses and other................................     65,217      8,895
                                                              ---------    -------
     Total current assets...................................  2,396,715    483,660
                                                              ---------    -------
Fixed Assets:
  Property and equipment, net...............................    512,790     38,608
  Construction in progress..................................    180,271     46,019
                                                              ---------    -------
     Total fixed assets.....................................    693,061     84,627
                                                              ---------    -------
  Restricted cash, net of current portion...................     47,311    121,804
  Capitalized finance costs, net............................     62,265     28,750
  Other non-current assets..................................     31,611         --
  Goodwill, net.............................................    434,072      4,556
                                                              ---------    -------
     Total assets...........................................  3,665,035    723,397
                                                              =========    =======
                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................    156,828     39,863
  Due to related parties....................................         --        806
  Accrued liabilities.......................................    161,420     28,005
  Unearned revenue..........................................      5,198         --
  Current portion of capital lease obligations..............     32,760         71
                                                              ---------    -------
     Total current liabilities..............................    356,206     68,745
                                                              ---------    -------
Capital lease obligations, net of current portion...........     59,972         37
Long-term debt..............................................     11,174        670
Long-term debt (Senior Notes)...............................  2,118,926    688,018
                                                              ---------    -------
     Total liabilities......................................  2,546,278    757,470
                                                              ---------    -------
Shareholders' Equity:
  Ordinary shares, NLG0.05 par value........................      3,961      1,949
Additional paid-in capital..................................  1,638,720     51,112
Warrants....................................................      4,602      5,212
Accumulated deficit.........................................   (528,526)   (92,346)
                                                              ---------    -------
     Total shareholders' equity.............................  1,118,757    (34,073)
                                                              ---------    -------
     Total liabilities and shareholders' equity.............  3,665,035    723,397
                                                              =========    =======
</TABLE>

                                       F-4
<PAGE>   79

                      VERSATEL TELECOM INTERNATIONAL N.V.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                            1999          1998          1997
                                                         ----------    ----------    ----------
                                                            NLG           NLG           NLG
<S>                                                      <C>           <C>           <C>
OPERATING REVENUES.....................................     129,000        39,561        18,896
OPERATING EXPENSES:
  Cost of revenues, excluding depreciation and
     amortization......................................     100,615        31,821        17,405
  Selling, general and administrative..................     182,483        47,733        17,527
  Depreciation and amortization........................      58,206         6,473         3,237
                                                         ----------    ----------    ----------
     Total operating expenses..........................     341,304        86,027        38,169
                                                         ----------    ----------    ----------
     Operating loss....................................    (212,304)      (46,466)      (19,273)
                                                         ----------    ----------    ----------
OTHER INCOME (EXPENSES):
  Foreign currency exchange gains (losses), net........     (96,267)        5,146           (53)
  Interest income......................................      28,342        11,857            21
  Interest expense -- third parties....................    (157,285)      (37,522)          (41)
  Interest expense -- related parties..................          --          (145)         (514)
                                                         ----------    ----------    ----------
     Total other expenses, net.........................    (225,210)      (20,664)         (587)
                                                         ----------    ----------    ----------
     Loss before income taxes..........................    (437,514)      (67,130)      (19,860)
BENEFIT FROM/(PROVISION FOR) INCOME TAXES..............         962            (7)           --
                                                         ----------    ----------    ----------
     Loss before minority interest.....................    (436,552)      (67,137)      (19,860)
MINORITY INTEREST......................................         372            --            --
                                                         ----------    ----------    ----------
       Net loss........................................    (436,180)      (67,137)      (19,860)
                                                         ==========    ==========    ==========
NET LOSS PER SHARE (Basic and Diluted).................       (8.56)        (2.06)        (1.10)
Weighted average number of shares outstanding..........  50,928,989    32,622,194    18,084,188
</TABLE>

                                       F-5
<PAGE>   80

                      VERSATEL TELECOM INTERNATIONAL N.V.

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                   NUMBER OF               ADDITIONAL
                                    SHARES      ORDINARY    PAID-IN                ACCUMULATED
                                  OUTSTANDING    SHARES     CAPITAL     WARRANTS     DEFICIT       TOTAL
                                  -----------   --------   ----------   --------   -----------   ----------
                                                   NLG           NLG       NLG           NLG            NLG
<S>                               <C>           <C>        <C>          <C>        <C>           <C>
Balance at December 31, 1996....  17,820,000       891         4,604        --        (5,349)           146
Shareholder contributions.......   1,339,286        67         1,433        --            --          1,500
Net loss........................          --        --            --        --       (19,860)       (19,860)
                                  ----------     -----     ---------     -----      --------     ----------
Balance at December 31, 1997....  19,159,286       958         6,037        --       (25,209)       (18,214)
Shareholder contributions.......  19,695,524       985        44,750     5,212            --         50,947
Shares issued for acquisition...     130,000         6           325        --            --            331
Net loss........................          --        --            --        --       (67,137)       (67,137)
                                  ----------     -----     ---------     -----      --------     ----------
Balance, December 31, 1998......  38,984,810     1,949        51,112     5,212       (92,346)       (34,073)
Shareholder contributions.......  37,380,008     1,869     1,544,593        --            --      1,546,462
Shares issued for acquisition...     425,000        21         9,345        --            --          9,366
Warrants exercised..............     495,168        25           585      (610)           --             --
Options exercised...............   1,940,000        97         4,220        --            --          4,317
Deferred compensation...........          --        --        27,673        --            --         27,673
Issuance of subsidiary shares...          --        --         1,192        --            --          1,192
Net loss........................          --        --            --        --      (436,180)      (436,180)
                                  ----------     -----     ---------     -----      --------     ----------
Balance, December 31, 1999......  79,224,986     3,961     1,638,720     4,602       528,526      1,118,757
                                  ==========     =====     =========     =====      ========     ==========
</TABLE>

                                       F-6
<PAGE>   81

                      VERSATEL TELECOM INTERNATIONAL N.V.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS OF DUTCH GUILDERS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                               1999         1998        1997
                                                            ----------    --------    --------
                                                               NLG          NLG         NLG
<S>                                                         <C>           <C>         <C>
Cash Flows from Operating Activities:
  Net loss................................................    (436,180)    (67,137)    (19,860)
Adjustments to reconcile net loss to net cash provided by
  operating activities --
  Depreciation and amortization...........................      58,206       6,473       3,273
  Amortization finance cost...............................       4,004       1,250          --
  Restricted cash.........................................      89,543         149           4
  Unearned revenue........................................      (3,260)       (440)        440
  Stock based compensation................................      27,673          --          --
Changes in other operating assets and liabilities
  Accounts receivable.....................................      (7,887)     (6,098)       (595)
  Inventory...............................................      (1,160)       (665)       (282)
  Prepaid expenses and other..............................     (74,381)    (10,914)     (1,963)
  Accounts payable........................................     104,882      19,189      18,716
  Due to related parties..................................        (806)        557          30
  Accrued liabilities.....................................      84,904      20,314       6,038
                                                            ----------    --------    --------
     Net cash provided by (used in) operating
       activities.........................................    (154,462)    (37,322)      5,765
                                                            ----------    --------    --------
Cash flows from Investing activities:
  Capital expenditures....................................    (383,014)    (77,255)    (14,516)
  Capitalized finance costs...............................     (37,519)    (30,000)         --
  Acquisition of business, net of cash acquired...........    (620,789)     (4,781)         --
                                                            ----------    --------    --------
     Net cash used in investing activities................  (1,041,322)   (112,036)    (14,516)
                                                            ----------    --------    --------
Cash Flows from Financing Activities:
  Payments under capital lease obligations................          --        (297)       (193)
  Repayment of subordinated convertible shareholder
     loans................................................          --      (8,105)      4,500
  Proceeds from short-term loan, net......................      15,372          --          --
  Proceeds from long-term debt............................      11,174         670          --
  Proceeds from long-term debt (Senior Notes).............   1,303,878     688,018          --
  Restricted cash.........................................     102,181    (211,556)         --
  Warrants issued.........................................          --       5,212          --
  Shareholder contributions...............................   1,561,337      46,066       1,500
                                                            ----------    --------    --------
     Net cash from financing activities...................   2,993,942     520,008       5,807
                                                            ----------    --------    --------
Net Increase (Decrease) in Cash...........................   1,798,158     370,668      (2,944)
Cash, beginning of the year...............................     372,014       1,346       4,290
                                                            ----------    --------    --------
Cash, end of the year.....................................   2,170,172     372,014       1,346
                                                            ==========    ========    ========
Supplemental Disclosures of Cash Flow Information:
  Cash paid for --
     Interest (net of amounts capitalized)................     102,181      26,260         510
     Income taxes.........................................          --          --          --
Acquisitions of property and equipment through capital
  leases..................................................      88,344          --          --
</TABLE>

                                       F-7
<PAGE>   82

                      VERSATEL TELECOM INTERNATIONAL N.V.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS UNLESS INDICATED
                                   OTHERWISE)

1.   GENERAL

     Versatel Telecom International N.V. ("VersaTel" or the "Company"),
incorporated in Amsterdam on October 10, 1995, provides international and
national telecommunication services in the Netherlands, Belgium, Luxembourg and
Northwest Germany.

2.   FINANCIAL CONDITION AND OPERATIONS

     For the year ended December 31, 1999, the Company had a loss from operating
activities of NLG 436,180. In addition, the Company had an accumulated deficit
of NLG 528,526 as of December 31, 1999.

     Although the Company expects to incur operating losses and net losses for
the foreseeable future as it incurs additional costs associated with the
development and expansion of the Company's network, the expansion of its
marketing and sales organization and the introduction of new telecommunications
services, it has a positive working capital of NLG 2,040,509 at December 31,
1999, which should enable it to continue its operations through December 31,
2000.

3.   SIGNIFICANT ACCOUNTING PRINCIPLES

(a)  Basis of Presentation

     The accompanying consolidated financial statements of the company have been
prepared in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

     The Company maintains its accounts under Dutch tax and corporate
regulations and has made certain out-of-book memorandum adjustments to these
records presenting the accompanying financial statements in accordance with U.S.
GAAP.

(b)  Principles of Consolidation

     The accompanying consolidated financial statements include the operations
of the following wholly-owned (directly or indirectly, unless indicated
otherwise) subsidiaries:

     -- VersaTel Telecom Europe B.V.

     -- VersaTel Telecom Netherlands B.V.

     -- VersaTel Telecom Belgium N.V.

     -- Bizztel Telematica B.V.

     -- CS Net B.V.

     -- CS Engineering B.V.

     -- Numedi Net N.V. (70% owned by the Company)

     -- Amstel Alpha B.V.

     -- SpeedPort N.V.

     -- Glabana U.S.A., Inc.

                                       F-8
<PAGE>   83

     -- 7-klapper Beheer B.V.

     -- VuurWerk Internet B.V.

     -- VuuWerk Access B.V.

     -- ITinera Services N.V.

     -- Svianed B.V.

     -- Zon Netherlands N.V. (90% owned by the Company)

     -- VEW Telnet GmbH

     -- VersaTel Deutschland Holding GmbH

     -- VersaTel Deutschland Verwaltungs GmbH

     The results of the subsidiaries are included from the respective dates of
acquisition or incorporation by the Company during 1999. All significant
intercompany accounts and transactions have been eliminated.

     On May 1, 1999 the Company acquired 100 percent of the shares in Speedport
N.V., Amstel Alpha B.V. and Glabana U.S.A. Inc. The key figures of these
companies as included in the December 31, 1999 financial statements of VersaTel
are sales of NLG 1,434 total assets of NLG 6,473 total (negative) equity NLG
(6,546) and net loss for the period of NLG (6,368). The Company applied the
purchase accounting method. The goodwill, being the difference between the
purchase price amounting to NLG 8,374 in total and the net asset value as of
acquisition date, is being capitalized and amortized in 10 years.

     On May 20, 1999 the Company acquired 100 percent of the shares of VuurWerk
Internet B.V., VuurWerk Acces B.V. and 7-Klapper Beheer B.V. The key figures of
these companies as included in the financial statements of VersaTel are sales
NLG 3,869 total assets of NLG 5,566 total equity of NLG 251 and net income for
the period of NLG 37. The Company applied the purchase accounting method. The
goodwill, being the difference between the purchase price amounting to NLG
30,000 in total and the net asset value as of acquisition date, is being
capitalized and amortized in 10 years.

     On June 1, 1999 the Company acquired 100 percent of the shares of ITinera
Services N.V. The key figures of ITinera Services N.V. as included in the
December 31, 1999 financial statements of VersaTel are sales of NLG 692, total
assets of NLG 1,318 total (negative) equity of NLG (896) and net loss for the
period of NLG (1,232). The Company applied the purchase accounting method. The
goodwill, being the difference between the purchase price amounting to NLG 2,000
in total and net asset value as of acquisition date, is being capitalized and
amortized in 10 years.

     On June 11, 1999 the Company acquired the shares of Svianed B.V. The key
figures of Svianed B.V. as included in the December 31, 1999 financial
statements of VersaTel are sales NLG 41,459 total assets of NLG 41,820 total
equity of NLG 13,620 and net loss for the period of NLG (998). The Company
applied the purchase accounting method. The goodwill, being the difference
between the purchase price amounting to NLG 356,077 in total and the net asset
value as of acquisition date, is being capitalized and amortized in 10 years.

     In August 1999 the Company incorporated Zon Netherlands B.V. On November
11, 1999, Free Record Shop, a music retail chain in The Netherlands, and Radio
538, a commercial radio station in The Netherlands, each obtained a minority
interest in Zon Netherlands B.V. of 5.0 percent and each will provide marketing
and distribution support for Zon's products. On the same day, Zon's legal
structure was converted from a B.V. to an N.V. and its name was changed to Zon
Netherlands N.V. The key figures of Zon Netherlands N.V. as included in the
December 31, 1999 financial statements of VersaTel are sales NLG 848, total
assets of NLG 4,687, total (negative) equity NLG (9,584) and net loss for the
period of NLG (18,606).

     On December 1, 1999 VersaTel Deutschland Holding GmbH, Frankfurt, Germany
and VersaTel Deutschland Verwaltungs GmbH, Frankfurt, Germany acquired 100
percent (99.09 percent resp. 0.91 percent) of the shares of VEW Telnet GmbH. The
key figures of VEW Telnet GmbH as included in the December 31, 1999 financial

                                       F-9
<PAGE>   84

statements of VersaTel are sales of NLG 2,633, total assets of NLG 259,781,
total equity of NLG 112,963 and net loss for the period of NLG (4,977). The
Company applied the purchase accounting method. The goodwill, being the
difference between the total minimum purchase price amounting to NLG 112,940 in
total and the net asset value as of acquisition date, is being capitalized and
amortized in 10 years. Furthermore, an earn-out arrangement with the former
shareholder has been agreed-upon. Any payment resulting from this earn-out
arrangement will be recorded as an adjustment to the purchase price upon the
time they become certain. No such adjustments have yet been recorded. Reference
is made to note 4 for additional information on the acquisition of VEW Telnet
GmbH.

     Except for Svianed B.V. and VEW Telnet GmbH for these entities, pro forma
financial statements have been omitted for materiality reasons. Reference is
made to note 4, for subject pro forma information.

(c)  Foreign Currency Transactions

     The Company's functional currency is the Dutch guilder. Transactions
involving other currencies are converted into Dutch guilders using the exchange
rates which are in effect at the time of the transactions.

     At the balance sheet date, monetary assets and liabilities which are
denominated in other currencies are adjusted to reflect the current exchange
rates. Gains or losses resulting from foreign currency remeasurements are
reflected in the accompanying statements of operations.

(d)  Inventory

     Inventory, consisting primarily of dialers to be installed at customer
locations, is stated at the lower of cost (first-in, first-out) or market value.

(e)  Advertising Expenses

     Advertising costs are expensed as incurred and amounted to NLG 1,972, NLG
5,259 and NLG 13,068 in 1997, 1998 and 1999, respectively. These costs do not
include the advertising costs incurred in connection with obtaining finance and
issuance of Shares.

(f)  Intangible Assets

     Goodwill originating from the acquisition of investments represents the
difference of the net asset value and the acquisition cost of the investments at
the time of the acquisition. The goodwill is amortized on a straight-line basis
over a period varying from 5 to 10 years. Total accumulated amortization per
December 31, 1999 amounts to NLG 24,222.

     Capitalized finance costs are costs incurred in connection with the
issuance of Senior Notes (the "Notes") during 1998 and 1999 by the Company.
Amortization is being recorded over the term of the Notes as interest expense in
the consolidated statement of operations.

(g)  Recognition of Operating Revenues and Cost of Revenues

     Operating revenues are recognized when the service is rendered. Cost of
revenues is recorded in the same period as the revenues are recorded.

     The cost of telecommunication usage charged by the third party carriers to
the Company in connection with the telecommunication services rendered by the
Company to its customers, as well as other telecommunication costs, including
leased lines, is included in cost of revenues.

(h)  Segmental Reporting

     Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information" has been issued and is
effective for fiscal years beginning after December 15, 1997. SFAS No. 131
requires certain disclosures about business segments of an enterprise, if
applicable. The company considers its operations to be in one business segment
and internally makes operating decisions, allocates resources and assesses
performance based on one segment. Accordingly, the adoption of
                                      F-10
<PAGE>   85

SFAS No. 131 did not have an effect on the Company's financial statements, as
the Company currently manages its operations as one segment under the guidelines
of the new standard.

(i)  Recently Issued Accounting Standards

     In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued the Statement of Position 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," which provides guidance on accounting for the costs
of computer software developed or obtained for internal use. This SOP requires
computer software costs that are incurred in the preliminary project stage to be
expensed as incurred. Once the capitalization criteria of the SOP have been met,
directly attributable development costs should be capitalized. It also provides
guidance on the treatment of upgrade and maintenance expenditures. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. Costs incurred
prior to initial application of this SOP, whether capitalized or not, should not
be adjusted to the amounts that would have been capitalized had this SOP been in
effect when those costs were incurred. The Company has adopted this SOP in its
1999 consolidated financial statements. The adoption of this SOP did not have a
material effect on the 1999 consolidated financial statements.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or a liability
measured as its fair value. It also requires that changes in the derivative's
fair value be recognized currently into earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting.

     SFAS No. 133 as amended by SFAS No. 137, is effective for fiscal years
beginning after June 15, 2000 and cannot be applied retroactively. The company
has not yet quantified the impact of adopting SFAS No. 133 on the financial
statements and has not determined the timing or method of adoption of SFAS No.
133.

(j)  Ordinary shares and stock split

     On April 13, 1999, a two-for-one stock split was effected, resulting in all
per share and weighted average share amounts being restated to reflect this
stock split.

     Ordinary shares, with a par value of NLG 0.05 and consisting of 140,000,000
class A shares and 10,000,000 class B shares, of which 17,820,000, 19,159,286
and 38,984,810 class A shares were outstanding at December 31, 1996, 1997 and
1998, respectively. No class B shares were issued.

     On July 14, 1999, a general meeting of shareholders approved an amendment
to VersaTel's articles of incorporation to provide for, among other things, a
consolidation of its Class A shares and Class B shares into one single class of
ordinary shares and the possible issuance of preference shares A, preference
shares B and a priority share.

     The authorized share capital of VersaTel was increased on December 22, 1999
to NLG 18.5 million, consisting of 175 million ordinary shares with a par value
of NLG 0.05 each, 20 million preference shares A with a par value of NLG 0.05
each, 175 million preference shares B with a par value of NLG 0.05 each and one
priority share with a par value of NLG 0.05.

     As of December 31, 1999, 79,224,986 ordinary shares are issued and
outstanding.

4.   ACQUISITION OF SVIANED AND VEW TELNET GMBH.

Svianed

     The acquisition in June 1999 of Svianed was accounted for as a purchase.
Accordingly, the purchase price was allocated to the net assets acquired based
upon their estimated fair market values. The excess purchase price over the
estimated fair value of net assets acquired amounted to approximately NLG 358
million, which has been

                                      F-11
<PAGE>   86

accounted for as goodwill and is being amortized over ten years using the
straight line method. This allocation was based on preliminary estimates and may
be revised at a later date. The accompanying consolidated statements of
operations reflect the operating results of Svianed since the acquisition. Pro
forma unaudited consolidated operating results of the Company and Svianed for
the years ended December 31, 1999 and 1998, assuming the acquisition had been
made as of the beginning of the respective periods are summarized below (in
thousands of NLG except per share amounts):

<TABLE>
<CAPTION>
                                                                  THE YEAR ENDED
                                                                   DECEMBER 31
                                                              ----------------------
                                                                1998         1999
                                                              ---------    ---------
                                                                   (UNAUDITED)
<S>                                                           <C>          <C>
Net sales...................................................     96,244      156,182
Net loss....................................................   (171,876)    (480,662)
Net loss per share..........................................      (4.41)       (6.07)
</TABLE>

     These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional amortization expense as a
result of goodwill and interest expense as a result of financing activities.
They do not purport to be indicative of the results of operations which actually
would have resulted had the combination been in effect at the beginning of the
respective periods or of future results of operations of the consolidated
entities.

VEW Telnet GmbH

     The acquisition in December 1999 of VEW Telnet GmbH was accounted for as a
purchase. Accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair market values. The excess purchase
price over the estimated fair value of net assets acquired amounted to
approximately NLG 65 million, which has been accounted for as goodwill and is
being amortized over ten years using the straight line method. This allocation
was based on preliminary estimates and may be revised at a later date as the
purchase price is subject to an earn-out agreement based on revenue for the
years 2000 until 2002 and can vary between a refund of EUR 13.75 million (NLG
30.3 million) to an additional payment of EUR 20.0 million (NLG 44.1 million).
The amount subject to refund under the earn-out arrangement is included in other
non-current assets. The accompanying consolidated statements of operations
reflect the operating results of VEW Telnet GmbH since the acquisition. Pro
forma unaudited consolidated operating results of the Company and VEW Telnet for
the years ended December 31, 1999 and 1998, assuming the acquisition had been
made as of the beginning of the respective periods are summarized below (in
thousands of NLG except per share amounts):

<TABLE>
<CAPTION>
                                                                     THE YEAR
                                                                   DECEMBER 31
                                                              ----------------------
                                                                1998         1999
                                                              ---------    ---------
                                                                   (UNAUDITED)
<S>                                                           <C>          <C>
Net sales...................................................     61,577      170,106
Net loss....................................................   (147,966)    (503,433)
Net loss per share..........................................      (4.54)       (6.35)
</TABLE>

     These pro forma results have been prepared for comparative purposes only
and include certain adjustments such as additional amortization expense as a
result of goodwill and the depreciation on the IRU which is based on the present
value of the long term payables to the former parent company amounting to
NLG 81.1 million. They do not purport to be indicative of the results of
operations which actually would have resulted had the combination been in effect
at the beginning of the respective periods or of future results of operations of
the consolidated entities.

5.   RECAPITALIZATION

     To increase the equity of the Company by means of the conversion of
subordinated debt and cash contribution by its shareholders, the Company
completed a four part recapitalization in 1998.

                                      F-12
<PAGE>   87

     The Subordinated Convertible Shareholder Loans were converted into Ordinary
Shares of the Company in February and April 1998. Furthermore, additional cash
contributions in equity capital were received in April and May 1998 amounting to
NLG 43,100 in total.

6.   RESTRICTED CASH

     Restricted cash balances of NLG 211,556 and NLG 145,552 at December 31,
1998 and 1999, respectively, include mainly amounts restricted in connection
with the payment of interest to the holders of the Senior Notes.

     The amounts restricted in connection with interest payments to the holders
of the Notes include the interest to be paid until May 15, 2001 over the first
tranche of Senior Notes and the interest to be paid until November 15, 2001 over
the second tranche of Senior Notes, which have restricted balances of NLG 85,563
and NLG 59,989, respectively. The (total) current portion is presented as
Current portion of restricted cash. The non-current portion is presented as
Restricted Cash, net of current portion.

7.   ACCOUNTS RECEIVABLE

     Accounts receivable are presented net of an allowance for doubtful accounts
of NLG 347 and NLG 1,620 at December 31, 1998 and 1999, respectively.

8.   PREPAID EXPENSES AND OTHER

     Prepaid Expenses and Other as of December 31, 1999 and December 31, 1998
include an amount of NLG 37,958 and NLG 5,897, respectively, which relates to
value added taxes.

9.   PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful life
of the related asset. Property and equipment operated by the Company under a
capital lease agreement are capitalized.

     Listed below are the major classes of property and equipment and their
estimated useful lives in years as of December 31, 1997, 1998 and 1999:

<TABLE>
<CAPTION>
                                                     USEFUL LIFE     1999       1998       1997
                                                     -----------    -------    -------    -------
                                                                      NLG        NLG        NLG
<S>                                                  <C>            <C>        <C>        <C>
Leasehold improvements.............................     5            11,755      3,555        911
Telecommunications equipment.......................     2-20        309,423     37,264     14,750
Telecommunications equipment under a 30 years right
  to use agreement.................................    30            81,085         --         --
Other..............................................     3-5         230,352      7,929      1,546
                                                                    -------    -------    -------
Property and equipment.............................                 632,615     48,748     17,207
Less: Accumulated depreciation.....................                 119,825     10,140      3,588
                                                                    -------    -------    -------
Property and equipment, net........................                 512,790     38,608     13,619
                                                                    =======    =======    =======
</TABLE>

10.   CONSTRUCTION IN PROGRESS

     The Company continues to build out its network in the Benelux region and
securing rights-of-way. The resulting assets as of December 31, 1999 have been
recorded at cost under the caption "Construction in progress."

     During the time of the construction interest is capitalized at an average
rate of 13.1%, (1998 - 13.3%), the total capitalized interest at December 31,
1999 and December 31, 1998, respectively, amount NLG 14,694 and NLG 1,393.

                                      F-13
<PAGE>   88

11. CAPITAL LEASE OBLIGATIONS

     The Company entered into a master lease agreement with a finance company to
lease certain telecommunications and EDP equipment.

     Commitments for minimum rentals under non-cancellable leases at the end of
1999 are as follows:

<TABLE>
<S>                                                           <C>
2000........................................................  NLG 36,014
2001........................................................      38,236
2002........................................................      38,559
2003........................................................       1,309
                                                              ----------
Total minimum lease payments................................     114,118
Less amount representing interest...........................      21,685
                                                              ----------
Present value of net minimum lease payments, including
  maturities of NLG 32,760..................................  NLG 92,433
                                                              ==========
</TABLE>

     Property, plant and equipment at year-end include the following amounts for
capitalized leases:

<TABLE>
<CAPTION>
                                                                 1999        1998
                                                              ----------    -------
<S>                                                           <C>           <C>
Telecommunications equipment................................  NLG 93,698    NLG 820
Other.......................................................          28         28
                                                              ----------    -------
                                                                  93,726        848
Less allowances for depreciation............................       1,293        740
                                                              ----------    -------
                                                              NLG 92,433    NLG 108
                                                              ==========    =======
</TABLE>

12. SENIOR NOTES

     On July 23, 1999, the Company issued two tranches of Senior Notes for, USD
180,000 and EUR 120,000, with an interest rate of 11 7/8% due 2009.

     The discount on the tranches of Senior Notes (amounting to 0.727%) is
netted against the Notes and will be amortized over a period equal to the Senior
Note. The amortization charge is included in interest expenses using the
effective interest rate method as interest expense in the income statement.

     On December 9, 1999, the Company issued one tranche of a 4% convertible
loan for EUR 300,000 due 2004. The loan can be converted into common shares of
the Company at a conversion price of EUR 43.40. Next to the normal interest, the
principal of the loan increases at 4.5% per year. However, if the conversion
right is exercised, the growth of the principal redeems. No loans were converted
at year-end.

     SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
required disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet. The carrying amounts reported in
the consolidated balance sheets for cash, trade receivables, accounts payable
and accrued expenses approximate fair value based on the short-term maturity of
these instruments. The carrying amount of the Company's borrowings under the
long-term debt agreements approximates fair value as the interest rates on these
long-term debts approximates the current market interest rates.

13. EMPLOYEE BENEFIT PLANS

     The Company has established four stock option plans: the 1997 Stock Option
Plan (the "1997 Plan"), the 1998 Stock Option Plan (the "1998 Plan"), the 1999
Stock Option Plan (the "1999 Plan") and the 2000 Stock Option Plan (the "2000
Plan").

1997 STOCK OPTION PLAN

     In December 1996, our shareholders approved the 1997 Stock Option Plan. The
1997 Plan provides for the grant of options to certain key employees of VersaTel
to purchase ordinary shares of VersaTel. Under the 1997

                                      F-14
<PAGE>   89

Plan, no options have been granted with an expiration date of more than five
years after the granting of the option. The option exercise price is determined
in the particular grant of the option.

     As of December 31, 1999 398,000 options to purchase 398,000 ordinary shares
had been granted under the 1997 Plan and VersaTel does not intend to grant any
more options under the 1997 Plan.

1998 STOCK OPTION PLAN

     In March 1998, our shareholders approved the 1998 Stock Option Plan. The
1998 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price is determined in the particular
grant of the option.

     We have reserved 5,000,000 ordinary shares for issuance under the 1998
Stock Option Plan.

     As of December 31, 1999, 5,000,000 options to purchase 5,000,000 ordinary
shares have been granted under the 1998 Plan and the Company does not intend to
grant any more options under the 1998 Plan. As of December 31, 1999, 1,940,000
options have been exercised for a total of 1,940,000 shares.

1999 STOCK OPTION PLAN

     In January 1999, our shareholders approved the 1999 Stock Option Plan. The
1999 Plan allows VersaTel to grant options to employees to purchase ordinary
shares of VersaTel. The option period will commence at the date of the grant and
will last five years. The option exercise price determined in the particular
grant of the option. We have reserved 2,500,000 ordinary shares for issuance
under the 1999 stock option plan.

     As of 31 December 1999, 1,908,500 options to purchase 1,908,500 ordinary
shares have been granted under the 1999 Plan. VersaTel expects to grant the
remaining 591,500 options under the 2000 Stock Option Plan.

2000 STOCK OPTION PLAN

     In December 1999, our supervisory board approved the 2000 Stock Option
Plan. The 2000 Plan allows VersaTel to grant options to employees to purchase
ordinary shares of VersaTel. The option period will commence at the date of the
grant and will last five years. The option exercise price shall be determined by
VersaTel. We have reserved 3,000,000 ordinary shares for issuance under the 2000
Plan.

     We granted 200,000 options to purchase ordinary shares under the 2000 Plan
in March 2000. We expect to grant the remaining 2,800,000 options to purchase
ordinary shares under the 2000 Plan along with 591,500 options remaining from
the 1999 Plan.

     In October 1995, FASB Statement No. 123 "Accounting for Stock-Based
Compensation" was issued. The Company has adopted the disclosure provisions of
FASB Statement No. 123, but opted to remain under the expense recognition
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees" in accounting for options granted under the Stock
Option Plans. Accordingly, for the years ended December 31, 1997 through
December 31, 1999, no compensation expense was recognized for options granted
under these schemes. Had compensation expense for share options granted under
these schemes been determined based on fair value at the grant dates in
accordance with FASB Statement No. 123, the Company's net income and earnings
per share for 1997, 1998 and 1999 would have been reduced to the following pro
forma amounts shown below:

<TABLE>
<CAPTION>
                                                                1999       1998       1997
                                                              --------   --------   --------
                                                                NLG        NLG        NLG
<S>                                                           <C>        <C>        <C>
Net income:
  As reported...............................................  (436,180)   (67,137)   (19,860)
  Pro Forma.................................................  (438,845)   (69,405)   (19,887)
Net loss per share (Basic and diluted):
  As reported...............................................     (8.56)     (2.06)     (1.10)
  Pro Forma.................................................     (8.56)     (2.06)     (1.10)
</TABLE>

                                      F-15
<PAGE>   90

     The movement in options outstanding during the two years ended December 31,
1997, December 31, 1998 and December 31, 1999 is summarised in the following
table:

<TABLE>
<CAPTION>
                                                                NUMBER OF          WEIGHTED
                                                              SHARES SUBJECT       AVERAGE
                                                                TO OPTION       EXERCISE PRICE
                                                              --------------    --------------
                                                                                     NLG
<S>                                                           <C>               <C>
Outstanding at January 1, 1997..............................            --               --
Exercised during 1997.......................................            --               --
Lapsed during 1997..........................................            --               --
Granted during 1997.........................................       398,000              .55
                                                                ----------
Outstanding at December 31, 1997............................       398,000              .55
Exercised during 1998.......................................            --               --
Lapsed during 1998..........................................            --               --
Granted during 1998.........................................     5,000,000             2.27
                                                                ----------
Outstanding at December 31, 1998............................     5,398,000             2.14
Exercised during 1999.......................................    (1,940,000)            2.23
Lapsed during 1999..........................................      (161,740)            4.40
Granted during 1999.........................................     1,908,500             7.50
                                                                ----------
Outstanding at December 31, 1999............................     5,204,760             3.86
</TABLE>

     The weighted average fair value of options granted in the year ended
December 31, 1999 was estimated at NLG 5.01 as at the date of grant using the
Black-Scholes stock option pricing model. The following weighted average
assumptions were used: dividend yield of 0.00% per annum, annual standard
deviation (volatility) of 81.62%, risk free interest rate of 3.42% and expected
term of five years.

     For options granted in the year ended December 31, 1999 with an exercise
price equal to market price at grant date, the weighted average exercise price
and fair value at grant date were estimated at NLG 7.50 and NLG 5.01,
respectively.

     The exercise prices for options outstanding at the end of the year ranged
from NLG 0.295 to NLG 7.50, with a weighted average exercise price of NLG 3.86
and a remaining contractual life of 3.65 years.

     All costs related to stock option plans are included in selling, general
and administrative expenses.

     The following table summarises information about the stock options
outstanding December 31, 1999:

<TABLE>
<CAPTION>
                       OPTIONS OUTSTANDING                           OPTIONS CURRENTLY EXERCISABLE
------------------------------------------------------------------   ------------------------------
                               WEIGHTED AVERAGE
RANGE OF EXERCISE                 REMAINING       WEIGHTED AVERAGE                WEIGHTED AVERAGE
     PRICES         NUMBER     CONTRACTUAL LIFE    EXERCISE PRICE      NUMBER      EXERCISE PRICE
-----------------  ---------   ----------------   ----------------   ----------   -----------------
<S>                <C>         <C>                <C>                <C>          <C>
NLG 0 - 1.50         348,000         2.36               0.53           298,000          0.52
NLG 1.51 - 3.00    3,030,100         3.35               2.29         2,490,100          2.27
NLG 3.01 - 4.50           --           --                 --                --            --
NLG 4.51 - 6.00           --           --                 --                --            --
NLG 6.01 - 7.50    1,826,660         4.40               7.50           317,305          7.50
</TABLE>

14. TAXES

     The Company had income tax carry forwards of approximately NLG 42,300 at
December 31, 1998 and NLG 180,000 at December 31, 1999, which may be utilized to
reduce future income taxes payable mainly in The Netherlands.

     These income tax carry forwards do not expire and can be utilized
indefinitely under Netherlands tax legislation. A valuation allowance has been
established for the entire amount of the net operating loss carry forwards due
to the uncertainty of its recoverability.

                                      F-16
<PAGE>   91

     There were no significant temporary differences which gave rise to deferred
tax assets and liabilities at December 31, 1997. At December 31, 1998 a
temporary difference has arisen due to the different treatment of finance costs
for fiscal purposes.

15. NET SALES

     The geographical composition of net sales is as follows:

<TABLE>
<CAPTION>
                                                 1999          1998          1997
                                              -----------   -----------   -----------
<S>                                           <C>           <C>           <C>
The Netherlands.............................  NLG 115,305    NLG 39,324    NLG 18,896
Belgium.....................................        9,733           237            --
Germany.....................................        3,962            --            --
                                              -----------   -----------   -----------
Total.......................................  NLG 129,000    NLG 39,561    NLG 18,896
                                              ===========   ===========   ===========
</TABLE>

16. RELATED PARTY TRANSACTIONS

     In 1998 the Company used a consultancy firm in which one of the Company's
officers is a director. Accounts payable to this consultancy firm at December
31, 1998 amounted to NLG 806 and the 1998 expense to the Company in this respect
was approximately NLG 3,300. This consultancy was no longer used in 1999.

17. RENT AND OPERATING LEASE COMMITMENTS

     Future minimum commitments in connection with rent and other operating
lease agreements are as follows at December 31, 1999:

<TABLE>
<S>                                                           <C>
2000........................................................   NLG 33,397
2001........................................................       21,392
2002........................................................       17,222
2003........................................................       17,241
2004........................................................       15,967
2005 and further............................................      139,192
                                                              -----------
                                                              NLG 244,411
                                                              ===========
</TABLE>

     Rent and operating lease expenses amounted to approximately NLG 585 in
1997, NLG 1,937 in 1998 and NLG 4,735 in 1999. The main part of future
commitments relates to the renting of Points-of-Presence ("POP's") for a
ten-year period.

18. COMMITMENTS NOT REFLECTED IN THE BALANCE SHEET

     Commitments in connection with the roll-out of the Company's network, not
yet recorded on the balance sheet amount to approximately NLG 35 million as of
December 31, 1999. Reference is made to Note 10.

     Earn-out arrangements with the former shareholders of CS Net B.V., ITinera
Services N.V., Speedport N.V. and VEW Telnet GmbH have been agreed-upon any
payments resulting from this earn-out arrangement will be recorded as an
adjustment to the purchase price upon the time they become certain. No such
adjustments have yet been recorded.

     The issued guarantees at December 31, 1999 on behalf of third parties
amount to NLG 6.7 million.

19. LEGAL PROCEEDING

     Cromwilld, one of the shareholders of the Company, objected to the 1998
recapitalization as described in footnote 5 and to the issuance of the two
tranches of units consisting of warrants and senior notes as described in
footnote 12, and threatened to challenge in court certain of the Company's
actions in connection therewith. In January 1999, Cromwilld filed, pursuant to
article 2:345 of the Netherlands Civil Code, a petition with the Enterprise
Chamber of the Court of Appeals in Amsterdam requesting the appointment of one
or more experts to investigate the management and affairs of the Company. In May
1999, the Enterprise Chamber denied Cromwilld's request.

                                      F-17
<PAGE>   92

     On July 20, 1999, the Company entered into, along with its shareholders and
certain other parties, a Settlement Agreement with Cromwilld Limited, in order
to resolve disputes arising out of our shareholders' agreement and other
matters. The major terms of the Settlement Agreement provide for:

     -   the transfer of 146,988 of our ordinary shares held by Telecom Founders
         B.V. to Cromwilld;

     -   the issuance of 200,000 shares of the Company on July 20, 1999 to
         Cromwilld at a price of NLG 7.50 per ordinary share;

     -   the ability for Cromwilld to include 1,800,000 of its ordinary shares
         in initial public offering of the Company;

     -   certain piggyback registration rights in favor of Cromwilld that will
         take effect 180 days from the date of the initial public offering of
         the Company;

     -   the payment by us of $300,000 from Cromwilld's fees and expenses
         related to the Settlement Agreement and certain other matters;

     -   the acknowledgment by all parties to the shareholders' agreement of the
         Company that the shareholders' agreement will be terminated
         concurrently with the closing of the initial public offering of the
         Company;

     -   the withdrawal by Cromwilld of its pending legal proceedings against
         the Company and its shareholders;

     -   Cromwilld's full cooperation with the initial public offering of the
         Company; and

     -   the obligation of the Company's shareholders, including Cromwilld, to
         procure the resignation or dismissal of Cromwilld's nominee, Denis
         O'Brien, from Supervisory Board of the Company, after the completion of
         the initial public offering.

     As of December 31, 1999, all of the terms of the Settlement Agreement,
except with respect to certain piggyback registration rights provided to
Cromwilld (which have not yet taken effect), have been completed.

     The expense related to this legal proceeding is classified as "Other
expense, net" in the income statement for the year ended December 31, 1999.

20. SUBSEQUENT EVENTS

     On March 3, 2000 VersaTel announced that it had bundled its Internet
activities into a separate business unit within the company Zon, Vuurwerk, CS
Net and ITinera will be grouped into the new Internet division.

     On March 8, 2000 VersaTel and NorthPoint Communications announced plans to
create a new company to deliver digital subscriber line (DSL) services across
the EU Market. The new company, VersaPoint, will combine NorthPoint's DSL
network deployment and operations expertise with VersaTel's established
broadband local access network, DSL operations in the Benelux and Germany, and
local market/regulatory experience in Europe. NorthPoint and VersaTel will
equally fund VersaPoint's start-up costs and initial capital requirements
through a E100 million (in the aggregate) cash investment and the contribution
of certain assets.

     On March 15, 2000 VersaTel announced that it has reached definitive
agreement to purchase a majority of KomTel, from the electric utility company,
Stadtwerke Flensburg GmbH, and other shareholders. VersaTel will acquire 80
percent of KomTel's outstanding stock for EUR 61.6 million to be paid in cash,
and will assume EUR 13.0 million of debt (EUR 7.0 million which is related to
shareholder loans and will be repaid at closing). Stadtweke Flensburg will
remain a 20% shareholder until 2002 as it intends to maintain a strong
relationship with VersaTel including a cooperation agreement for
telecommunication services and the establishment of an IRU for the additional
fiber network it owns. The purchase price of the remaining stake is EUR 15.4
million. Key unaudited figures for KomTel as of December 31, 1999 under German
GAAP are sales of DEM 60.7 million, shareholders equity of DEM 7.3 million,
total assets of DEM 69.6 million and loss for the year of DEM 18.7 million.

                                      F-18