<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1996
REGISTRATION NO. 333-09699
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VIATEL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 13-3787366
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
800 Third Avenue
New York, New York 10022
(212) 935-6800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SHELDON M. GOLDMAN, ESQ.
U.S. GENERAL COUNSEL
VIATEL, INC.
800 Third Avenue
New York, New York 10022
(212) 935-6800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN T. CAPETTA, ESQ. GEORGE W. BILICIC, JR., ESQ.
KELLEY DRYE & WARREN LLP CRAVATH, SWAINE & MOORE
Two Stamford Plaza Worldwide Plaza
281 Tresser Boulevard 825 Eighth Avenue
Stamford, Connecticut 06901 New York, New York 10019
(203) 324-1400 (212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
VIATEL, INC.
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF
INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER
AND HEADING LOCATION IN PROSPECTUS
--------------------------------------------- ---------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Additional
Information; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................. Prospectus Summary; Risk Factors
4. Use of Proceeds.............................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.............. Outside Front Cover Page; Risk Factors;
Underwriting
6. Dilution..................................... Dilution
7. Selling Security Holders..................... Not Applicable
8. Plan of Distribution......................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered... Outside Front Cover Page; Prospectus Summary;
Dividend Policy; Description of Capital
Stock; Shares Eligible For Future Sale
10. Interests of Named Experts and Counsel....... Not Applicable
11. Information with Respect to the Registrant
(a) Description of Business................ Prospectus Summary; Business
(b) Description of Property................ Business
(c) Legal Proceedings...................... Business
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters.................... Dividend Policy; Description of Capital Stock
(e) Financial Statements................... Consolidated Financial Statements
(f) Selected Consolidated Financial Data... Selected Consolidated Financial and Other
Data
(g) Supplementary Financial Information.... Prospectus Summary; Selected Consolidated
Financial and Other Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations
(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(i) Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. Not Applicable
(j) Directors and Executive Officers....... Management
(k) Executive Compensation................. Management
(l) Security Ownership of Certain
Beneficial Owners and Management....... Principal Stockholders; Shares Eligible For
Future Sale
(m) Certain Relationships and Related
Transactions........................... Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
</TABLE>
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an underwritten offering in the United States and Canada
(the "U.S. Prospectus") and one to be used in a concurrent international
offering (the "International Prospectus") of the Common Stock, par value $.01
per share, of Viatel, Inc. The complete prospectus for the offering in the
United States and Canada follows immediately after this Explanatory Note. After
the U.S. Prospectus are the alternate pages for the International Prospectus: a
front cover page, an "Underwriting" section, a "Certain United States Tax
Considerations For Non-United States Holders" section and a back cover page. A
copy of the complete U.S. Prospectus and International Prospectus in the exact
forms in which they are to be used after effectiveness will be filed with the
Securities and Exchange Commission pursuant to Rule 424(b).
<PAGE> 4
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion
October 15, 1996
PROSPECTUS
8,667,000 SHARES
VIATEL, INC. LOGO
COMMON STOCK
($.01 PAR VALUE)
All of the shares of common stock (the "Common Stock") offered hereby are being
sold by Viatel, Inc. (the "Company" or "Viatel"). Of the 8,667,000 shares of
Common Stock offered, 5,200,200 shares are being offered by the U.S.
Underwriters (as defined herein) in the United States and Canada (the "U.S.
Offering") and 3,466,800 shares are being offered by the International
Underwriters (as defined herein), in a concurrent offering outside the United
States and Canada (the "International Offering" and together with the U.S.
Offering, the "Offerings"), subject to transfers between the U.S. Underwriters
and the International Underwriters (collectively, the "Underwriters"). The
initial public offering price and the aggregate underwriting discount per share
will be identical for the Offerings. See "Underwriting." The closing of the U.S.
Offering and the International Offering are conditioned upon each other.
Prior to the Offerings, there has been no public market for the Common Stock. It
is currently estimated that the initial public offering price per share will be
between $12.00 and $15.00. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "VYTL," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS
PRICE TO UNDERWRITING TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Before deducting offering expenses payable by the Company, estimated at
$1,600,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 1,300,050 additional shares of Common Stock at the Price to
Public, less the Underwriting Discount, solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock offered hereby will
be made at the office of Salomon Brothers Inc, Seven World Trade Center, New
York, New York, or through the facilities of The Depository Trust Company, on or
about , 1996.
SALOMON BROTHERS INC
CS FIRST BOSTON
LAZARD FRERES & CO. LLC
The date of this Prospectus is , 1996.
<PAGE> 5
LOGO
[MAP -- reflecting the various locations in the United States and Western
Europe in which the Company has existing switches (Amsterdam, Barcelona,
Brussels, Frankfurt, Madrid, Milan, Paris and Rome), has existing switching
centers (London and Omaha, Nebraska) and intends to locate a switch in the near
future (New York, Los Angeles, Vienna and Zurich). The map also reflects the
location of transmission facilities leased by the Company and the location of
planned transmission facilities.]
------------------------
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by an independent
accounting firm.
------------------------
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
DURING THE OFFERINGS, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10B-6,
10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and Consolidated Financial
Statements, including the Notes thereto, and other financial data appearing
elsewhere in this Prospectus. Except as otherwise indicated, all information in
this Prospectus (i) assumes an initial public offering price of $13.50 per share
of Common Stock (the midpoint of the range set forth on the cover page of this
Prospectus) and no exercise of the Underwriters' over-allotment option and (ii)
has been adjusted to give effect to a reverse split of the Common Stock at a
ratio of 3-to-2 which will be effective immediately prior to the consummation of
the Offerings (the "Reverse Stock Split") and the conversion of all outstanding
shares of the Company's non-voting Class A Common Stock, $.01 par value (the
"Class A Common Stock") into shares of Common Stock. As used herein, the terms
"Company" and "Viatel" refer to Viatel, Inc. and its subsidiaries and
predecessor, and the term "Latin America" refers to the United Mexican States,
Central America and South America, collectively. All industry data included in
this Prospectus, including that of the International Telecommunications Union
("ITU"), has been presented as of 1994, the most recent year for which such data
is available. See the "Glossary" appearing elsewhere herein for definitions of
certain technical terms used in this Prospectus.
THE COMPANY
Viatel is a growing provider of international and national long distance
telecommunications services principally in Western Europe, Latin America, the
United States and the Pacific Rim and offers its services primarily to small and
medium-sized businesses, carriers and other resellers. The Company operates a
digital, switch-based telecommunications network in Western Europe including a
central switching center in London and additional switches in Amsterdam,
Barcelona, Brussels, Frankfurt, Madrid, Milan, Paris and Rome connected by
leased, digital fiber optic transmission facilities (the "European Network"). In
addition, the Company operates a switching center in Omaha, Nebraska which is
connected to the central switching center in London by leased, digital fiber
optic transmission facilities (together with the European Network, the "Viatel
Network").
The Company derives revenue primarily through the provision of
competitively priced long distance services with value-added features that are
not typically provided by the respective incumbent telecommunications operator
("ITO") in many of the countries in which the Company operates. The Company's
services include virtual private networks, dedicated access for high volume
users, calling cards, fax service and the provision of switched minutes to
wholesale customers. The value-added features include itemized and multicurrency
billing, abbreviated dialing and multiple payment methods. Access to the
Company's services is obtained through callback, paid access, international
toll-free ("ITF"), national toll-free ("NTF") or direct access through a
dedicated line.
The Company conducts its business on a global basis, with its principal
focus on Western Europe. Of the Company's telecommunications revenue for the six
months ended June 30, 1996, approximately 42.4% was generated in Western Europe,
approximately 29.1% was generated in Latin America, approximately 16.2% was
generated in North America, primarily from the Company's wholesale business of
selling switched minutes to other carriers, and approximately 11.7% was
generated in the Pacific Rim. The remaining .6% was generated in Africa and the
Middle East. Historically, significant portions of the Company's
telecommunications revenue have been derived from Latin America. Presently, the
Company is devoting substantial resources to the deregulating Western European
market, and although it expects revenue from Latin America as well as other
geographic regions to grow, it expects such revenue to continue to decrease as a
percentage of the Company's total telecommunications revenue in the near term.
The Company's objective is to be a significant provider of international
and national long distance telecommunications services within Western Europe and
other deregulating markets. The Company believes it is strategically positioned
to take advantage of fundamental changes occurring in the telecommunications
industry as a result of global deregulation and rapid advances in technology. In
3
<PAGE> 7
particular, the Company believes that its early entry into the Western European
market as an alternative network operator has positioned it to take advantage of
the anticipated implementation of European Union ("EU") directives to eliminate
the ITOs' existing monopolies on Voice Telephony (as defined herein), scheduled
to occur by 1998 in most EU member states. The Company is currently prohibited
from supplying Voice Telephony in most EU member states until 1998. Accordingly,
the Company instead provides competitively priced international and national
long distance services with value-added features, thus positioning itself to
capitalize on anticipated deregulation. Key elements of the Company's business
strategy include: (i) focusing on the European market and leveraging the
European Network; (ii) capitalizing on the anticipated obsolescence of
settlement agreements with ITOs; (iii) maintaining low-cost operations; (iv)
focusing on the Company's target market of small and medium-sized businesses;
(v) increasing sales of switched minutes to wholesale customers; (vi) continuing
the development of the Company's local sales distribution channels; (vii)
leveraging the Company's information systems; and (viii) pursuing acquisitions,
investments and strategic alliances.
The Company believes it is well positioned to achieve its objective as a
result of its: (i) switch-based network capabilities; (ii) early entry into the
Western European market as an alternative network operator; (iii) focus on
international and national long distance telecommunications traffic; (iv)
competitively priced services and value-added features; and (v) local sales,
marketing and customer service organizations.
The Company is a Delaware corporation and is the successor to VIA USA, Ltd.
(a Colorado corporation) which was merged into the Company on October 11, 1994
to effectuate a reincorporation within the State of Delaware. The Company is an
operating company which renders its services directly and indirectly through
subsidiaries in each Western European country in which it currently operates.
The Company's principal executive offices are located at 800 Third Avenue, New
York, New York 10022. Its telephone number is (212) 935-6800.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered hereby:
U.S. Offering...................... 5,200,200 shares
International Offering............. 3,466,800 shares
-----------
Total(1)...................... 8,667,000 shares
-----------
-----------
Common Stock outstanding after the
Offerings(1)(2)....................... 22,374,648 shares
Use of proceeds......................... The net proceeds of the Offerings, estimated to be
approximately $107.2 million (approximately $123.5
million if the Underwriters' over-allotment option
is exercised in full), will be used by the Company
for (i) network upgrade and expansion; (ii)
investments in digital undersea fiber optic cable;
(iii) acquisitions of customer bases and businesses
or for investment in joint ventures or strategic
alliances; and (iv) general corporate and working
capital purposes, including feasibility studies of
the Company's provision of competitive local
exchange carrier ("CLEC") services. See "Risk
Factors -- Broad Discretion Over Use of Proceeds"
and "Use of Proceeds."
Nasdaq National Market symbol........... VYTL
</TABLE>
- ---------------
(1) Does not include up to an aggregate of 1,300,050 shares of Common Stock
subject to an over-allotment option granted to the Underwriters. See
"Underwriting."
(2) Excludes (i) 1,833,333 shares of Common Stock reserved for issuance under
the Stock Incentive Plan (as defined herein) of which options to purchase
1,075,511 shares of Common Stock, exercisable at prices ranging from $.75 to
$5.85 per share, have been granted and are outstanding on the date hereof
and (ii) 5,914 other outstanding options to purchase shares of Common Stock
exercisable at $.75 per share. See "Management -- Stock Incentive Plan."
4
<PAGE> 8
RISK FACTORS
See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by potential investors.
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary Consolidated Statement of Operations Data and Other
Financial Data as of and for the years ended December 31, 1995, 1994 and 1993
have been derived from the Consolidated Financial Statements of the Company, and
the Notes related thereto, included elsewhere in this Prospectus, which were
audited by KPMG Peat Marwick LLP, independent Certified Public Accountants. The
summary Consolidated Statement of Operations Data, Other Financial Data and
Balance Sheet Data as of and for the six months ended June 30, 1996 and the
Statement of Operations Data and Other Financial Data as of and for the six
months ended June 30, 1995 have been derived from the unaudited Consolidated
Financial Statements of the Company, and the Notes related thereto, included
elsewhere in this Prospectus, which, in the opinion of management, include all
adjustments necessary for a fair presentation of the financial condition and
results of operations of the Company for such periods. The results of operations
for interim periods are not necessarily indicative of a full year's operations.
This information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company's
Consolidated Financial Statements, including the Notes thereto, and the other
financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT OTHER OPERATING DATA)(1)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Telecommunications revenue............. $ 22,282 $ 14,192 $ 32,313 $ 26,268 $ 21,393
Operating expenses:
Cost of telecommunications
services........................... 18,578 12,109 27,648 22,953 18,159
Selling expenses..................... 5,071 3,369 7,468 4,459 2,389
General and administrative expense... 12,590 7,218 16,860 9,859 6,069
Depreciation and amortization........ 2,232 881 2,637 789 111
Equipment impairment loss............ -- 560 560 -- --
------- ------- ------- ------- -------
Total operating expenses........... 38,470 24,137 55,173 38,060 26,728
------- ------- ------- ------- -------
Operating loss......................... $ (16,188) $ (9,945) $ (22,860) $ (11,792) $ (5,335)
Interest income (expense), net......... (4,431) (2,472) (5,574) (558) 21
Share in loss of affiliate............. (5) (23) (42) (145) (142)
------- ------- ------- ------- -------
Net loss............................... $ (20,624) $ (12,440) $ (28,476) $ (12,495) $ (5,456)
======= ======= ======= ======= =======
Pro forma net loss per share(2)........ $ (1.47) $ (0.89) $ (2.04) $ (1.19) $ (0.74)
OTHER FINANCIAL DATA:
EBITDA(3).............................. $ (13,961) $ (9,087) $ (20,265) $ (11,148) $ (5,366)
Net cash used in operating
activities........................... (16,508) (11,733) (18,489) (11,571) (1,442)
Net cash provided by (used in)
investing activities................. 15,308 (48,121) (37,057) (4,996) (2,949)
Net cash (used in) provided by
financing activities................. -- (2,251) (2,306) 80,984 6,329
Capital expenditures, including
acquisitions of businesses........... $ 4,660 $ 5,361 $ 11,378 $ 4,843 $ 2,643
OTHER OPERATING DATA(4):
Billable minutes (000's)(5)............ 25,110 10,010 25,932 14,981 10,899
Average revenue per billable
minute(6)............................ $ 0.88 $ 1.41 $ 1.23 $ 1.70 $ 1.87
Average cost per billable minute(7).... $ 0.72 $ 1.21 $ 1.04 $ 1.53 $ 1.67
Switches(8)(9)......................... 13 2 10 2 2
Customers(8)........................... 13,779 7,360 9,218 6,469 5,486
</TABLE>
5
<PAGE> 9
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------
ACTUAL AS ADJUSTED(9)
--------- ------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 8,281 $ 115,495
Property and equipment, net......................................... 18,108 18,108
Total assets........................................................ 48,550 155,764
------- -------
Long-term debt...................................................... 72,329 72,329
Stockholders' (deficit) equity...................................... (38,595) 68,619
------- -------
</TABLE>
- ---------------
(1) Amounts presented may not total due to rounding.
(2) Pro forma net loss per share is computed on the basis described in Note 1
of the Company's Consolidated Financial Statements, except that such data
has been computed to give effect to the Reverse Stock Split.
(3) As used herein "EBITDA" consists of earnings before interest (net), income
taxes and depreciation and amortization. EBITDA is a measure commonly used
in the telecommunications industry to analyze companies on the basis of
operating performance. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.
(4) Information derived from operating records prepared by the Company.
(5) Billable minutes are those minutes during which a call is connected at any
Company switch and for which the Company bills a customer.
(6) Represents the gross call usage revenue per billable minute. Amounts
exclude other revenue and revenue related items such as hardware sales,
software licensing, credits, discounts and other non-usage charges.
(7) Represents the cost associated with the Company's provision of
telecommunications services per billable minute. Amounts exclude
nontransmission costs such as hardware and software purchased for resale.
(8) Information presented as of the end of the period indicated.
(9) At June 30, 1996, includes three switches at the Omaha, Nebraska switching
center, two switches at the London switching center and one switch at each
of the Company's other switching sites. At December 31, 1995, includes two
switches at each of the Company's switching centers in Omaha, Nebraska and
London and one switch at each of the Company's other switching sites.
(10) Adjusted to give effect to the Offerings and the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
6
<PAGE> 10
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," including statements regarding the anticipated
development and expansion of the Company's business, the markets in which the
Company's services are offered, anticipated capital expenditures and regulatory
reform, the intent, belief or current expectations of the Company, its directors
or its officers, primarily with respect to the future operating performance of
the Company and other statements contained herein regarding matters that are not
historical facts, are "forward-looking" statements (as such term is defined in
the Private Securities Litigation Reform Act of 1995). Because such statements
include risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially from those expressed or implied by
such forward-looking statements include, but are not limited to, the factors set
forth in "Risk Factors" and "Business."
RISK FACTORS
In addition to the other information and financial data set forth elsewhere
in this Prospectus, potential investors should consider the following risk
factors in evaluating the Company and its business before purchasing the shares
of Common Stock offered hereby.
LIMITED OPERATING HISTORY; SUBSTANTIAL NET LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS; EXPECTED FUTURE NET LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS;
SUBSTANTIAL LEVERAGE
The Company commenced operations in 1991 and has only a limited operating
history upon which potential investors may base an evaluation of its
performance. For example, of the 13 switches the Company operated as of June 30,
1996, only two were deployed as of June 30, 1995. Potential investors,
therefore, have limited historical financial information upon which to base an
evaluation of the Company's performance and an investment in shares of Common
Stock. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development.
To date, the Company has incurred substantial net losses and negative
EBITDA. Net loss for each of 1995, 1994 and 1993 and the six months ended June
30, 1996 was approximately $(28.5) million, $(12.5) million, $(5.5) million and
$(20.6) million, respectively. EBITDA for each of 1995, 1994 and 1993 and for
the six months ended June 30, 1996 was approximately $(20.3) million, $(11.1)
million, $(5.4) million and $(14.0) million, respectively. At June 30, 1996, the
Company had incurred $68.2 million of aggregate losses from operating
activities. In each of the last three years, the Company has experienced
significant increases in expenses associated with the development and expansion
of the Viatel Network. The Company expects to incur substantial net losses,
negative EBITDA and negative cash flows from operating activities until at least
the year 2001. There can be no assurance, however, that the Company will achieve
or sustain profitability or positive cash flows from operating activities in the
future. If the Company cannot achieve profitability or positive cash flows from
operating activities, it may be unable to meet its working capital or future
debt service requirements which would have a material adverse effect on the
Company's business, financial condition and results of operations. See "--
Substantial Capital Requirements," "-- Variability of Operating Results,"
"Selected Consolidated Financial and Other Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements, including the Notes thereto.
In December 1994, the Company issued, for approximately $58.0 million,
$120.7 million aggregate principal amount of 15% Senior Discount Notes due
January 15, 2005 (the "Notes"). Cash payments of interest are not required on
the Notes prior to July 15, 2000. The Company will be required to make annual
interest payments of approximately $18.1 million commencing at such time. At
June 30, 1996, the Company had total long-term debt of approximately $72.3
million and stockholders' deficit of approximately $38.6 million. The degree to
which the Company is leveraged could have adverse consequences to holders of the
Common Stock, including the following: (i) the Company's ability to obtain
additional
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future financing to fund working capital, capital expenditures, debt service
requirements or acquisitions or for other purposes may be impaired; (ii) all or
a substantial portion of the Company's future cash flow from operations may be
dedicated to the payment of interest and principal on the Notes and may not be
available for other purposes; or (iii) the extent of the Company's leverage may
make it more vulnerable to the effects of a prolonged economic downturn, limit
its ability both to withstand competitive pressures and to exploit new business
opportunities and reduce its flexibility in responding to changing business and
economic conditions. In addition, restrictive covenants contained in the
Indenture (as hereinafter defined) may limit the ability of the Company to pay
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Interest
Requirements and Debt Repayment."
SUBSTANTIAL GOVERNMENT REGULATION
Overview. The Company's provision of international and national long
distance telecommunications services is heavily regulated. Many of the countries
in which the Company provides, or intends to provide, services prohibit or limit
the services which the Company can provide and the transmission methods by which
it can provide such services. For example, in the United States, the Company's
authority to engage in the resale of international private lines for the
provision of switched services between the United States and the United Kingdom
and between the United States and Canada is pursuant to the authorization (the
"Section 214 Private Line Authorization") initially granted to YYC
Communications, Inc., a wholly owned subsidiary of the Company, but recently
assigned to the Company under Section 214 of the Communications Act of 1934, as
amended (the "Communications Act"). The Company is additionally authorized to
provide these services, among others, pursuant to the Section 214 Global
Authorization (as defined herein). Certain rules of the Federal Communications
Commission ("FCC") prohibit the Company from (i) transmitting calls routed over
the Company's leased line between the United States and the United Kingdom
onward over the European Network (other than to countries which the FCC deems to
be "equivalent," currently the United Kingdom, Canada and Sweden) or (ii)
transmitting calls from European countries (other than those deemed to be
equivalent) over the European Network and then onward over its leased line
between the United States and the United Kingdom. If a violation of FCC rules
concerning resale of international private line service were found to exist and
to be sufficiently severe, the FCC could impose sanctions and penalties,
including revocation of the Section 214 Private Line Authorization or the
Section 214 Global Authorization. FCC restrictions thus materially limit the
optimal and most profitable use of the Company's leased line between the United
States and the United Kingdom.
In addition, the Company provides its customers located outside the EU,
and, to a lesser degree within the EU, with access to its services through the
use of callback. A substantial number of countries have prohibited certain forms
of callback as a mechanism to access the Company's services. This has caused the
Company to cease providing services in some jurisdictions, including Kuwait,
Costa Rica and Jordan, and may require it to do so in other countries in the
future. There can be no assurance that certain of the Company's services and
transmission methods will not continue to be or will not become prohibited in
certain jurisdictions, and, depending on the jurisdictions, services and
transmission methods affected, there could be a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
Local laws and regulations differ significantly among the jurisdictions in
which the Company operates, and, within such jurisdictions, the interpretation
and enforcement of such laws and regulations can be unpredictable. For example,
EU member states have inconsistently and, in some instances, unclearly
implemented the 1990 EU directive (the "Services Directive") under which the
Company provides voice services for closed user groups ("CUGs") in Western
Europe. As a result, some EU member states may limit, constrain or otherwise
adversely affect the Company's ability to provide certain services. There can be
no assurance that certain EU member states will implement, or will implement
consistently, the Services Directive or the Full Competition Directive adopted
by the EU in March 1996 (the "Full Competition Directive"), and either the
failure to implement or inconsistent implementation of such directives could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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Unsettled Nature of Regulatory Environment. The Company has pursued and
expects to continue to pursue a strategy of providing its services to the
maximum extent it believes permissible under applicable laws and regulations.
For example, the Company's ViaGLOBE service, which is provided to individuals
for calling within the EU, may constitute prohibited Voice Telephony. A further
example of the Company's aggressive interpretation of indefinite or unfavorable
laws is its provision of services utilizing the callback access method in
Colombia, where the Colombian Ministry of Communications has stated that
callback access is not permitted and has so notified the FCC, and in other Latin
American countries where services utilizing such access method may not currently
be permitted.
The Company's aggressive strategy may result in the Company's (i) providing
services or using transmission methods that violate local laws or regulations or
(ii) failing to obtain formal approvals required under such laws or regulations.
Where the Company is found to be in violation of local laws and regulations, it
usually seeks to modify its operations so as to comply with such laws and
regulations. There can be no assurance, however, that the Company will not be
subject to fines, penalties or other sanctions as a result of past violations
even though such violations were corrected. In addition, if the Company
determines, following consultation with regulatory counsel in a jurisdiction,
that it has a legal basis for doing so, it may persist in providing such
services, using such transmission methods or otherwise continuing such actions.
If the Company's interpretation of applicable laws and regulations proves
incorrect, it could lose, or be unable to obtain, regulatory approvals,
including the Section 214 Private Line Authorization, the Section 214 Switched
Authorization (as defined herein), the Section 214 Global Authorization or the
Section 214 UK Facilities Authorization, necessary to provide certain of its
services or to use certain of its transmission methods. The Company also could
have substantial monetary fines and penalties imposed against it. In addition,
the Section 214 Switched Authorization requires that services be provided "in a
manner consistent with the laws and regulations of the countries in which [the
Company] operates." There can be no assurance that the Company has accurately
interpreted or will accurately interpret applicable laws and regulations in
particular jurisdictions.
Moreover, the Company may be incorrect in its assumption that (i) EU member
states will abolish on a timely basis the respective ITO's monopoly to provide
Voice Telephony within and between such member states, as required by the
Services Directive and the Full Competition Directive, (ii) deregulation will
continue to occur or (iii) it will be allowed to continue to provide and to
expand its services. The Company's provision of services in Europe may also be
affected if any EU member state imposes greater restrictions on non-EU
international service than on such service within the EU. There can be no
assurance that the United States or foreign jurisdictions will not adopt laws or
regulatory requirements that will adversely affect the Company. Additionally,
there can be no assurance that future United States or foreign regulatory,
judicial or legislative changes will not have a material adverse effect on the
Company or that regulators or third parties will not raise material issues with
regard to the Company's compliance with applicable laws or regulations. If the
Company is unable to provide the services it is presently providing or intends
to provide or to use its existing or contemplated transmission methods due to
its inability to receive or retain formal or informal approvals for such
services or transmission methods, or for any other reason related to regulatory
compliance or the lack thereof, such events could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Government Regulation."
POTENTIAL DIFFICULTIES ASSOCIATED WITH IMPLEMENTING EUROPEAN EXPANSION STRATEGY
The Company believes that an increasing percentage of its future revenue
will be derived from its Western European business operations. Execution of the
Company's European expansion strategy, however, is subject to a variety of
risks, including operating and technical problems, regulatory uncertainties,
possible delays in the full implementation of the Services Directive and
competition. The successful implementation of its European expansion strategy
will require that the Company, among other things, continue to develop its
European Network, back-office capacity and direct sales organizations. There can
be no assurance that the Company will successfully implement its European
expansion strategy or that the Company's Western European operations will
contribute an increasing percentage of revenue in the future.
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<PAGE> 13
Expansion and development of the European Network are necessary to enable
the Company to meet customer requirements and to increase the number of
customers served, thereby increasing traffic volume which is fundamental to the
achievement of economies of scale and to the Company's overall financial
success. There can be no assurance, however, that the Company will be able to
expand and develop the European Network successfully. The European Network
enables the Company to operate in the Western European market on a competitive
basis. The primary economic benefits of the European Network, however, are
limited to those calls that either originate or terminate in a city where the
Company has a switch or point of presence ("POP"). The Company currently incurs
significant fixed costs associated with the operation of the European Network,
consisting principally of leased line rental charges and local connectivity (as
defined herein) and facility/network management costs. Although the current
traffic volume through the European portion of the Company's network is too low
to achieve desired economies of scale, transmission costs are expected to
decline as a percentage of revenue as call traffic through the European Network
increases. There can be no assurance, however, that the European Network will
ever achieve the economies of scale which the Company believes are critical to
its overall financial success.
To originate and terminate calls on the European Network, the Company
requires "local connectivity," which is access and egress into and from the
public switched telephone network ("PSTN"). Although the Company has been
successful to date in obtaining local connectivity, there can be no assurance
that the Company will be able to maintain local connectivity or that local
connectivity will always be obtained. Currently, the Company obtains its local
connectivity from the local ITOs which are, and are expected to continue to be,
the Company's competitors.
In addition, under a prior configuration, the Company experienced problems
affecting the quality of the voice and voice band data transmission of some
calls transmitted over the European Network. These problems resulted from time
to time in poor quality voice transmission over the European Network and, in
some instances, resulted in interruptions in service. There can be no assurance
that the European Network will not experience quality problems or service
interruptions in the future. To provide redundancy in the event of technical
difficulties with the European Network, the Company relies upon the PSTN. To the
extent that calls are transmitted over the PSTN rather than over the European
Network, these calls will be more costly to the Company and may result in losses
on such calls.
Any failure to expand and develop the European Network successfully would
have a material adverse effect on the Company's ability to implement its
European expansion strategy, which is a key component of its overall business
strategy. Failure to implement successfully the Company's European expansion
strategy, or future problems with local connectivity, quality of service or
service interruptions would have a material adverse effect on the Company's
business, financial condition and results of operations. See "-- Substantial
Government Regulation," "-- Competition," "-- Risks Associated with
International Operations," "Business -- Business Strategy," "Business -- The
Viatel Network -- The European Network" and "Business -- Competition."
SUBSTANTIAL CAPITAL REQUIREMENTS
The development of the Company's business has, in the past, required
substantial capital expenditures. In the future, the Company will require
substantial capital expenditures significantly in excess of historical levels to
upgrade and expand the Viatel Network generally, and the European Network
specifically, as well as to develop and expand new and existing services. During
the years ended December 31, 1995, 1994 and 1993 and the six months ended June
30, 1996, the Company had capital expenditures, including acquisitions of
businesses, of approximately $11.4 million, $4.8 million, $2.6 million and $4.7
million, respectively.
The Company expects to use the net proceeds of the Offerings to meet its
capital expenditure requirements and estimates that it will use approximately
(i) $38.1 million of the net proceeds of the Offerings for network upgrade and
expansion, (ii) $9.0 million for investments in digital undersea fiber optic
cable, (iii) $19.2 million for acquisitions of customer bases and businesses or
for investment in joint ventures or strategic alliances, and (iv) $40.9 million
for general corporate and working capital purposes,
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<PAGE> 14
including up to approximately $1.0 million for feasibility studies of the
Company's provision of CLEC services. See "-- Broad Discretion Over Use of
Proceeds," "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Capital Expenditures and Working Capital." Although the Company
believes that the proceeds of the Offerings will be sufficient to fund its
current plans, actual capital expenditures may vary significantly from the
Company's estimates depending on a number of factors, including the pace and
extent of network upgrade and expansion, the magnitude of potential
acquisitions, investments or strategic alliances, levels of incremental sales
and regulatory actions, which, individually or collectively, could cause
material changes in the Company's capital expenditure requirements.
The Company will need additional capital to (i) finance its anticipated
growth, (ii) fund working capital needs and future debt service obligations,
(iii) take advantage of unanticipated opportunities, including more rapid
international expansion, acquisitions of customer bases or businesses or
investments in, or strategic alliances with, companies that are complementary to
the Company's current operations, (iv) develop or expand into new services, such
as CLEC, or (v) otherwise respond to unanticipated competitive pressures. The
Company currently expects to obtain any such additional capital through debt
offerings and internally generated cash flow. There can be no assurance,
however, that the Company will be successful in producing sufficient internally
generated cash flow or raising sufficient capital on terms acceptable to the
Company, if at all. Moreover, the amount of, and the terms and conditions of the
instruments relating to, the Company's current outstanding indebtedness may
adversely affect the Company's ability to raise additional capital. Failure to
internally generate or raise sufficient funds may require the Company to delay,
abandon or reduce the scope of any potential future expansion, which could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "-- Limited Operating History; Substantial Net Losses
and Negative Cash Flow from Operations; Expected Future Net Losses and Negative
Cash Flow from Operations; Substantial Leverage" and "Management's Discussion
and Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH AND IMPLEMENTATION OF GROWTH STRATEGY
The Company's rapid growth has placed, and is expected to continue to
place, a significant strain on the Company's administrative, operational and
financial resources and has increased demands on its systems and controls. There
can be no assurance, however, that the Company will be able to successfully add
services or expand its geographic markets or that existing regulatory barriers
to its current or future operations will be reduced or eliminated. For example,
the introduction of one of the Company's services, ViaCALL Plus, was delayed due
to greater than expected software development efforts required to accommodate
the many national variants of Integrated Services Digital Network ("ISDN"), a
prerequisite for the ViaCALL Plus service, and delays in obtaining regulatory
approval of the Company's switching equipment. As the Company increases its
services and expands its geographic markets, there will be additional demands on
the Company's customer support, sales and marketing and administrative resources
and network infrastructure. There can be no assurance that the Company's
administrative, operating and financial control systems and infrastructure will
be adequate to maintain and effectively monitor future growth or that the
Company will be able to successfully attract, train and manage additional
employees. The failure to continue to upgrade the Company's administrative,
operating and financial control systems and infrastructure or the occurrence of
unexpected expansion difficulties could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Potential Difficulties Associated With Implementing European Expansion
Strategy" and "-- Dependence on Effective Information Systems."
COMPETITION
The international telecommunications industry is highly competitive. The
Company's success depends upon its ability to compete with a variety of other
telecommunications providers in each of its markets, including the respective
ITO in each country in which the Company operates and global alliances among
some of the world's largest telecommunications carriers. Other potential
competitors
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<PAGE> 15
include cable television companies, wireless telephone companies, electric and
other utilities with rights of way, railways, microwave carriers and large end
users which have private networks. The intensity of such competition has
recently increased and the Company believes that such competition will continue
to intensify as the number of new entrants increases. Many of the Company's
current or potential competitors have substantially greater financial, marketing
and other resources than the Company. If the Company's competitors devote
significant additional resources to the provision of international or national
long distance telecommunications services to the Company's target customer base
of small and medium-sized businesses, such action could have a material adverse
effect on the Company's business, financial condition and results of operations,
and there can be no assurance that the Company will be able to compete
successfully against such new or existing competitors.
Competition for customers in the telecommunications industry is primarily
based on price and, to a lesser extent, on the type and quality of services
offered. The Company prices its services primarily by offering discounts to the
prices charged by its competitors. The Company has no control over the prices
set by its competitors, and some of the Company's competitors may be able to use
their financial resources to cause severe price competition in the countries in
which the Company operates. Although the Company does not believe that there is
an economic incentive for its competitors to pursue such a pricing strategy or
that its competitors are likely to engage in such a course of action, there can
be no assurance that severe price competition will not occur. Any such price
competition would have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, intensified
competition in certain of the Company's markets will cause the Company to
continue to reduce its prices. For example, the Company recently reduced certain
rates which it charges to non-wholesale customers in response to pricing
reductions enacted by certain ITOs. Such price reductions may reduce the
Company's revenue and margins. The Company has experienced, and expects to
continue to experience, declining revenue per billable minute in all of its
markets, in part as a result of increasing worldwide competition within the
telecommunications industry.
The Company believes that the ITOs generally have certain competitive
advantages due to their control over local connectivity and apparent close ties
with national regulatory authorities. The Company also believes that, in certain
instances, some regulators have shown a reluctance to adopt policies and grant
regulatory approvals that would result in increased competition for the local
ITO. Moreover, the Company believes that it has encountered anti-competitive
behavior on the part of certain ITOs. If the Company encounters anti-competitive
behavior in countries in which it operates or if the ITO in any country in which
the Company operates uses its competitive advantages to the fullest extent, the
Company's business, financial condition and results of operations could be
materially adversely affected.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
There are certain risks inherent in doing business on an international
level, including regulatory limitations restricting or prohibiting the provision
of the Company's services, unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political risks, fluctuations in currency exchange rates,
foreign exchange controls which restrict or prohibit repatriation of funds,
technology export and import restrictions or prohibitions, delays from customs
brokers or government agencies, seasonal reductions in business activity during
the summer months in Europe and certain other parts of the world and potentially
adverse tax consequences resulting from operating in multiple jurisdictions with
different tax laws. For example, regulatory limitations restricting or
prohibiting the Company's operations in Latin America, including regulations in
certain countries prohibiting the provision of services through the automatic
callback access method utilized by the Company, have contributed to the
Company's decision to discontinue or modify certain of its services in such
countries. Existing or future regulations in other countries could also have
similar consequences.
Since its inception in 1991, the Company has invested heavily in developing
its ability to provide international telecommunications services within Western
Europe and other deregulating markets and in developing and expanding its market
presence including, more recently, entering into the national long
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<PAGE> 16
distance telecommunications markets in Spain and Italy. If the Company's
operations in Western Europe expand as expected, an increasing portion of the
Company's revenue and expenses will be denominated in currencies other than U.S.
Dollars, and changes in exchange rates will likely affect the Company's results
of operations. Furthermore, international rates charged to customers are likely
to decrease in the future for a variety of reasons, including increased
competition between existing carriers, new entrants into geographic markets in
which the Company operates or intends to operate and additional strategic
alliances or joint ventures among large international carriers that facilitate
targeted pricing and cost reductions. Depending on the countries involved, any
or all of the foregoing factors could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
there can be no assurance that laws or administrative practices relating to
taxation, foreign exchange or other matters in countries within which the
Company operates will not change. Any such change could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "-- Substantial Government Regulation," "-- Competition," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Foreign Currency," and
"Business -- Government Regulation."
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
The Company may, in the future, acquire or engage in efforts to acquire
customer bases and businesses from, make investments in, or enter into strategic
alliances with, companies which have customer bases, switching capabilities or
existing networks in the Company's current markets or in areas into which the
Company intends to expand the Viatel Network, generally, and the European
Network, specifically. Although the Company is currently evaluating several
potential investment opportunities, it does not have any present understanding,
commitment or agreement with respect to any acquisition, investment, strategic
alliance or related effort (other than a strategic alliance with Global
Telecommunication Solutions, Inc. with respect to the Company's marketing of its
proposed ViaCARD services). Any future acquisitions, investments, strategic
alliances or related efforts will be accompanied by the risks commonly
encountered in such transactions or efforts. Such risks include, among others,
the difficulty of identifying appropriate acquisition candidates, the difficulty
of assimilating the operations and personnel of the respective entities, the
potential disruption of the Company's ongoing business, the inability of
management to capitalize on the opportunities presented by acquisitions,
investments, strategic alliances or related efforts, the failure to successfully
incorporate licensed or acquired technology and rights into the Company's
services, the inability to maintain uniform standards, controls, procedures and
policies and the impairment of relationships with employees and customers as a
result of changes in management. Additionally, in connection with an
acquisition, the Company may experience rates of customer attrition which are
significantly higher than the rate of customer attrition which it generally
experiences. Further, to the extent that any such transaction involves customer
bases or businesses located outside the United States, the transaction would
involve the risks associated with international operations. There can be no
assurance that the Company would be successful in overcoming these risks or any
other problems encountered with such acquisitions, investments, strategic
alliances or related efforts. See "-- Potential Difficulties Associated With
Implementing European Expansion Strategy," "-- Risks Associated with
International Operations" and "Business -- Business Strategy -- Pursue
Acquisitions, Investments and Strategic Alliances."
RAPID CHANGES IN TECHNOLOGY AND CUSTOMER REQUIREMENTS
The telecommunications industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to implement such new technologies at substantial cost. In addition,
competitors may implement new technologies before the Company is able to
implement such technologies, allowing such competitors to provide enhanced
services and superior quality compared with that which the Company is able to
provide. There can be no assurance that the Company will be able to respond to
such competitive pressures and implement such technologies on a timely basis or
at an acceptable cost. One or more of
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<PAGE> 17
the technologies currently utilized by the Company, or which it may implement in
the future, may not be preferred by its customers or may become obsolete. If the
Company is unable to respond to competitive pressures, implement new
technologies on a timely basis, penetrate new markets in a timely manner in
response to changing market conditions or customer requirements, or if new or
enhanced services offered by the Company do not achieve a significant degree of
market acceptance, any such event could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
To efficiently produce customer bills in a timely manner, the Company must
record and process millions of call detail records quickly and accurately. While
the Company believes that its billing and information systems are currently
sufficient for its operations, such systems will require enhancements and
ongoing investments, including as volume increases. There can be no assurance
that the Company will not encounter difficulties in enhancing its systems or
integrating new technology into its systems. The inability of the Company to
implement any required system enhancement, to acquire new systems or to
integrate new technology in a timely and cost effective manner could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Business Strategy -- Leverage
Information Systems" and "Business -- Information Systems."
VARIABILITY OF OPERATING RESULTS
The Company's quarterly operating results have fluctuated in the past,
primarily as a result of the evolution of the Company's business, and may
fluctuate significantly in the future as a result of a variety of factors,
including: (i) pricing changes; (ii) changes in the mix of services sold or
channels through which those services are sold; (iii) changes in user demand,
customer terminations of service, capital expenditures and other costs relating
to the expansion of the Viatel Network; (iv) the timing and costs of any
acquisitions of customer bases and businesses, services or technologies; (v) the
timing and costs of marketing and advertising efforts; (vi) the effects of
government regulation and regulatory changes; and (vii) specific economic
conditions in the telecommunications industry. Such variability could have a
material adverse effect on the Company's business, financial condition and
results of operations. Any significant shortfall in demand for the Company's
services in relation to the Company's expectations, or the occurrence of any
other factor which causes revenue to fall significantly short of the Company's
expectations, would also have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
uncertainty of revenue growth coupled with substantial planned increases in
operating expenses and the continued evolution in the Company's transmission
methodology from switchless resale to use of the Viatel Network may result in
substantial quarterly fluctuations in the Company's operating results which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "-- Limited Operating History;
Substantial Net Losses and Negative Cash Flow from Operations; Expected Future
Net Losses and Negative Cash Flow from Operations; Substantial Leverage,"
"Selected Consolidated Financial and Other Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
RELIANCE ON THIRD PARTIES FOR LEASED CAPACITY
Other than an interest in a digital fiber optic cable, the Company does not
currently own any telecommunications transmission lines. As a result, the
Company depends upon facilities-based carriers, some of which are or may become
competitors of the Company, to provide its services. The Company currently
leases transmission lines from, among others, British Telecommunications, Plc,
Cable & Wireless International, Inc., Mercury Communications Ltd. and the
respective ITO in each country in which the Company conducts its Western
European operations. The Company's profitability depends, in part, on its
ability to obtain and utilize leased capacity on a cost-effective basis. The
Company leases capacity pursuant to agreements with twelve-month terms and is
vulnerable to changes in its lease arrangements, such as price increases and
service cancellations. Although the Company believes that it has and will
continue to enjoy favorable arrangements with the facilities-based carriers from
which it leases transmission lines, there can be no assurance that such
arrangements will continue or that leased capacity will continue to be available
at cost-effective rates. See "Business -- The Viatel Network" and "Business --
Carrier Contracts."
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CONTROL BY PRINCIPAL STOCKHOLDERS
Upon completion of the Offerings, Martin Varsavsky, the Company's Chairman
of the Board and Chief Executive Officer, COMSAT Investments, Inc. ("COMSAT"),
S-C V-Tel Investments, L.P. ("S-C V-Tel") and Juan Manuel Aisemberg, a person
related by marriage to Mr. Varsavsky, will control, in the aggregate,
approximately 41.8% of the then outstanding shares of Common Stock on a fully
diluted basis (approximately 39.6% if the Underwriters' over-allotment option is
exercised in full) and Mr. Varsavsky will individually beneficially own
approximately 21.5% of the then outstanding shares of Common Stock on a fully
diluted basis (approximately 20.4% if the Underwriters' over-allotment option is
exercised in full). These stockholders, acting pursuant to a shareholders'
agreement and a voting agreement, effectively will have the ability to control
the election of all members of the Company's Board of Directors, the outcome of
most matters submitted to a vote of the holders of Common Stock and generally
will be able to direct the affairs of the Company. Such concentration of
ownership may have the effect of delaying, deterring or preventing a change in
control of the Company. See "Management -- Compensation Committee Interlocks and
Insider Participation -- Shareholders Agreements," "Management -- Compensation
Committee Interlocks and Insider Participation -- Voting Agreement" and
"Principal Stockholders."
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business will depend, to a significant extent,
upon the abilities and continued efforts of its senior management, and
particularly upon the abilities and efforts of Mr. Varsavsky and Michael J.
Mahoney, the Company's President and Chief Operating Officer. The Company does
not currently have employment agreements with any executive officer other than
Messrs. Varsavsky and Mahoney. The Company has entered into new employment
agreements with each of Messrs. Varsavsky and Mahoney, which will become
effective upon consummation of the Offerings, the term of which will extend
until the third anniversary of the closing of the Offerings (one week after the
third anniversary in the case of Mr. Mahoney), unless earlier terminated in
accordance with the terms of the respective agreement. Except for a $3.0 million
"key man" life insurance policy which the Company maintains on the life of Mr.
Varsavsky, the Company does not maintain nor is it currently contemplating
obtaining "key man" life insurance policies on any of its employees. The
Company's success also will depend on its ability to attract, retain and
motivate qualified management, marketing, technical and sales executives and
other personnel who are in high demand and are often subject to competing
employment opportunities. The loss of the services of key management personnel,
or the inability to attract additional qualified personnel, could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will be
successful in attracting, retaining and motivating such executives and
personnel. See "Management -- Directors and Executive Officers" and
"Management -- Employment and Severance Agreements." Currently, no member of
management, except for Messrs. Varsavsky and Mahoney, own shares of Common
Stock. However, certain members of management have been granted options to
acquire shares of Common Stock, which options are subject to vesting criteria.
See "Management -- Stock Incentive Plan" and "Principal Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock and, although the Company intends to have the Common Stock quoted on the
Nasdaq National Market, there can be no assurance that an active trading market
will develop or be maintained following the Offerings. The initial public
offering price of the Common Stock will be determined by negotiation between the
Company and the Representatives of the Underwriters (each as defined herein) and
may bear no relationship to the price at which the Common Stock will trade after
completion of the Offerings. For factors to be considered in determining the
initial public offering price see "Underwriting." After completion of the
Offerings, the market price of the Common Stock will be subject to fluctuations
in response to various factors and events, including the liquidity of the market
for the Common Stock, variations in the Company's quarterly operating results,
regulatory or other changes, both domestic and international, affecting the
telecommunications industry generally or the Company specifically, announcements
of
15
<PAGE> 19
business developments by the Company or its competitors, changes in operating
results and changes in general market conditions. See "-- Limited Operating
History; Substantial Net Losses and Negative Cash Flow from Operations; Expected
Future Net Losses and Negative Cash Flow from Operations; Substantial Leverage,"
"-- Substantial Governmental Regulation," "-- Competition" and "-- Variability
of Operating Results."
BROAD DISCRETION OVER USE OF PROCEEDS
Approximately $40.9 million, or 38.2%, of the estimated net proceeds of the
Offerings has been allocated for general corporate and working capital purposes,
including up to approximately $1.0 million for feasibility studies of the
Company's provision of CLEC services. Due to the number and variability of
factors that will be analyzed before the Company determines how to use such net
proceeds, the Company will have broad discretion in allocating a significant
portion of the net proceeds from the Offerings without any action or approval of
the Company's stockholders. Accordingly, investors will not have the opportunity
to evaluate the economic, financial and other relevant information which will be
considered by the Company in determining the application of such net proceeds.
See "Use of Proceeds."
NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1996, the Company had United States federal income tax net
operating loss ("NOL") carryforwards of $52.9 million. Such NOL carryforwards
begin to expire in the year 2007.
As a result of an "ownership change," as defined by Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), triggered by the
offering of the Notes in December 1994, approximately $18 million of the
Company's NOL carryforwards from periods before the offering of the Notes are
subject to annual limitations. Section 382 of the Code imposes limitations with
respect to the carryforward of NOLs by a corporation that experiences a
more-than-50-percent ownership change over a three-year testing period (or over
a shorter period if there has been a prior ownership change within the
immediately preceding three-year period). In general, if such an ownership
change occurs, Section 382 of the Code limits the amount of the NOLs carried
over from pre-ownership change years that can be used in any post-ownership
change year to an amount equal to the product obtained by multiplying (1) the
value of the corporation's capital stock (with certain adjustments) at the time
of the ownership change and (2) an interest rate determined by the Internal
Revenue Service for the month of the ownership change.
The Company does not believe that the Offerings will result in a
more-than-50-percent ownership change. If, however, after the completion of the
Offerings, additional direct or indirect changes in the ownership of the
Company's capital stock occur within the relevant testing period, such ownership
changes could, when considered together with the Offerings, result in a
more-than-50-percent ownership change and substantially restrict the Company's
subsequent use of its then unutilized NOL carryforwards.
The Company will be required to pay federal income tax in any year in which
its taxable income exceeds the amount of each of the NOL carryforwards limited
by Section 382 of the Code plus the aggregate NOL carryforwards from years after
the ownership change. To the extent the Company does not use the full amount of
its limited NOL carryforward in any year, such unused portion can be used to
increase the NOL carryforwards limitation for subsequent years prior to the
expiration of the NOL carryforwards subject to the limitation.
IMMEDIATE AND SUBSTANTIAL DILUTION
At an assumed initial public offering price of $13.50 per share of Common
Stock (the midpoint of the range set forth on the cover page of this
Prospectus), and after giving effect to the conversion of all outstanding shares
of Class A Common Stock into shares of Common Stock, purchasers of Common Stock
in the Offerings will experience immediate and substantial dilution of $10.54
per share in net tangible book value per share of outstanding Common Stock. See
"Dilution."
16
<PAGE> 20
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 ("Rule
144") of the Securities Act of 1933, as amended (the "Securities Act"), through
the exercise of outstanding registration rights or otherwise, could have an
adverse effect on the market price of the Common Stock and the ability of the
Company to raise capital in the future. The shares of Common Stock sold in the
Offerings will be eligible for immediate resale, except to the extent acquired
by affiliates of the Company. Additionally, 337,811 shares of Common Stock which
are "restricted securities," as that term is defined in Rule 144, owned by
persons who are neither affiliates of the Company nor subject to lockup
agreements with the Underwriters are currently eligible for sale under Rule 144.
Upon the expiration or waiver of certain lock-up agreements with the
Underwriters, approximately 9,791,549 additional shares of Common Stock will be
eligible for sale in the public market pursuant to Rule 144. Pursuant to lock-up
agreements with the Underwriters, each of Messrs. Varsavsky and Aisemberg,
COMSAT and S-C V-Tel, as well as certain other directors, executive officers and
stockholders of the Company, has agreed not to offer, sell or contract to sell,
or otherwise dispose of, directly or indirectly, or announce the offering of,
any shares of Common Stock, including any such shares beneficially or indirectly
owned or controlled, or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for 180 days from the date of this
Prospectus, without the prior written consent of Salomon Brothers Inc. The
remaining shares outstanding upon completion of the Offerings will be eligible
for sale pursuant to Rule 144 upon the expiration of the current two-year
holding period. Certain existing stockholders have certain rights to require the
Company to register a total of 6,880,883 shares of Common Stock after expiration
of the lock-up agreements. See "Description of Capital Stock -- Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
The Securities and Exchange Commission (the "Commission") has proposed
amendments to Rule 144 which would reduce the holding period required for shares
subject to Rule 144 to become eligible for resale on the public market. This
proposal, if adopted, would increase the number of shares of Common Stock
eligible for immediate resale following the expiration of lock-up agreements.
ANTI-TAKEOVER CONSIDERATIONS
Prior to completion of the Offerings, the Company's Certificate of
Incorporation, as amended, and Bylaws will be amended and restated to include
certain provisions which are intended to enhance the likelihood of continuity
and stability in the composition of the Company's Board of Directors and which
may have the effect of delaying, deterring or preventing a future takeover or
change in control of the Company unless such takeover or change in control is
approved by the Company's Board of Directors, even though such a transaction may
offer the holders of Common Stock the opportunity to sell such shares of Common
Stock at a price above the prevailing market price. Such provisions may also
render the removal of directors and management more difficult. Specifically, the
Company's Certificate of Incorporation, as amended, and Bylaws, as the case may
be, will be amended to provide for a classified Board of Directors serving
staggered, three-year terms and certain advance notice requirements for
stockholder nominations of candidates for election to the Company's Board of
Directors and certain other stockholder proposals. Such provisions could limit
the price that certain persons might be willing to pay in the future for shares
of Common Stock. In addition, prior to completion of the Offerings, the
Company's Certificate of Incorporation, as amended, will be amended and restated
to authorize the Board of Directors of the Company to issue from time to time,
without any further action of stockholders, up to 1.0 million shares of
Preferred Stock (as defined herein), on such terms and with such rights,
designations, preferences, qualifications, limitations and restrictions as the
Board of Directors may determine. The issuance of such Preferred Stock,
depending upon the rights, designations, preferences, qualifications,
limitations and restrictions thereof, may have the effect of delaying, deterring
or preventing a change in control of the Company or may otherwise adversely
affect the interests of holders of Common Stock. The issuance of Preferred
Stock, for example, could decrease the amount of earnings or assets available
for distribution to holders of Common Stock or could adversely affect the rights
and powers, including voting rights, of the holders of the Common Stock.
Further, certain provisions of the Delaware General Corporation Law (the "DGCL")
prevent certain stockholders from engaging in business
17
<PAGE> 21
combinations with the Company, subject to certain exceptions. See "Description
of Capital Stock -- Preferred Stock," "Description of Capital Stock -- Certain
Provisions of the Company's Certificate of Incorporation, Bylaws and Indenture"
and "Description of Capital Stock -- Delaware Anti-Takeover Law."
The Indenture, dated as of December 15, 1994, and amended on October 11,
1996 (as amended, the "Indenture"), between the Company and United States Trust
Company of New York, as Trustee, relating to the Notes, provides that upon the
occurrence of a "Change of Control" (as defined herein) the Company will be
required to make an offer (a "Change of Control Offer") to purchase all of the
Notes issued and then outstanding under the Indenture at a purchase price equal
to 101.0% of the accreted value thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase. The Notes currently outstanding have
an aggregate principal amount of $120.7 million. There can be no assurance that,
in the event of a Change of Control, the Company will have, or will have access
to, sufficient funds to repurchase the Notes. See "Description of Capital
Stock -- Certain Provisions of the Company's Certificate of Incorporation,
Bylaws and Indenture." Further, pursuant to the terms of the Company's Salary
and Benefits Continuation Program (the "Program"), salaried employees with at
least one year of consecutive service with the Company may be entitled to
receive a payment equal to the amount of any salary continuation benefit they
may be entitled to receive in the event that their employment is involuntarily
terminated under conditions specified in the Program within one year after a
"Change of Control" (as defined in the Program). Benefits under the Program are
based upon the employee's position with the Company. Maximum benefits currently
payable under the Program in the event of a Change of Control are limited to
three months' base salary, plus two additional weeks of salary for each
completed year of service. In addition, the new employment agreements to be
executed with Messrs. Varsavsky and Mahoney will contain provisions which will
require the Company to make certain payments to Messrs. Varsavsky and Mahoney in
certain instances if employment is terminated following a "Change in Control"
(as defined herein). Finally, the Stock Incentive Plan provides that outstanding
options, restricted stock or Stock Appreciation Rights ("SARs") vest in their
entirety and become exercisable or, with respect to restricted stock, are
released from restrictions on transfer and repurchase rights in the event of a
"Corporate Transaction" (as defined herein). See "Management -- Stock Incentive
Plan." The Indenture, employment agreements and Stock Incentive Plan provisions
may have the effect of delaying, deterring or preventing a change of control of
the Company, may discourage bids for outstanding shares of Common Stock and may
adversely affect the market price of the Common Stock.
18
<PAGE> 22
USE OF PROCEEDS
The net proceeds of the Offerings are estimated to be approximately $107.2
million (approximately $123.5 million if the Underwriters' over-allotment option
is exercised in full) after deducting estimated expenses of the Offerings
payable by the Company. The Company estimates that it will use approximately (i)
$38.1 million of the net proceeds of the Offerings for network upgrade and
expansion, including the purchase and installation of POPs (at an estimated cost
of approximately $105,000 each) or switches (at an estimated cost of
approximately $.5 million to $2.5 million depending on the initial
configuration) to expand the European Network from nine to up to 48 Western
European cities, the installation of a POP in Miami and a switch in Los Angeles
and for the upgrade of the Company's switch in London and its New York City POP
to a switch, (ii) $9.0 million for investments in digital undersea fiber optic
cable, (iii) $19.2 million for acquisitions of customer bases and businesses or
for investment in joint ventures or strategic alliances, and (iv) $40.9 million
for general corporate and working capital purposes, including up to
approximately $1.0 million for feasibility studies of the Company's provision of
CLEC services. See "Risk Factors -- Substantial Capital Requirements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Expenditures and
Working Capital."
There can be no assurance that the Company's actual application of the
proceeds will not vary substantially from the Company's current plans. See "Risk
Factors -- Broad Discretion Over Use of Proceeds." Moreover, the Company will
need additional capital to (i) finance its anticipated growth, (ii) fund working
capital needs and future debt service obligations, (iii) take advantage of
unanticipated opportunities, including more rapid international expansion,
acquisitions of customer bases or businesses or investments in, or strategic
alliances with, companies that are complementary to the Company's current
operations, (iv) develop or expand into new services, such as CLEC, or (v)
otherwise respond to unanticipated competitive pressures. See "Risk
Factors -- Substantial Capital Requirements," "Risk Factors -- Risks Associated
With Management of Growth and Implementation of Growth Strategy," "Risk
Factors -- Risks Associated with International Operations," "Risk
Factors -- Risks Associated with Acquisitions, Investments and Strategic
Alliances" and "Business -- Business Strategy."
Although the Company is currently evaluating several potential investment
opportunities, it does not have any present understanding, commitment or
agreement with respect to any acquisition, investment, strategic alliance or
related effort (other than a strategic alliance with Global Telecommunication
Solutions, Inc. with respect to the Company's marketing of its proposed ViaCARD
services).
Pending application of the net proceeds of the Offerings, the Company
expects that it will place such net proceeds in interest-bearing bank accounts
or invest such proceeds in United States government securities or other
short-term, interest bearing, investment grade securities. The Company is not
currently, and does not expect as a result of the Offerings to become, subject
to the registration requirements of the Investment Company Act of 1940 (the
"1940 Act"). If the Company were required to register as an investment company
under the 1940 Act, it would become subject to substantial regulations with
respect to its capital structure, management, operations, transactions with
affiliates (as defined in the 1940 Act), and other matters. Application of the
provisions of the 1940 Act would have a material adverse effect on the Company.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained to finance the expansion and continued development of its business. Any
future determination with respect to the payment of dividends will be within the
sole discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's earnings, capital requirements, the terms of then
existing indebtedness, applicable requirements of the DGCL, general economic
conditions and such other factors considered relevant by the Company's Board of
Directors. In addition, the Company's ability to pay cash dividends is
restricted under the terms of the Indenture unless certain financial tests are
met.
19
<PAGE> 23
DILUTION
The Company's pro forma net tangible book value as of June 30, 1996 was
approximately $(40.9) million, or approximately $(2.98) per share of outstanding
Common Stock (after giving effect to the Reverse Stock Split and the conversion
of all outstanding shares of Class A Common Stock). Net tangible book value per
share of Common Stock represents the total amount of tangible assets of the
Company, less the total amount of liabilities of the Company, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale by
the Company of the shares of Common Stock offered hereby and assuming no
exercise of the Underwriters' over-allotment option, less estimated underwriting
discounts and commissions and estimated expenses of the Offerings payable by the
Company, and the application of the estimated net proceeds therefrom, the
Company's pro forma net tangible book value as of June 30, 1996 would have been
approximately $66.3 million, or approximately $2.96 per share of Common Stock.
This represents an immediate increase in net tangible book value of
approximately $5.94 per share of Common Stock to existing stockholders and an
immediate dilution in net tangible book value of approximately $10.54 per share
of Common Stock to new investors purchasing shares of Common Stock in the
Offerings. The following table illustrates this dilution on a per share basis to
the new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $13.50
Pro forma net tangible book value per share at June 30,
1996..................................................... $(2.98)
Increase in net tangible book value per share attributable
to net proceeds of the Offerings......................... 5.94
-----
Pro forma net tangible book value per share after giving effect
to the Offerings.............................................. 2.96
-----
Dilution per share to new investors............................. $10.54
=====
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share of Common
Stock paid by existing stockholders and by new investors before deducting the
estimated underwriting discounts and commissions and estimated expenses of the
Offerings payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 13,707,648 61.3 % $ 30,625,419 20.7 % $ 2.23
New investors................ 8,667,000 38.7 % 117,004,500 79.3 % 13.50
---------- ----- ------------ -----
Total...................... 22,374,648 100.0 % $ 147,629,919 100.0 %
========== ===== ============ =====
</TABLE>
The above tables give effect to the Reverse Stock Split and assume
conversion of all outstanding shares of Class A Common Stock into shares of
Common Stock, and no exercise of any outstanding options. As of the date hereof,
options to purchase 1,075,511 shares of Common Stock, exercisable at prices
ranging from $.75 to $5.85 per share, have been granted and are outstanding. To
the extent options are exercised, there will be further dilution to new
investors. See "Management -- Stock Incentive Plan" and "Capitalization."
20
<PAGE> 24
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company at June 30, 1996; (ii) the pro forma capitalization of the Company at
such date after giving effect to (a) the Reverse Stock Split and (b) the
conversion of all outstanding shares of Class A Common Stock into shares of
Common Stock; and (iii) the pro forma capitalization of the Company at such
date, as adjusted to give effect to the issuance of the shares of Common Stock
offered hereby, at an assumed initial public offering price of $13.50 per share
of Common Stock, and the application of the estimated net proceeds from the
Offerings as described in "Use of Proceeds." This table should be read in
conjunction with the Company's Consolidated Financial Statements, including the
Notes thereto, and the other financial data included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash, cash equivalents and marketable securities....... $ 12,769 $ 12,769 $ 119,983
======== ======== ========
Long-term debt......................................... $ 72,329 $ 72,329 $ 72,329
-------- -------- --------
Stockholders' (deficit) equity:
Common Stock, $.01 par value; 50,000,000 shares
authorized, 16,204,202 shares issued and
outstanding; 13,707,648 shares issued and
outstanding, pro forma; 22,374,648 shares issued
and outstanding, pro forma as adjusted(1)....... 162 137 224
Class A Common Stock, $.01 par value; 10,000,000
shares authorized, 4,357,270 shares issued and
outstanding; no shares issued and outstanding,
pro forma; no shares authorized, no shares
issued and outstanding, pro forma as adjusted... 44 -- --
Preferred Stock, $.01 par value; no shares
authorized, no shares issued and outstanding; no
shares issued and outstanding, pro forma
1,000,000 shares authorized, no shares issued
and outstanding, pro forma as adjusted.......... -- -- --
Additional paid-in capital........................ 30,420 30,489 137,615
Unearned compensation............................. (163) (163) (163)
Cumulative translation adjustment................. (822) (822) (822)
Accumulated deficit............................... (68,235) (68,235) (68,235)
-------- -------- --------
Total stockholders' (deficit) equity......... (38,595) (38,595) 68,619
-------- -------- --------
Total capitalization......................... $ 33,734 $ 33,734 $ 140,948
======== ======== ========
</TABLE>
- ---------------
(1) Excludes (i) 1,833,333 shares of Common Stock reserved for issuance under
the Stock Incentive Plan of which options to purchase 1,075,511 shares of
Common Stock, exercisable at prices ranging from $.75 to $5.85 per share,
have been granted and are outstanding on the date hereof and (ii) 5,914
other outstanding options to purchase shares of Common Stock, exercisable at
$.75 per share. See "Management -- Stock Incentive Plan."
21
<PAGE> 25
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected Consolidated Statement of Operations Data, Other
Financial Data and Balance Sheet Data as of and for the years ended December 31,
1995, 1994, 1993 and 1992 have been derived from the Consolidated Financial
Statements of the Company and the Notes related thereto, included elsewhere in
this Prospectus, which were audited by KPMG Peat Marwick LLP, independent
Certified Public Accountants, for the years ended December 31, 1995, 1994 and
1993 and by Edward Isaacs & Company LLP, independent Certified Public
Accountants, for the year ended December 31, 1992. The selected Statement of
Operations Data, Other Financial Data and Balance Sheet Data as of and for the
eleven-month period ended December 31, 1991 have been derived from the unaudited
Financial Statements of the Company which, in the opinion of management, include
all adjustments necessary for a fair presentation of the financial condition and
results of operations for the Company for such period. The selected consolidated
Statement of Operations Data, Other Financial Data and Balance Sheet Data as of
and for the six months ended June 30, 1996 and 1995 have been derived from the
unaudited Consolidated Financial Statements of the Company included elsewhere in
this Prospectus, which, in the opinion of management, include all adjustments
necessary for a fair presentation of the financial condition and results of
operations of the Company for such periods. The results of operations for
interim periods are not necessarily indicative of a full year's operations. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Company's
Consolidated Financial Statements, including the Notes thereto, and the other
financial data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
ELEVEN
SIX MONTHS MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31, ENDED
------------------- --------------------------------------- DEC. 31,
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT OTHER OPERATING DATA)(1)
STATEMENT OF OPERATIONS DATA:
Telecommunications revenue............................ $ 22,282 $ 14,192 $ 32,313 $ 26,268 $21,393 $ 6,701 $ 268
Operating expenses:
Cost of telecommunications services................. 18,578 12,109 27,648 22,953 18,159 5,462 260
Selling expenses.................................... 5,071 3,369 7,468 4,459 2,389 895 39
General and administrative expense.................. 12,590 7,218 16,860 9,859 6,069 1,610 58
Depreciation and amortization....................... 2,232 881 2,637 789 111 15 5
Equipment impairment loss........................... -- 560 560 -- -- -- --
-------- -------- -------- -------- ------- ------- ----
Total operating expenses.......................... 38,470 24,137 55,173 38,060 26,728 7,982 362
-------- -------- -------- -------- ------- ------- ----
Operating loss........................................ $(16,188) $ (9,945) $(22,860) $(11,792) $(5,335) $(1,281) $ (94)
Interest income (expense), net........................ (4,431) (2,472) (5,574) (558) 21 (8) --
Share in loss of affiliate............................ (5) (23) (42) (145) (142) -- --
-------- -------- -------- -------- ------- ------- ----
Net loss.............................................. $(20,624) $(12,440) $(28,476) $(12,495) $(5,456) $(1,289) $ (94)
======== ======== ======== ======== ======= ======= ====
Pro forma net loss per share(2)....................... $ (1.47) $ (0.89) $ (2.04) $ (1.19) $ (0.74) $ (0.20) $(0.02)
OTHER FINANCIAL DATA:
EBITDA(3)............................................. $(13,961) $ (9,087) $(20,265) $(11,148) $(5,366) $(1,266) $ (89)
Net cash (used in) provided by operating activities... (16,508) (11,733) (18,489) (11,571) (1,442) 438 (23)
Net cash provided by (used in) investing activities... 15,308 (48,121) (37,057) (4,996) (2,949) (70) (30)
Net cash (used in) provided by financing activities... -- (2,251) (2,306) 80,984 6,329 (15) 91
Capital expenditures, including acquisitions of
businesses.......................................... $ 4,660 $ 5,361 $ 11,378 $ 4,843 $ 2,643 $ 70 $ 2
OTHER OPERATING DATA(4):
Billable minutes (000's) (5)(6)....................... 25,110 10,010 25,932 14,981 10,899 3,097
Average revenue per billable minute(6)(7)............. $ 0.88 $ 1.41 $ 1.23 $ 1.70 $ 1.87 $ 2.16
Average cost per billable minute(6)(8)................ $ 0.72 $ 1.21 $ 1.04 $ 1.53 $ 1.67 $ 1.76
Switches(6)(9)(10).................................... 13 2 10 2 2
Customers(6)(10)...................................... 13,779 7,360 9,218 6,469 5,486
BALANCE SHEET DATA(10):
Working capital....................................... 8,281 33,287 $ 26,214 $ 58,549 $(3,628) $(1,219) $ (44)
Property and equipment, net........................... 18,108 11,263 15,715 6,933 3,584 62 2
Total assets.......................................... 48,550 71,742 65,613 83,923 10,585 2,147 161
Long-term debt, excluding current installments........ 72,329 62,712 67,283 59,955 866 -- --
Stockholders' (deficit) equity(11).................... (38,595) (1,504) (17,618) 10,985 (162) (1,139) (19)
</TABLE>
- ---------------
(1) Amounts presented may not total due to rounding.
(2) Pro forma net loss per share is computed on the basis described in Note 1
of the Company's Consolidated Financial Statements, except that such data
has been computed to give effect to the Reverse Stock Split.
(3) As used herein, "EBITDA" consists of earnings before interest (net), income
taxes and depreciation and amortization. EBITDA is a measure commonly used
in the telecommunications industry to analyze companies on the basis of
operating performance. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered
as an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.
(4) Information derived from operating records prepared by the Company.
(5) Billable minutes are those minutes during which a call is connected at any
Company switch and for which the Company bills a customer.
(6) Blanks indicate that data is not available for such period.
(7) Represents the gross call usage revenue per billable minute. Amounts
exclude other revenue and revenue related items such as hardware sales,
software licensing, credits, discounts and other non-usage charges.
(8) Represents the cost associated with the Company's provision of
telecommunications services per billable minute. Amounts exclude
nontransmission costs such as hardware and software purchased for resale.
(9) At June 30, 1996, includes three switches at the Omaha, Nebraska switching
center, two switches at the London switching center and one switch at each
of the Company's other switching sites. At December 31, 1995, includes two
switches at each of the Company's switching centers in Omaha, Nebraska and
London and one switch at each of the Company's other switching sites.
(10) Information presented as of the end of the period indicated.
(11) The Company has never paid cash dividends on its Common Stock. See
"Dividend Policy."
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the six months ended June 30, 1996 and 1995 and
the years ended December 31, 1995, 1994 and 1993. This discussion should be read
in conjunction with the Company's Consolidated Financial Statements, including
the Notes related thereto, and the other financial data included elsewhere in
this Prospectus.
OVERVIEW
Since its inception in 1991, the Company has invested heavily in developing
its ability to provide international telecommunications services within Western
Europe and other deregulating markets and in developing and expanding its market
presence including, more recently, entering into the national long distance
telecommunications markets in certain EU member states. During the past five
years, the Company has made substantial investments in software and back office
operations, an administrative infrastructure and a direct sales organization in
Western Europe. Furthermore, the Company has created an extensive commercial
telecommunications network for voice and voice band data in Europe, which the
Company believes is necessary to effectively render the services it currently
offers and intends to offer after the liberalization of regulations relating to
Voice Telephony. Consequently, the Company has incurred a high level of expense
in connection with its inception and its continued expansion which has resulted
in substantial net losses since its inception. The Company expects to incur
substantial net losses and negative cash flow until at least the year 2001.
During the past two years, several key trends have affected the composition
of the Company's telecommunications revenue, which is derived principally from
the number of minutes of use billed by the Company, or "billable minutes."
First, a growing proportion of the Company's customers, particularly in Western
Europe, now access the Viatel Network using paid local access through the PSTN
rather than paid access through the Company using callback or ITF. This change
has had a negative impact on the Company's revenue per minute. Second, the
Company expanded its wholesale business, which represented approximately 15.8%
and 33.4% of total telecommunications revenue and billable minutes,
respectively, for the first six months of 1996. Third, Western Europe is
becoming an increasingly important market for the Company. During the first six
months of 1996, approximately 42.4% of the Company's telecommunications revenue
was generated in Western Europe as compared to approximately 35.2% of the
Company's telecommunications revenue during the six months ended June 30, 1995.
In contrast, despite an increase of approximately 7.5% over the corresponding
period of 1995, telecommunications revenue from Latin America represented
approximately 29.1% of the Company's telecommunications revenue during the first
six months of 1996 as compared to approximately 42.6% of the Company's
telecommunications revenue during the first six months of 1995. Historically,
significant portions of the Company's telecommunications revenue have been
derived from Latin America, principally from the provision of callback and ITF
related services. Presently, the Company is devoting substantial resources to
the deregulating Western European market, and although it expects revenue from
Latin America as well as other geographic regions to grow, it expects such
revenue to continue to decrease as a percentage of the Company's total
telecommunications revenue in the near term.
Cost of telecommunications service is comprised of costs associated with
the transmission of voice and voice band data telecommunications services. The
European Network was developed to reduce the Company's costs of providing
telecommunications services and to increase customer usage. This change in
service provision has resulted in the Company's customer access methods evolving
from callback and ITF access to NTF and paid local access. Calls that are not
routed through the European Network generate significantly higher variable costs
because they are connected using ITF numbers or callback which are relatively
more expensive to the Company. In contrast, because the Viatel Network has
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<PAGE> 27
significant fixed costs associated with its operations, consisting primarily of
leased line rental charges, local connectivity and facility/network management
costs, calls routed through the Viatel Network have lower variable costs than
off-network traffic. Although the current traffic volume through the European
portion of the Company's network is too low to achieve desired economies of
scale, transmission costs are expected to decline as a percentage of revenue as
call traffic through the European Network increases. See "Risk Factors
- -- Potential Difficulties Associated With Implementing European Expansion
Strategy" and "Business -- The Viatel Network -- The European Network."
The Company's selling expenses include commissions to independent sales
representatives in countries in which the Company does not operate its own
direct sales force. The Company's general and administrative expense includes
overhead costs associated with its headquarters, back office and network
operations and Western European sales offices. The costs associated with
maintaining this management infrastructure, along with the Company's selling
expenses, are substantially higher than the gross margins currently being
generated by the Company.
As a consequence of the establishment of an administrative infrastructure
for managing the business, changes in the composition of both telecommunications
revenue and transmission costs, development of the European Network and the
establishment of direct sales organizations since the Company's inception, the
Company's results of operations for the periods presented are not necessarily
comparable.
RESULTS OF OPERATIONS
The following table summarizes the breakdown of the Company's results of
operations as a percentage of revenue:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------- -------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Telecommunications revenue.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of telecommunications services........... 83.4 85.3 85.6 87.4 84.9
Selling expenses.............................. 22.8 23.7 23.1 17.0 11.2
General and administrative expense............ 56.5 50.9 52.2 37.5 28.4
Depreciation and amortization................. 10.0 6.2 8.2 3.0 0.5
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Telecommunications Revenue. Telecommunications revenue increased by 57.0%
to $22.3 million on 25.1 million billable minutes for the six months ended June
30, 1996 from $14.2 million on 10.0 million billable minutes for the six months
ended June 30, 1995. Telecommunications revenue growth for the six months ended
June 30, 1996 was generated primarily from higher traffic volume on the European
Network, from growth in the Company's wholesale business and, to a lesser
extent, from growth in traffic volume in Latin America and the Pacific Rim.
The overall increase of 150.9% in billable minutes from the six months
ended June 30, 1995 to the six months ended June 30, 1996 was partially offset
by declining revenue per billable minute. Average revenue per billable minute
declined by 37.6% from $1.41 in the six-month period ended June 30, 1995 to $.88
in the corresponding period in 1996 primarily because of (i) a higher percentage
of lower-priced intra-European traffic from the European Network, (ii) a higher
percentage of low-priced wholesale traffic, (iii) reductions in certain rates
charged to non-wholesale customers in response to pricing reductions enacted by
certain ITOs in Western Europe and (iv) changes in customer access methods. See
"-- Cost of Telecommunications Services" and "Risk Factors -- Competition."
Telecommunications revenue per billable minute from the sale of services to
non-wholesale customers decreased to $1.12 in the six-month period ended June
30, 1996 from $1.56 in the six-month period ended June 30, 1995.
Telecommunications revenue per billable minute from the sale of services to
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<PAGE> 28
carriers and other resellers increased to $.42 in the six months ended June 30,
1996 from $.30 in the six months ended June 30, 1995 primarily as a result of an
overall increase in intercontinental call traffic. The number of customers
billed rose 87.2% to 13,779 at June 30, 1996 from 7,360 at June 30, 1995.
The Company has significantly increased its wholesale business through
which it sells switched minutes to carriers and other resellers at discounted
rates to utilize excess network capacity. While the wholesale business has lower
average gross margins than the Company's non-wholesale business, the
telecommunications revenue generated from the wholesale business partially
offsets the fixed costs associated with the Viatel Network. The wholesale
business represented approximately 15.8% and approximately 33.4% of total
telecommunications revenue and billable minutes, respectively, for the six
months ended June 30, 1996 as compared to approximately 2.6% and approximately
12.5% of total telecommunications revenue and billable minutes, respectively,
for the six months ended June 30, 1995. While the increase in telecommunications
revenue represents more than a nine-fold increase over the corresponding period
for 1995, a portion of this increase represents the migration of business
formerly conducted by the Company in Africa and the Middle East through indirect
sales representatives to carriers which purchase switched minutes from the
Company. The Company does not expect telecommunications revenue generated by its
wholesale business to continue to grow at this rate.
During the first quarter of 1996, the Company commenced trials of domestic
long distance telecommunications services in Spain and Italy, the two countries
in which the Company had the technical ability to provide such services. After
having obtained favorable results, the Company decided to enter the national
long distance business in certain EU member states in which it operates.
Cost of Telecommunications Services. Cost of telecommunications services
increased to $18.6 million in the six months ended June 30, 1996 from $12.1
million in the six months ended June 30, 1995 and, as a percentage of
telecommunications revenue, decreased to approximately 83.4% from approximately
85.3% for the six months ended June 30, 1996 and 1995, respectively. The
corresponding increase in gross margins was primarily due to changes in overall
service mix and increased utilization of the European Network. The Company
experienced a 40.5% decrease in average cost per billable minute to $.72 during
the six months ended June 30, 1996 from $1.21 during the six months ended June
30, 1995. This decrease, which more than offset the effect of the decline in
average revenue per billable minute, was attributable primarily to (i) increased
traffic being routed through the European Network, (ii) an increase in switched
minutes generated by the Company's wholesale business and (iii) changes in
customer access methods. Increased European Network utilization helped reduce
costs on a per minute basis with respect to European long distance
telecommunications services.
Gross margins for the six months ended June 30, 1996 were negatively
impacted by increases in certain costs related to the expansion of the Company's
overall transmission capacity. These fixed costs are expected to decrease as a
percentage of telecommunications revenue as traffic volume over the European
Network increases. As a result of obtaining additional international private
line circuit ("IPLC") capacity, the costs associated with the European Network
increased to approximately $1.8 million for the six months ended June 30, 1996
(approximately 8.1% of telecommunications revenue for such period) from
approximately $.8 million for the six months ended June 30, 1995 (approximately
5.7% of telecommunications revenue for such period). IPLCs represent a
significant portion of the Company's fixed costs and were not fully utilized in
the six months ended June 30, 1996. The Company believes its use of IPLCs will
continue to increase and such increase will positively impact the Company's
overall gross margins, as a percentage of revenue, as more minutes are routed
through the European Network. This benefit, however, is primarily limited to
calls that either originate or terminate in a city where the Company has a
switch or a POP, because otherwise the Company transports the call over the PSTN
at higher transmission costs and reduced margins.
Selling Expenses. Selling expenses increased to $5.1 million in the six
months ended June 30, 1996 from $3.4 million in the corresponding period in 1995
and, as a percentage of telecommunications revenue, decreased to approximately
22.8% in the six months ended June 30, 1996 from approximately 23.7% in the six
months ended June 30, 1995. Commissions paid to independent sales
representatives
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<PAGE> 29
constituted approximately 24.3% of all selling expenses for the six months ended
June 30, 1996 compared to approximately 38.6% for the six months ended June 30,
1995. The increase in selling expenses is attributable to the Company's
establishment of direct sales organizations. Salary related selling expenses
represented approximately 48.4% and approximately 47.6% of total selling
expenses for the six months ended June 30, 1996 and 1995, respectively.
General and Administrative Expense. General and administrative expense
increased to $12.6 million in the six months ended June 30, 1996 from $7.2
million in the corresponding period in 1995 and, as a percentage of
telecommunications revenue, increased to approximately 56.5% in the six months
ended June 30, 1996 from approximately 50.9% in the six months ended June 30,
1995. Much of this increase is attributable to the costs of building a direct
sales force in Western Europe and overhead costs associated with the Company's
headquarters, back office and network operations. Absent a charge associated
with a corporate restructuring undertaken by the Company during the period (the
"Reorganization") and an expense associated with a French arbitration award
against the Company, general and administrative expense would have decreased to
approximately 47.1%, as a percentage of telecommunications revenue. The Company
is also the subject of an arbitration proceeding in which the Company's former
independent sales representative in Madrid (the "Spanish Representative") is
seeking $5.8 million in damages. The Company believes that any potential adverse
determination in this arbitration would not have a material adverse effect on
the Company's business, financial condition or results of operations. See
"Business -- Legal Proceedings" for details regarding the French arbitration and
the Spanish arbitration.
During the second quarter of 1996, the Company recognized approximately
$1.3 million of general and administrative expense associated with the
Reorganization, of which approximately $.4 million has been paid to date and
approximately $.3 million represents non-cash deferred compensation. These
expenses are comprised principally of employee termination and relocation costs
and the write-down of a portion of the Company's lease for its administrative
quarters in London.
Depreciation and Amortization. Depreciation and amortization expense,
which includes depreciation of the Viatel Network, increased to approximately
$2.2 million in the six months ended June 30, 1996 from approximately $.9
million in the six months ended June 30, 1995. The increase was due primarily to
the depreciation of switches and other equipment placed in service during 1995
and the first six months of 1996.
Interest. Interest expense increased to approximately $5.2 million in the
six months ended June 30, 1996 from approximately $4.3 million in the six months
ended June 30, 1995 due to the accretion of non-cash interest on the Notes. No
interest is payable on the Notes until July 15, 2000, at which time semi-annual
interest payments will be required through the January 15, 2005 maturity date.
This expense was partially offset by interest income of approximately $.7
million and approximately $1.9 million for the six months ended June 30, 1996
and 1995, respectively, derived from the investment of the net proceeds from the
Unit Offering in highly liquid debt instruments.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Telecommunications Revenue. Telecommunications revenue increased by
approximately 23.0% to $32.3 million on 25.9 million billable minutes in 1995
from $26.3 million on 15.0 million billable minutes in 1994. This growth in
telecommunications revenue resulted primarily from the use of direct sales
organizations in Europe which the Company began to establish in late 1994, the
creation of a wholesale business and growth experienced in the Company's revenue
derived from the Pacific Rim ($4.4 million in 1995 versus $2.0 million in 1994).
Part of this increase was offset by declining revenue per billable minute.
Average revenue per billable minute declined by 27.6% from $1.70 in 1994 to
$1.23 in 1995. The decrease was primarily due to a change in revenue mix, which
in 1995 included a higher percentage of lower-priced intra-European traffic
associated with the European Network becoming operational and a higher
percentage of wholesale traffic, together with a reduction in rates as a result
of the Company's response to price reductions by ITOs. The Company's wholesale
business represented approximately 6.2% of telecommunications revenue and
approximately 21.6% of billable minutes for 1995. Telecommunications revenue per
billable minute from the sale of services to non-wholesale customers decreased
26
<PAGE> 30
from $1.72 in 1994 to $1.46 in 1995 while revenue per billable minute from the
sale of services to other carriers and resellers was $0.35 in 1995. The number
of customers billed rose approximately 42.5% to 9,218 at December 31, 1995 from
6,469 at December 31, 1994.
Cost of Telecommunications Services. Cost of telecommunications services
increased to $27.6 million in 1995 from $23.0 million in 1994 and, as a
percentage of telecommunications revenue, decreased to approximately 85.6% from
approximately 87.4% for the years ended December 31, 1995 and 1994,
respectively. The corresponding increase in gross margin was primarily
attributable to changes in customer access methods and changes in service mix
attributable to the European Network becoming operational. Accordingly, the
Company experienced an approximately 32.0% decrease in average cost per billable
minute to $1.04 during 1995 from $1.53 during 1994. This decrease, which more
than offset the effect of the decline in average revenue per billable minute,
was attributable to a continued decline in U.S. international rates for outbound
switched minutes and to increased traffic volume being routed through the
European Network, which was used to originate calls accounting for approximately
58.0% of the Company's European-related call revenue during 1995. The increased
European Network utilization helped reduce costs associated with intra-European
and intercontinental telecommunications services due to the predominantly fixed
cost nature of the European Network. On the other hand, during 1994 the
Company's gross margin was adversely affected by the delayed implementation of
the European Network. The Company had priced its services to be competitive with
the ITOs in Spain and Italy in anticipation of the European Network's becoming
operational; however, due to delays in the implementation of the European
Network, the Company realized significant losses on this traffic as a result of
having to route calls through ITF access instead of through the European
Network.
Increases in certain fixed costs related to expansion of the Company's
overall transmission capacity negatively impacted the Company's gross margin for
the year ended December 31, 1995. As a result of obtaining additional IPLC
capacity, the costs associated with the European Network increased to
approximately $2.0 million for 1995 (approximately 6.3% of revenue for such
period) from approximately $1.1 million for 1994 (approximately 4.1% of revenue
for such period). Additionally, the Company incurred costs associated with
obtaining redundant fiber optic capacity at the Omaha, Nebraska facility
totaling approximately $.5 million (approximately 1.7% of revenue for 1995).
Selling Expenses. Selling expenses increased to $7.5 million in 1995 from
$4.5 million in 1994 and, as a percentage of telecommunications revenue,
increased to approximately 23.1% from approximately 17.0% for the years ended
December 31, 1995 and 1994, respectively. During 1994, these expenses were
principally comprised of commissions paid to independent sales representatives
which constituted approximately 75.1% of all selling expenses in comparison to
approximately 31.5% for 1995. The increase in selling expenses and change in
expense structure is attributable to the Company's strategy of establishing
direct sales organizations to take greater control over the marketing of its
services and to provide a higher level of customer service. The Company began to
implement this strategy in late 1994 and, as of December 31, 1995, had sales
offices in Belgium, France, Germany, the Netherlands, Italy and Spain.
Accordingly, salary related selling expenses increased to approximately 48.5% of
total selling expenses for 1995 in comparison to approximately 7.7% for 1994. As
a percentage of telecommunications revenue, the use of direct sales
organizations is more costly than the use of independent sales organizations
during the start-up phase of a sales operation. However, the Company anticipates
that selling expenses, as a percentage of telecommunications revenue, will
decrease over time.
General and Administrative Expense. General and administrative expense
increased to $16.9 million in 1995 from $9.9 million in 1994 and, as a
percentage of telecommunications revenue, increased to approximately 52.2% from
approximately 37.5% for the years ended December 31, 1995 and 1994,
respectively. Beginning in the third quarter of 1994, the Company invested
significant funds in establishing a physical presence in its various geographic
markets in Western Europe and in building an administrative infrastructure in
its United States and Western European offices. Such an effort entailed
significant expenditures for salary, rent, office and similar expenses.
Depreciation and Amortization. Depreciation and amortization expense,
which includes depreciation of the Viatel Network, increased to approximately
$2.6 million in 1995 from approximately $.8 million
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<PAGE> 31
in 1994. The increase in such expense was due primarily to the depreciation of
the European Network which became operational during October 1994 and the
amortization of intangible assets which principally related to acquired employee
base and sales force in place associated with the Company's acquisition of
independent sales organizations in Italy and Barcelona, which occurred in
December 1994, as well as recognizing depreciation for additional switches and
other items placed in service during 1994 and 1995.
Equipment Impairment Loss. In connection with the replacement of
substantial portions of the European Network during 1995, the Company entered
into a termination agreement with TeleMedia International, Inc. ("TMI").
Pursuant to the terms of such agreement, the Company prepaid the remaining lease
obligation of approximately $1.0 million, thereby acquiring all of the equipment
previously leased from TMI, most of which equipment was subsequently redeployed.
The Company recorded a non-cash charge of approximately $.6 million in 1995,
which represented the original installation costs of such equipment and the
difference between the carrying value and the expected selling price of the
equipment not expected to be redeployed.
Interest. Interest expense for 1995 increased by approximately $8.1
million from 1994 due to the accretion of non-cash interest on the Notes. This
expense was partially offset by interest income of approximately $3.3 million
for 1995 derived from the investment of the net proceeds from such issuance in
highly liquid debt instruments.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Telecommunications Revenue. Telecommunications revenue increased by
approximately 22.8% to $26.3 million on 15.1 million billable minutes in 1994
from $21.4 million on 10.9 million billable minutes in 1993. This growth in
telecommunications revenue resulted primarily from the Company's existing
markets. Part of this increase was offset by declining revenue per billable
minute rates. Average revenue per billable minute declined by approximately 9.1%
from $1.87 in 1993 to $1.70 in 1994. The decrease was due primarily to a change
in the revenue mix, which in 1994 included a higher percentage of lower priced
intra-European traffic, and a reduction in rates in response to price reductions
by certain ITOs. The number of customers billed rose approximately 17.9% to
6,469 at December 31, 1994 from 5,486 at December 31, 1993.
Cost of Telecommunications Services. Cost of telecommunications services
increased to $23.0 million in 1994 from $18.2 million in 1993 and, as a
percentage of telecommunications revenue, increased to approximately 87.4% in
1994 from approximately 84.9% in 1993. The Company had priced its services to be
competitive with the ITOs in Spain and Italy in anticipation of the European
Network becoming operational; however, due to delays in the implementation of
the European Network, the Company realized significant losses on this traffic as
a result of having to route calls through ITF access instead of through the
European Network. In October 1994, the European Network became operational and
was used to originate approximately 48.0% of the Company's European call revenue
through the remainder of the year. This negative impact on gross margin was
partially offset by an approximately 8.4% decrease in average cost per billable
minute to $1.53 in 1994 from $1.67 in 1993. This decrease was attributable to
the migration in access from higher cost per minute ITF access to callback
access in Brazil and Argentina, traffic being routed through the European
Network and a general decline in U.S. switched international rates for outbound
services attributable to the Company's successful negotiation of favorable
rates.
Selling Expenses. Selling expenses increased to $4.5 million in 1994 from
$2.4 million in 1993 and, as a percentage of telecommunications revenue,
increased to approximately 17.0% in 1994 from approximately 11.2% in 1993. These
expenses consisted primarily of commissions paid to independent sales
representatives in the countries in which the Company did not operate its own
direct sales organizations. Commissions paid to these representatives ranged
from five percent to fifteen percent of telecommunications revenue, net of
chargebacks for amounts deemed uncollectible in the period the related services
were provided.
General and Administrative Expense. General and administrative expense
increased to $9.9 million in 1994 from $6.1 million in 1993 and, as a percentage
of telecommunications revenue, increased to
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<PAGE> 32
approximately 37.5% in 1994 from approximately 28.4% in 1993. A significant
portion of the increase was attributable to building an administrative
infrastructure in the Company's New York, Omaha and European offices and to
hiring an experienced management team. In addition, during 1994 the Company
charged to operations current costs associated with the European Network which
had been capitalized prior to the European Network becoming operational.
Depreciation and Amortization. Depreciation and amortization expense,
which includes depreciation of the Viatel Network, increased to $.8 million in
1994 from approximately $.1 million in 1993. The increase in such expense was
due primarily to the recognition of a full year of depreciation and amortization
expense with respect to the Omaha switching center, which was purchased on
October 1, 1993. In February 1994, the Company began to depreciate the European
Network, resulting in depreciation expense of approximately $.3 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses from operating activities in each year of
operations since its inception and expects to continue to incur operating losses
for the next several years. Through June 30, 1996, the Company had incurred
$68.2 million of aggregate losses from operating activities. As of June 30,
1996, the Company had $12.8 million of cash, cash equivalents and other liquid
investments. The Company believes that, based on its current forecasts and
assuming the successful completion of the Offerings, the Company should be able
to fund its capital requirements at least until the year 1999 even though cash
flow from operations will continue to be negative until at least the year 2001.
Capital Expenditures and Working Capital. The development of the Company's
business has, in the past, required substantial capital expenditures. In the
future, the Company will require substantial capital expenditures significantly
in excess of historical levels to upgrade and expand the Viatel Network
generally, and the European Network specifically, as well as to develop and
expand new and existing services. During the years ended December 31, 1995, 1994
and 1993 and the six months ended June 30, 1996, the Company had capital
expenditures, including acquisitions of businesses, of approximately $11.4
million, $4.8 million, $2.6 million and $4.7 million, respectively.
Historically, the Company has funded its capital expenditures through equity and
debt issuances and vendor financings. As of June 30, 1996, the Company had
entered into purchase commitments for network upgrades and other items
aggregating approximately $.9 million. The Company anticipates making additional
capital expenditures aggregating approximately $1.2 million during the remainder
of 1996. The Company expects to use the net proceeds of the Offerings to meet
its capital expenditure requirements, which include upgrade and expansion of the
European Network in up to 39 additional Western European cities by the year
2000. The Company estimates that it will use approximately (i) $38.1 million of
the net proceeds of the Offerings for network upgrade and expansion, including
the purchase and installation of POPs (at an estimated cost of approximately
$105,000 each) or switches (at an estimated cost of approximately $.5 million to
$2.5 million depending on the initial configuration) to expand the European
Network from nine to up to 48 Western European cities, the installation of a POP
in Miami and a switch in Los Angeles and for the upgrade of the Company's switch
in London and its New York City POP to a switch, (ii) $9.0 million for
investments in digital undersea fiber optic cable, (iii) $19.2 million for
acquisitions of customer bases and businesses or for investment in joint
ventures or strategic alliances, and (iv) $40.9 million for general corporate
and working capital purposes, including up to approximately $1.0 million for
feasibility studies of the Company's provision of CLEC services. See "Risk
Factors -- Substantial Capital Requirements," "Risk Factors -- Broad Discretion
Over Use of Proceeds" and "Use of Proceeds."
Average Monthly Cash Requirements. During the six months ended June 30,
1996, the Company's average current monthly cash requirements were approximately
$2.05 million, including approximately $.5 million relating to minimum
commitments under carrier contracts. This average excludes approximately (i)
$5.3 million for capital expenditures for the purchase of equipment, software
and the continued development of the European Network (including approximately
$.6 million of equipment purchased in 1995 and paid for in 1996), (ii) $3.6
million incurred in connection with the settlement of the Company's fee dispute
for past services with a facilities-based IPLC vendor, and (iii) $1.1 million
for other non-recurring items (including $.4 million paid in connection with
employee termination and
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<PAGE> 33
relocation costs). Due to cost savings associated with the Reorganization, it is
anticipated that, over time, average monthly cash requirements will be reduced.
Interest Requirements and Debt Repayment. Until January 15, 2000, the
Notes will accrue interest on a semi-annual basis to their aggregate $120.7
million principal amount. No interest is payable on the Notes until July 15,
2000, at which time semi-annual interest payments will be required through the
January 15, 2005 maturity date. If the Company is unable to generate sufficient
cash flow from operations to satisfy the debt service requirements on the Notes,
the Company will be required to refinance the Notes or raise additional capital.
There can be no assurance that any refinancing could be obtained on terms
favorable to the Company, if at all, or that any form of additional capital will
be available. In addition, the Indenture contains certain restrictive covenants
that, among other things, limit the ability of the Company and certain of its
subsidiaries to incur indebtedness, make pre-payments of certain indebtedness,
use the proceeds from certain sales of assets and pay dividends. There can be no
assurance that the Company will be able to comply with such restrictive
covenants in the future.
Foreign Currency. The Company has exposure to fluctuations in foreign
currencies relative to the U.S. Dollar as a result of billing portions of its
telecommunications revenue in the local currency in countries where the local
currency is relatively stable, while many of its obligations, including the
Notes and a substantial portion of its transmission costs, are denominated in
U.S. Dollars. In countries with less stable currencies, such as Brazil, the
Company bills in U.S. Dollars. For the six months ended June 30, 1996,
approximately 42.1% of the Company's telecommunications revenue was billed in
currencies other than the U.S. Dollar. Furthermore, substantially all of the
costs of acquisition and upgrade of the Company's switches have been, and will
continue to be, U.S. Dollar denominated transactions.
With the continued expansion of the European Network, a substantial portion
of the costs associated with the European Network, such as local access charges
and a portion of leased line costs, as well as a majority of local selling
expenses, will be charged to the Company in the same currencies as revenue is
billed. These developments create a natural hedge against a portion of the
Company's foreign exchange exposure. To date, much of the funding necessary to
establish the local direct sales organizations has been derived from
telecommunications revenue that was billed in local currencies. Consequently,
the Company's financial position as of June 30, 1996 and its results of
operations for the six months ended June 30, 1996 were not significantly
impacted by fluctuations in the U.S. Dollar in relationship to foreign
currencies. See "Risk Factors -- Risks Associated with International
Operations."
INFLATION
The Company does not believe that inflation has had a significant effect on
the Company's operations to date.
30
<PAGE> 34
BUSINESS
OVERVIEW
Viatel is a growing provider of international and national long distance
telecommunications services principally in Western Europe, Latin America, the
United States and the Pacific Rim and offers its services primarily to small and
medium-sized businesses, carriers and other resellers. The Company operates a
digital, switch-based telecommunications network in Western Europe including a
central switching center in London and additional switches in Amsterdam,
Barcelona, Brussels, Frankfurt, Madrid, Milan, Paris and Rome connected by
leased, digital fiber optic transmission facilities. In addition, the Company
operates a switching center in Omaha, Nebraska which is connected to the central
switching center in London by leased, digital fiber optic transmission
facilities. The Company has achieved rapid growth since its inception in 1991
with telecommunications revenue reaching $32.3 million in 1995 and $22.3 million
during the six months ended June 30, 1996.
The Company derives revenue primarily through the provision of
competitively priced long distance services with value-added features that are
not typically provided by the respective ITO in many of the countries in which
the Company operates. The Company's services include virtual private networks,
dedicated access for high volume users, calling cards, fax service and the
provision of switched minutes to wholesale customers. The value-added features
include itemized and multicurrency billing, abbreviated dialing and multiple
payment methods. Access to the Company's services is obtained through callback,
paid access, ITF, NTF or direct access through a dedicated line.
The Company conducts its business on a global basis, with its principal
focus on Western Europe. Of the Company's telecommunications revenue for the six
months ended June 30, 1996, approximately 42.4% was generated in Western Europe,
approximately 29.1% was generated in Latin America, approximately 16.2% was
generated in North America, primarily from the Company's wholesale business of
selling switched minutes to other carriers and approximately 11.7% was generated
in the Pacific Rim. The remaining .6% was generated in Africa and the Middle
East. Historically, significant portions of the Company's telecommunications
revenue have been derived from Latin America. Presently, the Company is devoting
substantial resources to the deregulating Western European market, and although
it expects revenue from Latin America as well as other geographic regions to
grow, it expects such revenue to continue to decrease as a percentage of the
Company's total telecommunications revenue in the near term.
BUSINESS STRATEGY
The Company's objective is to be a significant provider of international
and national long distance telecommunications services within Western Europe and
other deregulating markets. The Company believes it is strategically positioned
to take advantage of fundamental changes occurring in the telecommunications
industry as a result of global deregulation and rapid advances in technology. In
particular, the Company believes that its early entry into the Western European
market as an alternative network operator has positioned it to take advantage of
the anticipated implementation of EU directives to eliminate the ITOs' existing
monopolies on Voice Telephony (as defined herein), scheduled to occur by 1998 in
most EU member states. The Company is currently prohibited from supplying Voice
Telephony in most EU member states until 1998. Accordingly, the Company instead
provides competitively priced international and national long distance services
with value-added features, thus positioning itself to capitalize on anticipated
deregulation. See "Risk Factors -- Substantial Government Regulation" and
"-- Government Regulation." Key elements of the Company's business strategy
include:
- FOCUS ON THE EUROPEAN MARKET; LEVERAGE EUROPEAN NETWORK. To capitalize
on opportunities presented by the changing regulatory environment and
the size of the Western European market, the Company intends to further
utilize and expand the European Network. During the six months ended
June 30, 1996, approximately 42.4% of the Company's telecommunications
revenue was generated in Western Europe, with approximately 32.9% of its
revenue attributable to calls originated on the European Network. The
Company intends to expand the European Network by
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installing POPs in cities with both significant calling activity
directed to the Company's switch-based cities and significant potential
for originating and terminating international and national long distance
traffic. The Company anticipates installing switches in Vienna and
Zurich and POPs in up to 17 Western European cities in 1997, including
Berlin, Lyon, Rotterdam, Turin and Valencia. The Company also intends to
install a POP in Miami and a switch in Antwerp in the fourth quarter of
1996. In the first quarter of 1997, the Company plans to upgrade its
switch in London, upgrade the New York City POP to a switch and install
a switch in Los Angeles. See "Risk Factors -- Substantial Government
Regulation," "Risk Factors -- Potential Difficulties Associated With
Implementing European Expansion Strategy," "Risk Factors -- Substantial
Capital Requirements," "Risk Factors -- Risks Associated With
International Operations" and "-- Maintain Low-Cost Operations."
- CAPITALIZE ON ANTICIPATED SETTLEMENT AGREEMENT OBSOLESCENCE. In
contrast to many other companies engaged in the sale of international
long distance services, the Company is not dependent on settlement
agreements with ITOs for traffic origination and termination. The
Company believes that the trend toward deregulation could hasten the
obsolescence of settlement agreements anticipated by the Company, thus
encouraging carriers to consider alternatives to the ITOs for long
distance traffic termination. Currently, the European Network is
primarily used to originate international long distance traffic from and
within Western Europe. The Company plans to further leverage the
European Network to take advantage of settlement agreement obsolescence
anticipated by the Company by offering other carriers an alternative to
the ITOs for long distance traffic origination and termination within
Western Europe. While the trend toward settlement agreement obsolescence
anticipated by the Company is likely to reduce prices for long distance
services, the Company believes that increased utilization of the
European Network for both origination and termination of traffic and
reduced transmission costs should offset any such price reductions.
- MAINTAIN LOW-COST OPERATIONS. The Company believes that the Viatel
Network efficiently utilizes least cost routing ("LCR") of
telecommunications traffic over multiple transmission facilities to: (i)
reduce costs; (ii) control access to customer information; and (iii)
allow increases in network usage without proportionate increases in
costs. In addition, the Company pursues a disciplined, incremental
approach to expansion. When the Company initially expands into a region,
it provides services on a variable cost basis. As traffic volume grows,
the Company typically reconfigures the network by acquiring fixed-cost
facilities with greater capacity thereby expanding the Company's
addressable market on a cost-effective basis. See "-- The Viatel
Network -- Expansion Plans."
- FOCUS ON SMALL AND MEDIUM-SIZED BUSINESSES. The Company's principal
target market consists of small and medium-sized businesses for which
the cost of long distance telecommunications services represents a
significant business expense. The Company believes that these customers
tend to principally be focused on price and customer service. The
Company also believes that, within any particular EU member state, the
Company's services and pricing will be more attractive to such customers
when, in addition to providing international long distance services, the
Company provides national long distance services within such state. The
Company believes that its ability to offer national and international
long distance services to its targeted customers, and to bundle such
services where desirable, will result in increased traffic volume on the
European Network due to (i) existing high demand for national long
distance service by the Company's targeted customers, (ii) potential
savings which the customer would receive by purchasing both services
from the Company and (iii) convenience associated with purchasing such
services from a single vendor. See "-- Sales and Marketing; Customers."
- EXPAND WHOLESALE SWITCHED SERVICE. To increase utilization of the
Viatel Network, the Company sells switched minutes to wholesale
customers and other resellers in the United States and the United
Kingdom. Sales to such customers accounted for approximately 15.8% of
the Company's telecommunications revenue for the six months ended June
30, 1996 (as compared
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to approximately 2.6% for the corresponding period in 1995). The Company
intends to continue to expand its wholesale service, thus providing the
Company with a source of additional revenue and minutes originating and
terminating on the Viatel Network.
- CONTINUE DEVELOPMENT OF LOCAL SALES DISTRIBUTION CHANNELS. The
Company's sales and marketing strategy is to leverage its locally based
sales forces, which include direct and indirect sales representatives
and telemarketing agents, to establish direct sales forces in other key
Western European cities and to augment the efforts of its direct local
sales, marketing and customer service functions by utilizing
non-exclusive independent representatives. The Company believes that the
knowledge of its sales, marketing and customer service personnel of
local systems, customs and languages increases the Company's ability to
develop and serve its principal target customer base.
- LEVERAGE INFORMATION SYSTEMS. The Company believes that integrated and
reliable billing and information systems are key elements for growth and
success in the telecommunications industry. Accordingly, the Company has
made significant investments to acquire and implement sophisticated
information systems which enable the Company to: (i) monitor and respond
to customer needs by developing new and customized services; (ii) manage
LCR; (iii) provide customized billing information; (iv) provide high
quality customer service; (v) detect and minimize fraud; (vi) verify
payables to suppliers; and (vii) rapidly integrate new customers. The
Company believes that its network intelligence, billing and financial
reporting systems enhance its ability to competitively meet the
increasingly complex and demanding requirements of the international and
national long distance markets. See "Risk Factors -- Dependence on
Effective Information Systems" and "-- Information Systems."
- PURSUE ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES. The Company
expects to pursue selective acquisitions of customer bases or
businesses, make investments in companies that complement the Company's
current operations or expand its services or network capabilities and
engage in strategic alliances. The Company believes that such
acquisitions, investments and strategic alliances are an important means
of increasing network traffic volume and achieving economies of scale.
In particular, the Company believes that, in certain instances, it is
more efficient to acquire rather than develop customer bases. See "Risk
Factors -- Risks Associated With Acquisitions, Investments and Strategic
Alliances."
MARKET OPPORTUNITY
According to the ITU, the international telephone service industry had
total worldwide revenue of approximately $50.6 billion in 1994. While revenue
data is not available on a per country basis for Europe, Europe accounted for
approximately 45.0% or 24.0 billion of worldwide international outgoing voice
and voice band data minutes of use. The Company believes that, during 1996, the
Western European countries in which the Company currently operates or intends to
operate will represent approximately 22.6% or $13.6 billion of worldwide
international outgoing voice and voice band data revenue and approximately 35.2%
or 22.3 billion of related minutes of use.
The Company also believes that, during 1996, the market for national long
distance voice and voice band data revenue in the Western European countries in
which the Company operates will represent approximately $41.7 billion or 196.9
billion minutes of use.
In the Company's target markets, deregulation and new technologies have
resulted in increased competition between telecommunications service providers
and increased demand for the transmission of information across national
borders. Such deregulation and technological innovation has: (i) decreased the
cost of providing toll service; (ii) enabled the provision of sophisticated
value-added features; and (iii) allowed other companies to compete with the
ITOs.
Historically, the respective ITO in each country has had the exclusive
right to provide telephone services within that country and, as a result, long
distance callers have paid relatively high prices for
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limited service. Since 1990, the EU telecommunications market has become
increasingly liberalized, but the provision of Voice Telephony is reserved to
the local ITO in most EU member states until scheduled deregulation in 1998. See
"-- Government Regulation." In response to the liberalization of
telecommunications services within the EU, a number of different competitors
have emerged to compete with the ITOs, including the Company, alliances between
large United States telecommunications service providers and ITOs and other
competitors that primarily provide long distance service through callback access
or through developing networks servicing specific geographic markets. See "Risk
Factors -- Competition" and "-- Competition."
In the telecommunications industry, deregulation has coincided with
technological advances, which include utilization of fiber optic cable and
improved computer software and processing technology. Fiber optic cable, which
has widely replaced traditional copper wire lines for long distance
transmission, has dramatically increased the capacity, speed and flexibility of
transmission lines and has virtually eliminated limited capacity as a technical
barrier to entry for new international telephone companies. Improvements in
computer software and processing technology have allowed the provision of
value-added features such as itemized and multicurrency billing, international
debit and charge networks and ITF numbers.
The Company believes, along with many industry observers, that the current
deregulation in many EU member states, coupled with technological innovation,
will lead to market developments similar to those that occurred upon
deregulation of long distance telecommunications services in the United States
and the United Kingdom, including an increase in traffic volume and the
continued introduction of new providers of telecommunications services of
varying sizes. While significant reductions in prices and improvements in
telecommunications and customer services have occurred and are expected to
continue, the Company expects that market prices will continue to permit
services to be profitably rendered by industry participants generally. See "Risk
Factors -- Substantial Government Regulation," "-- Government Regulation" and
"-- Competition."
The Company further believes that its operating experience in deregulating
markets in the United States and the United Kingdom, and its experience as an
early entrant into the Western European market as an alternative network
operator, will assist it in identifying opportunities and expanding the Viatel
Network as other geographic regions with high density telecommunications
markets, such as Latin America and the Pacific Rim, start to deregulate. The
Company also believes that its position in the Western European
telecommunications market and its experience providing international
telecommunications services will assist it in establishing a presence in
national long distance markets in Western Europe. The Company recently launched
national long distance telecommunications services in Spain and Italy and, based
upon favorable results in such markets, has determined to enter the national
long distance business in all EU member states in which it currently operates.
SERVICES
The Company provides competitively priced long distance services with
value-added features that are not typically provided by the respective ITO in
many of the countries in which the Company operates. The Company's services
include virtual private networks, dedicated access for high volume users,
calling cards, fax service and the provision of switched minutes to wholesale
customers. The value-added features include itemized and multicurrency billing,
abbreviated dialing and multiple payment methods. See "-- The Viatel Network."
Access to the Company's services is obtained either through "dial up
access" or "direct access." Dial up access requires the use of: (i) paid access,
which requires the customer to pay the ITO for the cost of accessing the
Company's services; (ii) callback, which enables the customer to receive a
return call providing a dial tone originated from the Company's Omaha, Nebraska
switching center; (iii) ITF, which accesses the Omaha, Nebraska switching center
by direct dial; or (iv) NTF, which accesses a local switch in the European
Network. Customers using direct access are connected to a Company switch by a
dedicated leased line.
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Paid access accounted for approximately 72.9% of the Company's Western
European revenue for the month of July 1996. To reduce the Company's costs and
improve usage, the Company has evolved from callback and ITF access to access by
NTF numbers, paid access and, ultimately, in the case of ViaCALL Plus, by direct
access. Until regulatory considerations permit, all customers outside of Europe,
except for wholesale customers, are expected to continue to access the Company's
services through callback or ITF numbers.
The Company's principal services include:
VIACALL -- enables virtual private network calling to a pre-defined group
of locations within a closed user group that can be modified as required,
subject only to regulatory limitations.
VIACALL PLUS -- provides dedicated access via a leased line from the
customer to the Viatel Network, permitting calling without dialing access or
location codes.
VIACALL EXPRESS -- provides a paid (local) access or toll free number
programmed to dial an existing phone number or system, generally in another
country, without the need for special circuits or modifications.
VIAWORLDFAX -- permits calling for facsimile and other voice band data
services and is marketed exclusively in Western Europe. In the fourth quarter of
1996, the Company intends to simplify access to this service through the use of
automatic number identification, where feasible.
VIACONNECT -- provides "anywhere to anywhere" international callback access
through manual, automatic, X.25 or Internet initiated callback. These services
are also offered with ITF access, subject to pricing considerations.
VIAGLOBE -- provides calling card access from over 45 countries. In
addition to offering savings over the calling cards of AT&T Corporation, MCI
Telecommunications Corporation and other providers of credit-based international
calling cards, ViaGLOBE provides 24-hour operator assistance and speed dialing.
The Company expects to introduce a new service in the fourth quarter of
1996 called ViaCARD. ViaCARD is a prepaid international debit card which
provides many of the same features as ViaGLOBE in a prepaid environment. The
numerous benefits and opportunities afforded customers with a prepaid card
include better internal cost controls and the ability to offer small
denomination cards as promotional items. There can be no assurance that the
Company will be able to launch ViaCARD in the fourth quarter of 1996 or
thereafter or that, if launched, such service will be successful.
The Company markets its services under a number of registered and common
law service marks and uses various registered logos including "Viatel," a
federally registered service mark in the United States.
In certain of the Company's existing and target markets there are laws or
regulations that either prohibit or limit, or could be used to prohibit or
limit, certain of the transmission methods by which the Company's services are
provided and the provision of certain of the Company's services. See "Risk
Factors -- Substantial Government Regulation" and "-- Government Regulation."
THE VIATEL NETWORK
The Viatel Network consists of a central switching center in London, a
switching center in Omaha, Nebraska and switches in Amsterdam, Barcelona,
Brussels, Frankfurt, Madrid, Milan, Paris and Rome each connected by leased,
digital fiber optic transmission facilities. The Company's ownership of switches
reduces its reliance on other carriers, enables routing of telecommunications
traffic over multiple leased transmission lines, aids in controlling costs and
permits the compilation of call record data and other customer information. The
availability and price of existing transmission capacity for long distance
transmissions in the Company's primary geographic markets makes leasing
transmission lines attractive and is expected to enable the Company to grow
network usage without incurring significant capital and operating costs. The
Company intends to use a significant portion of the net proceeds of the
Offerings to
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upgrade and expand the Viatel Network. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Capital Expenditures and
Working Capital," "-- Business Strategy -- Maintain Low-Cost Operations" and
" -- Expansion Plans."
To originate and terminate calls on the European Network, the Company's
switches must have access and egress into and from the PSTN through local
connectivity. Each of the Company's services, other than ViaCALL Plus, requires
use of the PSTN to connect with a Company switch, using either a NTF number or
paid access. For ViaCALL Plus, local connectivity is provided by dedicated
leased lines that connect a customer's premises directly to a Company switch. In
each country in which ViaCALL Plus is offered, local connectivity is currently
provided under tariffed services offered by the ITO. See "Risk
Factors -- Potential Difficulties Associated With Implementing European
Expansion Strategy."
THE EUROPEAN NETWORK. The European Network currently consists of a central
switching center in London and switches in the eight Western European cities
mentioned above. These cities were chosen as switch locations due to the
substantial number of international calls originating from such cities. The
European Network has been primarily used to originate traffic in Western Europe.
The Company anticipates increasing use of the European Network to terminate
traffic in Western Europe, particularly if settlement agreements become
obsolete. See "Risk Factors -- Potential Difficulties Associated With
Implementing European Expansion Strategy" and "-- Business
Strategy -- Capitalize on Anticipated Settlement Agreement Obsolescence."
INTERNATIONAL PRIVATE LINE CIRCUITS. The Company's eight switches in
Western Europe are connected to the central switching center in London by IPLCs,
except for the Barcelona switch which is connected to the Madrid switch through
an in-country private line circuit ("PLC"). IPLCs are permanent point-to-point
connections for voice and voice band data transmissions and are a less expensive
alternative to PSTNs, which are typically controlled by the local ITOs. The
Company transmits call traffic to Omaha, Nebraska from London and to London from
Omaha, Nebraska by an IPLC. The IPLCs connecting the Company's switches to the
central switching center in London are leased directly, or indirectly through
third parties, from the ITOs in the countries in which such calls originate.
To reduce transmission costs and to provide additional capacity between the
United States and London, the Company (i) is in the process of acquiring an
indefeasible right of user ("IRU") in the portion of a transatlantic digital
fiber optic cable originating in the United States for transmission of traffic
between the United States and Europe, (ii) anticipates filing an application in
the fourth quarter of 1996 which would permit the Company to acquire an IRU in
transatlantic digital fiber optic cable originating in the United Kingdom and
(iii) is considering acquiring an IRU in cross-channel digital fiber optic cable
originating in the United Kingdom.
INTELLIGENT SWITCHES. The Viatel Network utilizes "intelligent switches"
which incorporate proprietary software to achieve LCR, the process by which the
Company optimizes the routing of calls over the Viatel Network for more than 230
countries and territories. LCR allows calls that are not routed over the Viatel
Network to be routed directly from the Company's switches through the PSTN to
their destinations at the lowest rates. These switches also enable the Company
to efficiently perform billing functions and account activation and to render
value-added services. See "-- Information Systems."
The Viatel Network uses high capacity, programmable switching platforms
designed to deploy network-based intelligent services quickly and cost
effectively. The switches are modular and scaleable and incorporate advanced
technologies such as ISDN, hierarchical call control and SNMP network management
software. These switches can also provide a bridge between older and emerging
standards. As the Viatel Network continues to evolve, the installed base of
switches can be upgraded easily to create a cost effective, scaleable service
switching point in an SS7 (an industry standard signaling protocol) based
network.
REDUNDANCY. In general, the Company relies upon the PSTN to provide
redundancy in the event of technical difficulties with the Viatel Network.
However, the Company maintains two facilities in Omaha,
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Nebraska to provide some degree of redundancy in its back office operations,
billing and switching systems. The Company believes that the strategy of using
the PSTN for redundancy is more cost-effective than building its own redundant
capacity, although there can be no assurance that this will be the case in the
future. To the extent that customer demand over the European Network exceeds the
Company's transmission capacity, the Company may elect or be required to route
overflow traffic over the PSTN, and the Company may experience reduced margins
and/or losses on such calls. The Company's strategy is to monitor its
anticipated traffic volume on a regular basis and to increase IPLC and PLC
capacity before the capacity limitations of such circuits are reached. See "Risk
Factors -- Potential Difficulties Associated With Implementing European
Expansion Strategy."
ECONOMIC BENEFITS OF THE NETWORK. The economic benefits to Viatel of
owning and operating its own network arise principally from reduced transmission
costs. Calls that are not routed through the network generate significantly
higher variable costs because they are connected using relatively expensive ITF
numbers or callback. In contrast, because the Viatel Network has significant
fixed costs associated with its operations, consisting primarily of leased line
rental charges, local connectivity and facility/network management costs, calls
routed through the Viatel Network have lower variable costs than off-network
traffic. Although the current traffic volume through the European portion of the
Company's network is too low to achieve desired economies of scale, transmission
costs are expected to decline as a percentage of revenue as call traffic through
the European Network increases. This economic benefit, however, is primarily
limited to traffic which either originates or terminates in a city where the
Company has a switch or POP. If a switch or POP does not exist in an origination
or destination city, the Company transports the call over the PSTN, at higher
transmission costs and reduced margins. Accordingly, as the European Network is
expanded, the Company anticipates being able to serve a greater number of
customers on a more cost effective basis. In the future, the Company expects
that most of its European calling traffic will originate or terminate through
the European Network both for international and national long distance calls. In
addition, as traffic patterns warrant, the Company expects to further reduce
transmission costs by connecting switches directly to one another with private
lines, bypassing the Company's switching centers in London and Omaha.
EXPANSION PLANS. The Company intends to use a significant portion of the
net proceeds of the Offerings to expand and upgrade the Viatel Network. The
Company plans to install a POP in Miami and a switch in Antwerp in the fourth
quarter of 1996. In the first quarter of 1997, the Company plans to upgrade its
switch in London, upgrade the New York City POP to a switch and install a switch
in Los Angeles. Switches that have been replaced will be redeployed to upgrade
POPs in other strategic locations. To further extend the European Network, the
Company also anticipates installing switches in Vienna and Zurich and POPs in up
to 17 Western European cities in 1997, including Berlin, Lyon, Rotterdam, Turin
and Valencia. Expanding the European Network to include such additional major
European business centers should ultimately reduce transmission costs and
increase the addressable market of the European Network. See "Risk
Factors -- Potential Difficulties Associated With Implementing European
Expansion Strategy." In addition, to further reduce transmission costs, the
Company (i) is in the process of acquiring an IRU in the portion of a
transatlantic digital fiber optic cable originating in the United States for
transmission of traffic between the United States and Europe, (ii) anticipates
filing an application in the fourth quarter of 1996 which would permit the
Company to acquire an IRU in transatlantic digital fiber optic cable originating
in the United Kingdom and (iii) is considering acquiring an IRU in cross-channel
digital fiber optic cable originating in the United Kingdom.
INFORMATION SYSTEMS
The Company believes that integrated and reliable billing and information
systems are key elements for growth and success in the telecommunications
industry. Accordingly, the Company has made significant investments to acquire
and implement sophisticated information systems which enable the Company to: (i)
monitor and respond to customer needs by developing new and customized services;
(ii) manage LCR; (iii) provide customized billing information; (iv) provide high
quality customer service; (v) detect and minimize fraud; (vi) verify payables to
suppliers; and (vii) rapidly integrate new
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customers. The Company believes that its network intelligence, billing and
financial reporting systems enhance its ability to competitively meet the
increasingly complex and demanding requirements of the international and
national long distance markets. While the Company believes that such systems are
currently sufficient for its operations, such network intelligence, selling and
financial reporting systems will require enhancements and ongoing investments.
See "Risk Factors -- Dependence on Effective Information Systems" and
"-- Business Strategy -- Leverage Information Systems."
The Company currently has a turnaround time of approximately 24 hours for
new account entry. The Company's billing system provides multicurrency billing,
itemized call detail, city level detail for destination reporting and electronic
output for select accounts. Customers are provided with several payment options,
including automated credit card processing and automated direct debiting.
The Company has developed proprietary software to provide
telecommunications services and render customer support. In contrast to most
traditional telecommunications companies, the software used to support the
European Network resides outside of the switches and, therefore, does not
currently rely on third party switch manufacturers for upgrades. The Company
believes its software configuration facilitates the rapid development and
deployment of new services and provides the Company with a competitive
advantage. Each switch has a call detail recording function which enables the
Company to: (i) achieve accelerated collection of call records; (ii) detect
fraud and unauthorized usage; and (iii) permit rapid call detail record
analysis. See "-- The Viatel Network -- Intelligent Switches."
The Company also uses its proprietary software to assist it in analyzing
traffic patterns and determining network usage and busy hour percentage,
originating traffic by switching center, terminating traffic by supplier and
originating traffic by customer. This data is utilized to optimize LCR, which
may result in call traffic being transmitted over the Company's transmission
facilities, other carriers' transmission facilities or a combination of such
facilities. If traffic cannot be handled over the least cost route due to
overflow, the LCR system is designed to transmit the traffic over the next least
cost route. The LCR system chooses among the following variables to minimize the
cost of a long distance call: (i) over 15 different suppliers; (ii) 24 different
time zones; and (iii) multiple choices of terminating carrier per country. The
performance of the LCR system is verified based on a daily overflow report
generated by the Company's network traffic management and a weekly/monthly
average termination cost report generated by the Company's billing system. See
"Risk Factors -- Dependence on Effective Information Systems."
SALES AND MARKETING; CUSTOMERS
From 1991 to 1994, the Company's sales and marketing efforts were conducted
by independent sales representatives in each of its markets. In late 1994, the
Company began establishing its own direct sales forces in certain Western
European and Latin American countries to take greater control over the sales and
marketing functions and to provide a higher level of customer service.
Currently, the Company has direct sales forces in the nine cities in Western
Europe in which it has switches. The Company intends to establish direct sales
forces in other key Western European cities and to utilize non-exclusive
independent representatives to augment the efforts of its direct sales forces.
This strategy is expected to provide the Company with the benefits derived from
a direct sales organization while minimizing the organizational and other fixed
costs associated with such an undertaking. See "-- Legal Proceedings."
The initial phase of development of the Company's direct sales organization
in a given country involves setting up a team of salespeople led by a sales
manager and supported by a centralized telemarketing and customer service team.
Over time, the Company expects each country in which it provides services to be
served by multiple sales teams under the leadership of a country manager and a
central telemarketing team responsible for generating new sales leads. The
Company does not engage in general advertising, but instead uses local
advertising directed to its target customer base.
The Company's principal target market consists of small and medium-sized
businesses. This market includes trading companies, financial institutions, call
centers and import-export companies, for which long distance telecommunications
service represents a significant business expense. The Company also
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targets carriers and other resellers. The Company has four sales professionals
dedicated to marketing and maintaining the Company's relationships with its
wholesale customers in the United States and in the United Kingdom. Currently,
no customer of the Company individually accounts for more than 10% of the
Company's revenue.
In addition to providing long distance services to third party call
centers, the Company believes that it can profitably establish its own call
centers within certain Western European cities which will provide the ViaCALL
Plus service. Call centers are primarily used by students, travelers and other
expatriates as an alternative to coin telephone, callback or third party billed
calls. The Company believes that the establishment of its own call centers will
enable it to earn high margin revenue while controlling credit problems
associated with third party call centers.
The Company employs a decentralized approach to pricing non-wholesale
services and, as a result, its discount relative to the ITOs' prices varies
among geographic markets. For its non-wholesale services, the Company offers
discounts to the prices charged by the ITO in each market which typically range
from approximately 10.0% to approximately 20.0% for international calls and from
approximately 20.0% to approximately 40.0% for intercontinental calls. In those
markets where the Company currently provides national long distance services,
the discounts typically range from approximately 8.0% to approximately 28.0%.
The Company generally sets its wholesale rates on a case by case basis with
an overall margin objective based upon a customer traffic profile. The rates
charged are generally priced at or below the market price of the leading United
States international facilities-based carriers, but the Company does not offer a
standard discount relative to any major carrier.
CARRIER CONTRACTS
The Company has entered into contracts to purchase switched minute capacity
from various domestic and foreign carriers and depends on such contracts for
origination and termination of traffic on the Viatel Network as well as for
resale of such capacity to others. Carrier costs constitute a significant
portion of the Company's variable costs. Pursuant to these contracts, the
Company obtains guaranteed rates, which are generally more favorable than
otherwise would be available, by committing to purchase switched minute minimums
from such carriers. If the Company fails to meet its switched minute minimum
requirements under a carrier contract, it could still be required to pay its
minimum monthly commitment as a penalty. The Company's aggregate minimum monthly
commitments are approximately $.5 million, which represents less than 20.0% of
the Company's monthly variable transmission expense. The Company has never paid
a penalty for failing to meet such a commitment. The Company does not believe
that the loss of any one supplier or contract would have a material adverse
impact on the Company's business, financial condition or results of operations.
See "-- Competition."
COMPETITION
The international telecommunications industry is highly competitive. The
Company's success depends upon its ability to compete with a variety of other
telecommunications providers in each of its markets, including the respective
ITO in each country in which the Company operates and global alliances among
some of the world's largest telecommunications carriers. Other potential
competitors include cable television companies, wireless telephone companies,
electric and other utilities with rights of way, railways, microwave carriers
and large end users which have private networks. The intensity of such
competition has recently increased and the Company believes that such
competition will continue to intensify as the number of new entrants increases.
Many of the Company's current or potential competitors have substantially
greater financial, marketing and other resources than the Company. If the
Company's competitors devote significant additional resources to the provision
of international or national long distance telecommunications services to the
Company's target customer base of small and medium-sized businesses, such action
could have a material adverse effect on the Company's business, financial
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condition and results of operations, and there can be no assurance that the
Company will be able to compete successfully against such new or existing
competitors. See "Risk Factors -- Competition."
Competition for customers in the telecommunications industry is primarily
based on price and, to a lesser extent, on the type and quality of services
offered. The Company prices its services primarily by offering discounts to the
prices charged by its competitors. The Company has no control over the prices
set by its competitors, and some of the Company's competitors may be able to use
their financial resources to cause severe price competition in the countries in
which the Company operates. Although the Company does not believe that there is
an economic incentive for its competitors to pursue such a pricing strategy or
that its competitors are likely to engage in such a course of action, there can
be no assurance that severe price competition will not occur. Any such price
competition would have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, intensified
competition in certain of the Company's markets will cause the Company to
continue to reduce its prices. For example, the Company recently reduced certain
rates which it charges to non-wholesale customers in response to pricing
reductions enacted by certain ITOs. Such price reductions may reduce the
Company's revenue and margins. The Company has experienced, and expects to
continue to experience, declining revenue per billable minute in all of its
markets, in part as a result of increasing worldwide competition within the
telecommunications industry.
In response to deregulation, additional competitors of various sizes are
beginning to emerge in Western Europe. The Company's services are currently
marketed to small and medium-sized businesses, however, and thus the Company
generally does not directly compete with mega-carrier alliances which generally
target larger customers. The Company's ViaCALL Plus service is targeted at
medium-sized businesses and may in the future compete with some services offered
by the mega-carrier alliances. In addition, many smaller carriers have emerged,
most of which specialize in offering intercontinental telephone services
utilizing dial up access methods, and some of which have begun to build networks
similar to the European Network. Although these competitors have focused
primarily on London, several have expressed an intention to build networks
across Europe in the future.
The Company believes that the ITOs generally have certain competitive
advantages due to their control over local connectivity and apparent close ties
with national regulatory authorities. The Company also believes that, in certain
instances, some regulators have shown a reluctance to adopt policies and grant
regulatory approvals that would result in increased competition for the local
ITO. The Company believes that, at least in the short-term, the ITOs will not
concentrate on marketing their services to the Company's small and medium-sized
business customer base. As a result, the Company does not believe that the ITOs
will seek to pressure national regulators to prevent it from providing its
services; however, there can be no assurance that the ITOs will not apply such
pressure in the future. If the ITOs were to successfully pressure such
regulators, the Company could be denied regulatory approval in certain
jurisdictions in which its services would otherwise be permitted, thereby
requiring the Company to seek judicial or other legal enforcement of its right
to provide services. Any delay in obtaining approval, or failure to obtain
approval, could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company believes that it has encountered anti-competitive behavior on
the part of certain ITOs. If the Company encounters anti-competitive behavior in
countries in which it operates or if the ITO in any country in which the Company
operates uses its competitive advantages to the fullest extent, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Risk Factors --Competition."
GOVERNMENT REGULATION
OVERVIEW. The Company's provision of international and national long
distance telecommunications services is heavily regulated. Many of the countries
in which the Company provides, or intends to provide, services prohibit or limit
the services which the Company can provide and the transmission methods by which
it can provide such services. For example, in the United States, the Company's
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authority to engage in the resale of international private lines for the
provision of switched services between the United States and the United Kingdom
and between the United States and Canada is pursuant to the Section 214 Private
Line Authorization. The Company is additionally authorized to provide these
services, among others, pursuant to the Section 214 Global Authorization.
Certain rules of the FCC prohibit the Company from (i) transmitting calls routed
over the Company's leased line between the United States and the United Kingdom
onward over the European Network (other than to countries which the FCC deems to
be "equivalent," currently the United Kingdom, Canada and Sweden) or (ii)
transmitting calls from European countries (other than those deemed to be
equivalent) over the European Network and then onward over its leased line
between the United States and the United Kingdom. If a violation of FCC rules
concerning resale of international private line service were found to exist and
to be sufficiently severe, the FCC could impose sanctions and penalties,
including revocation of the Section 214 Private Line Authorization or the
Section 214 Global Authorization. FCC restrictions thus materially limit the
optimal and most profitable use of the Company's leased line between the United
States and the United Kingdom.
In addition, the Company provides its customers located outside the EU,
and, to a lesser degree within the EU, with access to its services through the
use of callback. A substantial number of countries have prohibited certain forms
of callback as a mechanism to access the Company's services. This has caused the
Company to cease providing services in some jurisdictions, including Kuwait,
Costa Rica and Jordan, and may require it to do so in other countries in the
future. There can be no assurance that certain of the Company's services and
transmission methods will not continue to be or will not become prohibited in
certain jurisdictions, and, depending on the jurisdictions, services and
transmission methods affected, there could be a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors -- Substantial Government Regulation."
Local laws and regulations differ significantly among the jurisdictions in
which the Company operates, and, within such jurisdictions, the interpretation
and enforcement of such laws and regulations can be unpredictable. For example,
EU member states have inconsistently and, in some instances, unclearly
implemented the Services Directive under which the Company provides voice
services for CUGs in Western Europe. As a result, some EU member states may
limit, constrain or otherwise adversely affect the Company's ability to provide
certain services. There can be no assurance that certain EU member states will
implement, or will implement consistently, the Services Directive or the Full
Competition Directive adopted by the EU in March 1996, and either the failure to
implement or inconsistent implementation of such directives could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has pursued and expects to continue to pursue a strategy of
providing its services to the maximum extent it believes permissible under
applicable laws and regulations. For example, the Company's ViaGLOBE service,
which is provided to individuals for calling within the EU, may constitute
prohibited Voice Telephony. The Company does not believe, however, that such
service constitutes prohibited Voice Telephony. A further example of the
Company's aggressive interpretation of indefinite or unfavorable laws is its
provision of services utilizing the callback access method in Colombia, where
the Colombian Ministry of Communications has stated that callback access is not
permitted and has so notified the FCC, and in other Latin American countries
where services utilizing such access method may not currently be permitted. The
Company believes that it is not providing any impermissible service and
continues to offer services which utilize callback access.
The Company's aggressive strategy may result in the Company's (i) providing
services or using transmission methods that violate local laws or regulations or
(ii) failing to obtain formal approvals required under such laws or regulations.
Where the Company is found to be in violation of local laws and regulations, it
usually seeks to modify its operations so as to comply with such laws and
regulations. There can be no assurance, however, that the Company will not be
subject to fines, penalties or other sanctions as a result of past violations
even though such violations were corrected. In addition, if the Company
determines, following consultation with regulatory counsel in a jurisdiction,
that it has a legal basis for doing so, it may persist in providing such
services, using such transmission methods or
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otherwise continuing such actions. If the Company's interpretation of applicable
laws and regulations proves incorrect, it could lose, or be unable to obtain,
regulatory approvals, including the Section 214 Private Line Authorization, the
Section 214 Switched Authorization, the Section 214 Global Authorization or the
Section 214 UK Facilities Authorization necessary to provide certain of its
services or to use certain of its transmission methods. The Company also could
have substantial monetary fines and penalties imposed against it. To date, the
Company has not been subject to any fines, penalties or other sanctions nor has
it been the subject of any legal or regulatory action or inquiry. In addition,
the Section 214 Switched Authorization requires that services be provided "in a
manner consistent with the laws and regulations of the countries in which [the
Company] operates." There can be no assurance that the Company has accurately
interpreted or will accurately interpret applicable laws and regulations in
particular jurisdictions.
Moreover, the Company may be incorrect in its assumption that (i) EU member
states will abolish on a timely basis the respective ITO's monopoly to provide
Voice Telephony within and between such member states, as required by the
Services Directive and the Full Competition Directive, (ii) deregulation will
continue to occur or (iii) it will be allowed to continue to provide and to
expand its services. The Company's provision of services in Europe may also be
affected if any EU member state imposes greater restrictions on non-EU
international service than on such service within the EU. There can be no
assurance that the United States or foreign jurisdictions will not adopt laws or
regulatory requirements that will adversely affect the Company. Additionally,
there can be no assurance that future United States or foreign regulatory,
judicial or legislative changes will not have a material adverse effect on the
Company or that regulators or third parties will not raise material issues with
regard to the Company's compliance with applicable laws or regulations. If the
Company is unable to provide the services it is presently providing or intends
to provide or to use its existing or contemplated transmission methods due to
its inability to receive or retain formal or informal approvals for such
services or transmission methods, or for any other reason related to regulatory
compliance or the lack thereof, such events could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company does not believe, however, that an adverse determination as to the
permissibility of any individual service offered by the Company in any
particular jurisdiction would have a material adverse long-term effect on its
business. See "Risk Factors -- Substantial Government Regulation."
REGULATORY FRAMEWORK. A summary discussion of the regulatory frameworks in
certain geographic regions in which the Company operates or has targeted for
penetration is set forth below. This discussion is intended to provide a general
outline of the more relevant regulations and current regulatory posture of the
various jurisdictions and is not intended as a comprehensive discussion of such
regulations or regulatory posture.
Europe. In Europe, the regulation of the telecommunications industry is
governed at a supra-national level by the EU (consisting of the following member
states: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United
Kingdom) which is responsible for creating pan-European policies and, through
legislation, a regulatory framework to ensure an open, competitive
telecommunications market. The EU was established by the Treaty of Rome and
subsequent conventions and is authorized by such treaties to issue EU
"directives." EU member states are required to implement these directives
through national legislation. If an EU member state fails to adopt such
directives, the European Commission may take action, including referral to the
European Court of Justice, to enforce the EU directives.
In 1990, the EU issued the Services Directive requiring each EU member
state to abolish existing monopolies in telecommunications services, with the
exception of Voice Telephony. The 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 within CUGs. However, as a consequence
of local implementation of the Services Directive through the adoption of
national legislation, there are differing interpretations of the definition of
prohibited Voice Telephony and permitted value-added and CUG services. Voice
services which use leased lines for customer access, such as ViaCALL Plus, are
permissible in all EU member states in which the Company currently conducts its
business. The European Commission has generally taken a narrow view of the
services classified as Voice Telephony declaring
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that voice services may not be reserved to the ITOs if (i) dedicated customer
access is used to provide the service, (ii) the service confers new value-added
benefits on users (such as alternative billing methods) or (iii) calling is
limited by a service provider to a group having legal, economic or professional
ties.
Notwithstanding the Services Directive, Greece, Ireland, Portugal and
Spain, each of which has a less developed network, and Luxembourg, which has a
very small network, may, provided it is necessary to achieve a structural
adjustment, delay the abolition of the Voice Telephony monopoly until 2003 and
2000, respectively. Spain volunteered to implement the Services Directive by
1998, but certain Spanish officials have recently indicated that they may
reconsider this decision and postpone the abolition of the Voice Telephony
monopoly.
In March 1996, the EU adopted the Full Competition Directive containing two
key provisions which required EU member states to allow the creation of
alternative telecommunications infrastructures by July 1, 1996, and which
reaffirmed the obligation of EU member states to abolish the ITOs' monopolies in
Voice Telephony by 1998. The Full Competition Directive encouraged EU member
states to accelerate liberalization of Voice Telephony. To date, Sweden,
Finland, Denmark and the United Kingdom have liberalized facilities-based
services to all routes. However, Greece, Ireland, Portugal, Spain and Luxembourg
may apply to the European Commission to delay for up to 5 years the provisions
of the Full Competition Directive relating to the liberalization of Voice
Telephony or alternative infrastructures. Certain Spanish officials have
indicated that Spain will apply for such derogation.
Each EU member state in which the Company currently conducts its business
has a different regulatory regime and such differences are expected to continue
beyond January 1998. The requirements for the Company to obtain necessary
approvals vary considerably from country to country. The Company believes that,
to the extent required, it has either filed applications, received comfort
letters or obtained licenses from the applicable regulatory authorities.
United States. The Company's provision of international service to, from,
and through the United States is subject to regulation by the FCC. Section 214
of the Communications Act requires a company to make application to, and receive
authorization from, the FCC to, among other things, resell telecommunications
services of other U.S. carriers with regard to international calls. In May 1994,
the FCC authorized the Company pursuant to Section 214 of the Communications Act
(the "Section 214 Switched Authorization") to resell public switched
telecommunications services of other U.S. carriers. The Section 214 Switched
Authorization requires that services be provided in a manner that is consistent
with the laws of countries in which the Company operates. As described above,
the Company's aggressive regulatory strategy could result in the Company's
providing services that ultimately may be considered to be provided in a manner
that is inconsistent with local law. If the FCC finds that the Company has
violated the terms of the Section 214 Switched Authorization, it could impose a
variety of sanctions on the Company, including fines, additional conditions on
the Section 214 Switched Authorization, cease and desist or show cause orders or
the revocation of the Section 214 Switched Authorization, the latter of which is
usually imposed only in the case of serious violations. The FCC has the
authority to take the same action with respect to the Section 214 Private Line
Authorization, the Section 214 Global Authorization and the Section 214 UK
Facilities Authorization. Depending upon the sanction imposed, such sanction
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Substantial Government
Regulation". As previously noted, the FCC has also granted the Section 214
Private Line Authorization. Additionally, the Company recently received another
Section 214 authorization from the FCC to provide both facilities-based services
and resale services (including both the resale of switched services and the
resale of private lines for the provision of switched services) to all
permissible international points (the "Section 214 Global Authorization"). The
Section 214 Global Authorization was granted with an effective date of September
6, 1996. Although the FCC can reconsider the grant on its own motion up to and
until October 22, 1996, the Company believes that such reconsideration is
unlikely. Finally, the Company also recently received another Section 214
Authorization from the FCC to provide facilities-based service between the
United States and the United Kingdom over the CANUS-1 and CANTAT-3 cable systems
(the "Section 214 UK
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Facilities Authorization"). The Section 214 UK Facilities Authorization was
granted with an effective date of September 13, 1996. Although third parties can
file petitions for reconsideration of this grant up to and until October 21,
1996 and the FCC can reconsider the grant on its own motion up to and until
October 30, 1996, the Company also believes that such reconsideration is
unlikely.
In order to conduct its business involving the origination and termination
of calls in the United States, the Company must use leased lines. In October
1995, YYC Communications, Inc., a wholly owned subsidiary of the Company,
obtained the Section 214 Private Line Authorization from the FCC to resell
international private line service between the United States and the United
Kingdom, with the private line interconnected to the PSTN, for the purpose of
providing switched telecommunications services. The Company received on October
7, 1996 FCC approval of the pro forma assignment of the Section 214 Private Line
Authorization from YYC Communications, Inc. to the Company itself. The FCC
restricts the use of the leased line between the United States and the United
Kingdom to the handling of traffic that enters or exits the United Kingdom end
of the leased line via the PSTN. The FCC currently prohibits the Company from
using the leased line between the United States and the United Kingdom to carry
to the United States any calls that originate on the European Network at
switches outside of the United Kingdom. The FCC also prohibits the Company from
using the leased line between the United States and the United Kingdom to carry
United States-originated calls that will be handed off to the European Network
for delivery to countries on the European continent. The FCC has imposed this
prohibition because no continental EU member state offers U.S.
telecommunications service providers competitive opportunities that are
"equivalent" to those available in the United States. To date, the FCC has found
that only Canada, the United Kingdom and Sweden offer such opportunities.
Following implementation of the Full Competition Directive by EU member states,
the FCC may authorize the Company to originate and terminate traffic over the
leased line between the United States and the United Kingdom and the European
Network to additional member states if the FCC finds that they provide
equivalent competitive opportunities. However, there can be no assurance that
the FCC will find that such equivalent competitive opportunities exist.
Latin America. The Company is subject to a different regulatory regime in
each country in Latin America in which it conducts business. Local regulations
determine issues significant to the Company's business, including whether it can
obtain authorization to offer transmission of voice and voice band data directly
or through callback. In general, competition is restricted in the region, with
the result that the Company's ability to offer such service is limited.
Regulations governing enhanced services (such as facsimile and voicemail and
data transmission) tend to be more permissive than those covering Voice
Telephony.
Some countries in Latin America oppose the provision of callback. The Latin
American countries in which the Company conducts the greatest portion of its
business are Brazil, Colombia and Argentina. In Brazil, callback is currently
permissible but the Company has experienced opposition in the past and will
likely experience such opposition in the future. In Colombia, the Ministry of
Communications has stated that callback access is prohibited and has so notified
the FCC. The Company does not believe that the Ministry of Communications has
the requisite authority to regulate in this area, and this is the subject of
litigation brought by a third party in the Colombian courts. At present,
regulations appear to permit callback access in Argentina. However, the
regulatory agency in Argentina has changed its position regarding callback
access on several occasions in the past.
EMPLOYEES
At June 30, 1996, the Company had 236 full-time employees, approximately
108 of whom were engaged in sales, marketing and customer service. None of the
Company's employees are covered by a collective bargaining agreement. Management
believes that the Company's relationship with its employees is good.
PROPERTIES
The Company currently occupies approximately 6,000 square feet of office
space in New York, New York, which serves as the Company's principal executive
office. The lease has an annual rental obligation
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of approximately $174,300 and expires on January 31, 2001. The Company also
leases an aggregate of approximately 17,850 square feet of office space at two
sites in Omaha, Nebraska, which serve as the Company's operations center and its
United States switching center. The lease terms of the two sites have an annual
combined rental obligation of approximately $112,000 and expire on March 31,
1997 and July 31, 2000, respectively. The Company has a renewal option for two
years on one of the sites, each year at a rent comparable to that paid during
the initial term of the lease.
The Company also leases office space in various cities in Europe where it
maintains sales offices with annual rents ranging from $19,600 in Rome to
$192,000 in Frankfurt (based on foreign currency exchange rates in effect as of
June 30, 1996). The Company's aggregate annual rental obligations for its
European properties is approximately $740,000 (based on foreign currency
exchange rates in effect as of June 30, 1996).
LEGAL PROCEEDINGS
On June 5, 1996, a French arbitration tribunal rendered a judgment against
the Company in connection with a claim by an independent sales representative
(the "Claimant") for alleged breach of contract and certain other claims. The
Claimant requested total monetary damages of approximately $3 million and sought
reinstatement as the Company's exclusive sales representative in France.
Although the arbitration panel awarded the Claimant FF 4.3 million
(approximately $.83 million based on foreign currency exchange rates in effect
as of June 30, 1996), the panel terminated the Claimant's sales agency. This
award is subject to interest accruing at an annual rate of 6.5% commencing
January 1995.
On January 23, 1996, the Spanish Representative commenced an arbitration
proceeding before the American Arbitration Association claiming a breach by the
Company of a contract between the Spanish Representative and the Company
relating to the improper termination of such agreement by the Company. The
Spanish Representative is seeking $5.8 million in damages. On February 8, 1996,
the Company obtained, in the Supreme Court of the State of New York, County of
Nassau, an order to show cause bringing an application to stay the arbitration
on the ground that the Company did not agree to arbitrate breach of contract
disputes. The Court issued a temporary restraining order that stayed the
arbitration proceeding pending determination of the motion. On February 29,
1996, the attorneys for the Spanish Representative removed the action pending in
the Supreme Court of the State of New York to the United States District Court
for the Eastern District of New York and cross-moved for an order compelling
arbitration. On August 26, 1996, the United States District Court for the
Eastern District of New York denied the Company's motion and directed the
Company to proceed to arbitration. The Company believes that it has meritorious
defenses against each of the claims alleged by the Spanish Representative. The
Company intends to vigorously pursue all defenses available to it.
The Company is also involved from time to time in other litigation
incidental to the conduct of its business. The Company believes that the
judgment rendered against it by the French arbitration panel and any potential
adverse determination in the action brought by the Spanish Representative or an
adverse decision in any other pending action will not have a material adverse
effect on the Company's business, financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ---- -----------------------------------------------------
<S> <C> <C>
Martin Varsavsky................. 36 Chairman of the Board, Chief Executive Officer and
Director
Michael J. Mahoney(1)............ 37 President, Chief Operating Officer and Director
Allan L. Shaw(2)................. 32 Vice President, Finance; Chief Financial Officer;
Treasurer and Director
Morten Steen-Jorgensen........... 32 Vice President and Managing Director, Europe
Lawrence G. Malone............... 44 Vice President and Managing Director,
Intercontinental
Mark St. J. Courtney............. 37 European General Counsel and Secretary
Sheldon M. Goldman............... 37 United States General Counsel and Assistant Secretary
Paolo Di Fraia................... 35 European Finance Director and Assistant Treasurer
Antonio Carro.................... 37 Director
W. James Peet(1)(2).............. 41 Director
Paul G. Pizzani(1)(2)............ 36 Director
</TABLE>
- ---------------
(1) Member of the Company's Compensation Committee
(2) Member of the Company's Audit Committee
Martin Varsavsky. Mr. Varsavsky, a founder of the Company, has served as
Chairman of the Board and Chief Executive Officer of the Company since September
1996 and as Chief Executive Officer and director of the Company since February
1991. Mr. Varsavsky was also President of the Company from February 1991 through
September 1996. Mr. Varsavsky also founded both Urban Capital Corporation, a
commercial real estate development company, and Medicorp Sciences, a
biotechnology company which conducts AIDS research, in 1985. Mr. Varsavsky does
not currently hold an officer position with either Urban Capital Corporation or
Medicorp Sciences. Mr. Varsavsky is related by marriage to Mr. Juan Manuel
Aisemberg, a principal stockholder of the Company.
Michael J. Mahoney. Mr. Mahoney has served as President and Chief
Operating Officer of the Company since September 1996 and as a director of the
Company since 1995. Mr. Mahoney was also Executive Vice President, Operations
and Technology of the Company from July 1994 to September 1996 and Managing
Director, Intercontinental of the Company from January 1996 to September 1996.
From August 1990 to June 1994, Mr. Mahoney was employed by SITEL Corporation, a
telemarketing services company, most recently as President, Information Services
Group. From August 1987 to August 1990, Mr. Mahoney was employed by URIX
Corporation, a manufacturer of telecommunications hardware and software, in a
variety of sales and marketing positions, most recently as the Director, Product
Marketing.
Allan L. Shaw. Mr. Shaw has served as Vice President, Finance and Chief
Financial Officer of the Company since January 1996 and as Treasurer of the
Company since September 1996. Mr. Shaw has served as a director of the Company
since June 1996. Prior to becoming the Company's Vice President, Finance and
Chief Financial Officer, Mr. Shaw served as Corporate Controller of the Company
from November 1994 to December 1995. From August 1987 to November 1994, Mr. Shaw
was employed by Deloitte & Touche LLP, most recently as a Manager. Mr. Shaw is a
Certified Public Accountant and a member of the American Institute, United
Kingdom Society and New York State Society of Certified Public Accountants.
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Morten Steen-Jorgensen. Mr. Jorgensen has served as Vice President and
Managing Director, Europe of the Company since September 1996. From September
1987 to August 1996, Mr. Jorgensen was employed by NCR, where he most recently
served as Vice President, Channel Sales and Marketing.
Lawrence G. Malone. Mr. Malone has served as Vice President and Managing
Director, Intercontinental of the Company since September 1996 and served as
Vice President of Sales for Carriers/ Wholesale of the Company from January 1995
to September 1996. From December 1993 to December 1994, Mr. Malone was employed
by Frame Relay Technologies, a communications equipment manufacturer, as
Director of Sales. From December 1987 to November 1993, Mr. Malone was employed
by Republic Telcom Systems, a voice/data networking company, where he most
recently served as Vice President of Sales and Marketing.
Mark St. J. Courtney. Mr. Courtney has served as European General Counsel
of the Company since August 1995 and as Secretary of the Company since March
1996. From December 1992 to July 1995, Mr. Courtney served as European and
International Counsel for Legent Corporation, a software company, and from April
1991 to November 1992, Mr. Courtney served as Legal Counsel for ICL, Ltd., a
U.K. hardware and computer services company. Mr. Courtney was employed by Lloyds
Merchant Bank Ltd., a U.K. investment bank, from November 1985 to March 1991.
Sheldon M. Goldman. Mr. Goldman has served as United States General
Counsel of the Company since April 1996. From January 1987 to March 1996, Mr.
Goldman was associated with the law firm of Wien, Malkin & Bettex. Since March
1996, Mr. Goldman has been Of Counsel to the law firm of Brief Kesselman Knapp &
Schulman, LLP.
Paolo Di Fraia. Mr. Di Fraia has served as European Finance Director of
the Company since January 1996 and as Assistant Treasurer of the Company since
September 1996. From November 1994 to December 1995, Mr. Di Fraia served as
European Controller of the Company. From April 1989 to August 1994, Mr. Di Fraia
was employed by Philip Crosby Associates, S.A. as European Controller.
Antonio Carro. Mr. Carro has served as a director of the Company since
August 1996. He is the head of Corporate Projects of Banco Santander, where he
has been employed since July 1995. From January 1994 to July 1995, Mr. Carro was
Managing Director of Airtel, a mobile telephone operator and from January 1985
to December 1993 was employed by McKinsey & Co. where he was co-leader of its
European Telecommunications practice.
W. James Peet. Mr. Peet has served as a director of the Company since
November 1995. He is Vice President of The Chatterjee Group, an affiliate of S-C
V-Tel, a principal stockholder of the Company, and has been associated with The
Chatterjee Group since August 1991. From June 1985 to July 1991, Mr. Peet was a
management consultant employed by McKinsey & Company.
Paul G. Pizzani. Mr. Pizzani has served as a director of the Company since
April 1996. He is the Treasurer of COMSAT Corporation and has been associated
with COMSAT Corporation in various capacities since November 1985, most recently
as the Vice President of Finance and Business Planning of COMSAT International
Ventures. COMSAT Investments, Inc., an affiliate of COMSAT Corporation, is a
principal stockholder of the Company.
SENIOR MANAGEMENT
Alfredo Candal. Mr. Candal has served as the Company's Regional Manager
for Latin America since January 1996 and as the Company's Latin American
Business Development Manager from May 1995 to December 1995. Prior to such date,
Mr. Candal served as the Company's Acting Country Manager for Italy from
December 1994 to May 1995 and as the Company's Latin American specialist from
October 1993 to December 1994.
Fred Hughes. Mr. Hughes has served as Vice President, Operations-Europe of
the Company since July 1994. From August 1993 to July 1994, Mr. Hughes served as
Director of Telephony of the Company. From January 1991 to August 1993, Mr.
Hughes was President of Communications Services Group, a
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Connecticut-based voice and data communications consulting company. From August
1988 to January 1991, Mr. Hughes was Director of Engineering at Millicom
Telecommunications Services, Inc.
George Pieraccini. Mr. Pieraccini has served as the Company's Corporate
Controller since January 1996. Mr. Pieraccini served as Assistant Controller of
the Company from November 1994 until December 1995. From October 1991 to
November 1994, Mr. Pieraccini was employed by Edward Isaacs & Company LLP,
independent Certified Public Accountants, most recently as an Audit Senior. Mr.
Pieraccini is a Certified Public Accountant and a member of the American
Institute and the New York State Society of Certified Public Accountants.
Phil Wilken. Mr. Wilken has served as Vice President of Operations of the
Company since joining the Company in March 1996. From October 1995 to February
1996, Mr. Wilken was a private consultant in the telecommunications industry.
Mr. Wilken was employed by CNA Insurance Co. in various capacities from January
1983 to September 1995, beginning as a Manager in Network Management and, most
recently, as an Assistant Vice President of Teleservices.
The Company's Board of Directors is comprised of six directorships. All
directors of the Company currently hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
Prior to completion of the Offerings, the Board of Directors will be divided
into three classes serving staggered, three-year terms. At each annual meeting
of stockholders of the Company, successors to the class of directors whose term
expires at such meeting will be elected to serve for three-year terms and until
their successors are elected and qualified. Messrs. Peet and Pizzani were
elected to the Board of Directors pursuant to the terms of the COMSAT
Shareholders Agreement and the S-C V-Tel Shareholders Agreement (each as herein
defined), respectively. S-C V-Tel's right to nominate a director to the
Company's Board of Directors terminates upon completion of the Offerings. See
"-- Compensation Committee Interlocks and Insider Participation -- Shareholders
Agreements." Executive officers hold office until their successors are chosen
and qualified, subject to earlier removal by the Board of Directors and subject
to the terms of any written agreements. See "-- Employment and Severance
Agreements."
The Board of Directors has established two committees, a Compensation
Committee and an Audit Committee. The current members of the Compensation
Committee are Messrs. Mahoney, Peet and Pizzani and the current members of the
Audit Committee are Messrs. Peet, Pizzani and Shaw. The Compensation Committee
reviews general policy matters relating to compensation and benefits of
employees and officers of the Company and administers the Stock Incentive Plan.
The Audit Committee, which was established in July 1996, will (i) recommend the
appointment of a firm of independent accountants to audit the Company's
financial statements, (ii) discuss the scope and results of the audit with the
independent accountants, (iii) review with management and the independent
accountants the Company's interim and year-end operating results, (iv) consider
the adequacy of the internal controls and audit procedures of the Company and
(v) review the nonaudit services to be performed by the independent accountants.
Currently, the Company's directors do not receive any cash compensation for
their service on the Board of Directors. Following the completion of the
Offerings, non-employee directors will be entitled to receive an annual fee of
$12,000, a meeting fee of $1,000 for every board meeting attended and each
committee meeting held separately and a $500 fee for each board meeting or
committee meeting participated in by telephone. Directors who are also employees
of the Company will not be separately compensated for serving on the Board of
Directors. All directors will be reimbursed for out-of-pocket expenses. Under
the Stock Incentive Plan, the Company may, from time to time and in the
discretion of the Board of Directors, grant options to directors. See "-- Stock
Incentive Plan."
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<PAGE> 52
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for services in all capacities awarded to, earned by or paid to, the Company's
Chief Executive Officer and the Company's other most highly compensated
executive officers, whose aggregate cash and cash equivalent compensation
exceeded $100,000 (the "Named Executives"), with respect to the last two fiscal
years. The table also identifies the principal capacity in which each of the
Named Executives served the Company at the end of 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------- LONG TERM COMPENSATION
OTHER ------------------------
ANNUAL RESTRICTED SECURITIES
COMPENSATION STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($) OPTIONS(#)
- ------------------------------------- ----- --------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Martin Varsavsky,
President and Chief Executive
Officer............................ 1995 $ 329,673 $100,000 $ 99,813 -- --
1994 309,345 200,000 -- -- --
Alan L. Levy(2),
Executive Vice President, Legal and
Finance............................ 1995 165,017 122,248 120,460 117,000(3) --
1994 111,250 150,000 -- 46,667
--
Ardean Cary(4),
Executive Vice President, Marketing
and Sales.......................... 1995 110,029 -- -- -- --
1994 123,000 100,000 -- -- 23,333
Michael J. Mahoney(5),
Executive Vice President,
Operations and Technology; Managing
Director, Intercontinental......... 1995 123,000 117,607 52,715 -- 23,333
1994 59,538 50,000 -- -- 23,333
</TABLE>
- ---------------
(1) The aggregate value of the perquisites and other personal benefits received
by each Named Executive in 1994 and for Mr. Cary in 1995 have not been
reflected for such year because the amount was below the Commission's
required reporting threshold. The amounts reflected in this column for 1995
include (i) $35,880 of housing allowance expense and $47,500 of relocation
expense reimbursement for Mr. Varsavsky, (ii) $38,667 of housing allowance
expense for Mr. Levy and (iii) $23,834 of housing allowance expense for Mr.
Mahoney.
(2) Mr. Levy ceased to be an executive officer of the Company effective July 31,
1996. See "-- Employment and Severance Agreements."
(3) Mr. Levy held a total of 20,000 shares of restricted Common Stock at
December 31, 1995 having an aggregate market value on such date of
approximately $117,000. As of such date, such shares were to vest ratably
over the 36 month period ending December 31, 1997. Dividends, if any, paid
with respect to vested shares of restricted stock would be paid directly to
Mr. Levy. In connection with Mr. Levy's separation from the Company, the
Company vested all unvested shares of restricted stock. See "-- Employment
and Severance Agreements."
(4) Mr. Cary ceased to be an executive officer of the Company effective May 15,
1995.
(5) Mr. Mahoney began his employment with the Company in July 1994.
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<PAGE> 53
STOCK OPTION GRANTS
The following table sets forth information regarding grants of options to
purchase shares of Common Stock made by the Company during the year ended
December 31, 1995 to each Named Executive. No SARs were granted to these
individuals during 1995.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) 1995(1) ($/SHARE)(2) DATE (5%) (10%)
- ---------------------- ---------- ------------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Martin Varsavsky...... -- -- -- -- -- --
Alan L. Levy.......... -- -- -- -- -- --
Ardean Cary........... -- -- -- -- -- --
Michael J. Mahoney.... 23,333(4) 13.4% $ 5.85 01/01/2005 $85,844 $217,546
</TABLE>
- ---------------
(1) The Company granted options to purchase a total of 174,333 shares of Common
Stock in 1995.
(2) The exercise price was equal to the fair market value of the shares of
Common Stock underlying the options on the grant date as determined by the
Board of Directors.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5.0% and 10.0%) on
the Common Stock over the term of the options. These assumptions are based
on rules promulgated by the Commission and do not reflect the Company's
estimate of future stock price appreciation. Actual gains, if any, on the
stock option exercises and Common Stock holdings are dependent on the
timing of such exercises and the future performance of the Common Stock.
There can be no assurance that the rates of appreciation assumed in this
table can be achieved or that the amounts reflected will be received by the
option holder.
(4) In the event of certain Corporate Transactions (as defined herein), all
unvested stock options become exercisable, unless assumed by the successor
corporation or its parent company. See "-- Stock Incentive Plan."
Since January 1, 1996, the Company has granted, pursuant to the terms of
the Stock Incentive Plan, options to purchase an aggregate of 782,293 shares of
Common Stock exercisable at a price of $5.85 per share. Current executive
officers to whom options have been granted during 1996 are as follows: Michael
J. Mahoney, 213,333 options; Allan L. Shaw, 43,333 options; Morten
Steen-Jorgensen, 66,667 options; Lawrence G. Malone, 33,333; Mark St. J.
Courtney, 20,000 options; Paolo Di Fraia, 20,000 options; and Sheldon M.
Goldman, 20,000 options. Of the 213,333 options granted to Mr. Mahoney in 1996,
133,333 are performance-based options of which up to 44,443 options may vest
during 1996 if specified operational objectives are achieved by the Company and
44,445 options may vest in each of 1997 and 1998 if certain objective criteria
established by the Compensation Committee in January of each such year are
achieved. In addition, Mr. Mahoney's unvested performance options become
exercisable upon any financing in a percentage equal to the percentage that the
equity securities issued by the Company in such financing represents of the
total number of equity securities of the Company outstanding, determined
immediately after the issuance of such equity securities on a fully diluted
basis.
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<PAGE> 54
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information regarding the exercise of stock
options during fiscal 1995 and the number and year-end value of unexercised
options held at December 31, 1995, by each of the Named Executives. No stock
options or SARs were exercised by the Named Executives during fiscal 1995.
AGGREGATE OPTION EXERCISES IN FISCAL 1995
AND FISCAL 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED "IN-THE-MONEY"
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ------------------------------------------ ------------------------- ----------------------------
<S> <C> <C>
Martin Varsavsky.......................... 0/0 $0/$0
Alan L. Levy.............................. 30,669/18,149 71,284/38,384
Ardean Cary............................... 13,611/0 28,788/0
Michael J. Mahoney........................ 20,740/25,927 26,046/23,304
</TABLE>
- ---------------
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between $5.85 per share, the fair market value of
the Common Stock issuable upon exercise of options at December 31, 1995 (as
determined by the Board of Directors), and the exercise price of the option,
multiplied by the applicable number of options.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has executed new employment agreements with each of Messrs.
Varsavsky and Mahoney, which become effective upon consummation of the
Offerings, pursuant to which Mr. Varsavsky has agreed to continue to serve as
Chairman and Chief Executive Officer and Mr. Mahoney has agreed to continue to
serve as President and Chief Operating Officer of the Company until the third
anniversary of the consummation of the Offerings (one week after the third
anniversary in the case of Mr. Mahoney), unless earlier terminated in accordance
with the terms of their respective employment agreement. The annual base salary
under such agreements will be reviewed annually but cannot be less than $350,000
for Mr. Varsavsky and $200,000 for Mr. Mahoney (in each instance as adjusted for
inflation). In addition, each employment agreement also provides for an annual
cash bonus payment equal to the executive's base salary multiplied by a bonus
multiple ranging from 0.6 to 1.9 determined based upon a comparison of actual
versus projected EBITDA and revenue figures. Each employment agreement also
provides that the respective executive will be entitled to receive annual grants
of stock options or restricted stock in amounts to be determined by the Board of
Directors in its sole and absolute discretion. Mr. Mahoney will also be granted
options to acquire 80,000 shares of Common Stock, at an exercise price equal to
the public offering price specified on the cover page of this Prospectus. Such
options will vest over a four-year period.
Mr. Varsavsky's employment agreement also provides that upon certain
terminations of employment (including certain terminations following a Change in
Control, as defined in the agreement), the Company will be obligated to pay Mr.
Varsavsky an amount equal to the Severance Amount (as defined in the agreement).
Mr. Mahoney's agreement provides that following a Change in Control, the Company
will be obligated to pay him an amount equal to the Severance Amount (as defined
in the agreement) if he chooses to terminate his employment. Each of Messrs.
Varsavsky's and Mahoney's employment agreement also include a prohibition on the
solicitation of employees and a non-competition covenant.
51
<PAGE> 55
In each of Messrs. Varsavsky's and Mahoney's employment agreements,"Change
in Control" is defined to mean such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), becomes the ultimate "beneficial owner"
(as defined in Rule 13d-3 of the Exchange Act) of more than 50% of the total
voting power of the then outstanding voting stock of the Company on a fully
diluted basis or (ii) individuals who at the beginning of any period of two
consecutive calendar years constituted the Board (together with any new
directors whose election by the Board or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board then still in office who either were members of the Board
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of the Board then in office.
The Company will also be entering into an expatriate agreement with Mr.
Varsavsky pursuant to which the Company will agree to provide him with certain
benefits including (i) a tax equalization payment, (ii) a housing allowance,
(iii) a cost of living allowance, (iv) a club membership, (v) tuition
reimbursement for his children (if prior board approval is obtained) and (vi)
the use of a Company car and an allowance for car maintenance and insurance
coverage.
The Company has entered into a severance agreement, dated July 30, 1996,
with Alan L. Levy, the Company's former Executive Vice President, Legal and
Finance, pursuant to which the Company agreed (i) to make semi-monthly payments,
in the amount of $6,875, to Mr. Levy through January 15, 1997 and a lump sum
payment to him, in the amount of $89,375, on January 31, 1997, in each instance
for consulting services, (ii) to accelerate the vesting of approximately 11,133
restricted shares of Common Stock and options to purchase approximately 6,467
shares of Common Stock so that Mr. Levy would be fully vested in options to
purchase 48,817 shares of Common Stock at an average exercise price of $3.60 per
share and 53,334 shares of Common Stock, each granted pursuant to the Stock
Incentive Plan, and (iii) to file an S-8 Registration Statement covering such
shares of restricted stock and the shares of Common Stock underlying such
options no later than October 31, 1996. In exchange for the foregoing, Mr. Levy
agreed to certain provisions, including non-solicitation and confidentiality
covenants.
STOCK INCENTIVE PLAN
The Company has adopted the 1993 Flexible Stock Incentive Plan (the "Stock
Incentive Plan") under which "non-qualified" stock options ("NQSOs") to acquire
shares of Common Stock may be granted to employees, directors and consultants of
the Company and "incentive" stock options ("ISOs") to acquire shares of Common
Stock may be granted to employees, including employee-directors. The Stock
Incentive Plan also provides for the grant of SARs and shares of restricted
stock to the Company's employees, directors and consultants.
The Stock Incentive Plan provides for the issuance of up to a maximum of
1,833,333 shares of Common Stock and is currently administered by the Board of
Directors. Under the Stock Incentive Plan, the option price of any ISO may not
be less than the fair market value of a share of Common Stock on the date on
which the option is granted. The option price of an NQSO may be less than the
fair market value on the date the NQSO is granted if the Board of Directors so
determines. An ISO may not be granted to a "ten percent stockholder" (as such
term is defined in Section 422A of the Code) unless the exercise price is at
least 110.0% of the fair market value of the Common Stock and the term of the
option may not exceed five years from the date of grant. Each option granted
pursuant to the Stock Incentive Plan is evidenced by a written agreement
executed by the Company and the grantee, which contains the terms, provisions
and conditions of the grant. Stock options may not be assigned or transferred
during the lifetime of the holder except as may be required by law or pursuant
to a qualified domestic relations order. Common Stock subject to a restricted
stock purchase or bonus agreement is transferable only as provided in such
agreement. The maximum term of each stock option granted to persons other than
ten percent stockholders is ten years from the date of grant.
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<PAGE> 56
For options to qualify as ISOs, the aggregate fair market value, determined
on the date of grant, of the shares with respect to which the ISOs are
exercisable for the first time by the grantee during any calendar year may not
exceed $100,000. Payment by option holders upon exercise of an option may be
made in cash or, with the consent of the Board of Directors, in whole or in
part, (i) with shares of Common Stock, (ii) by irrevocable direction to an
approved securities broker to sell shares and deliver all or a portion of the
proceeds to the Company, (iii) by delivery of a promissory note with such
provisions as the Board of Directors determines appropriate or (iv) in any
combination of the foregoing. In addition, the Board of Directors, in its sole
discretion, may authorize the surrender by an optionee of all or part of an
unexercised stock option and authorize a payment in consideration thereof of an
amount equal to the difference between the aggregate fair market value of the
shares of Common Stock subject to such stock option and the aggregate option
price per share of such Common Stock. In the Board of Directors' discretion,
such payment may be made in cash, shares of Common Stock with a fair market
value on the date of surrender equal to the payment amount or some combination
thereof.
The Stock Incentive Plan provides that outstanding options, restricted
shares of Common Stock or SARs vest in their entirety and become exercisable, or
with respect to restricted stock, are released from restrictions on transfer and
repurchase rights, in the event of a "Corporate Transaction." For purposes of
the Stock Incentive Plan, a Corporate Transaction includes any of the following
stockholder-approved transactions to which the Company is a party: (i) a merger
or consolidation in which the Company is not the surviving entity, other than a
transaction the principal purpose of which is to change the state of the
Company's incorporation, or a transaction in which the Company's stockholders
immediately prior to such merger or consolidation hold (by virtue of securities
received in exchange for their shares in the Company) securities of the
surviving entity representing more than 50.0% of the total voting power of such
entity immediately after such transaction; (ii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company unless the
Company's stockholders immediately prior to such sale, transfer or other
disposition hold (by virtue of securities received in exchange for their shares
in the Company) securities of the purchaser or other transferee representing
more than 50.0% of the total voting power of such entity immediately after such
transaction; or (iii) any reverse merger in which the Company is the surviving
entity but in which the Company's stockholders immediately prior to such merger
do not hold (by virtue of their shares in the Company held immediately prior to
such transaction) securities of the Company representing more than 50.0% of the
total voting power of the Company immediately after such transaction. As of
October 1, 1996, options to purchase 1,075,511 shares of Common Stock were
outstanding under the Stock Incentive Plan at exercise prices ranging from $.75
to $5.85 per share.
Promptly after the completion of the Offerings, the Company intends to file
with the Commission a Registration Statement on Form S-8 covering the restricted
shares of Common Stock and the shares of Common Stock underlying options granted
under the Stock Incentive Plan. This registration statement will become
effective immediately upon filing with the Commission. See "Shares Eligible for
Future Sale."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors did not have a Compensation Committee prior to the
establishment of one in January 1996. As a result, the entire Board of
Directors, including Messrs. Varsavsky, Levy and Mahoney, made all
determinations concerning compensation of executive officers. The current
members of the Compensation Committee are Messrs. Mahoney, Peet and Pizzani.
None of the executive officers of the Company currently serves on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing functions similar to the Compensation
Committee. No interlocking relationships exist between the Company's Board of
Directors or its Compensation Committee and the board of directors or
compensation committee of any other company.
Shareholders Agreements. S-C V-Tel and Mr. Varsavsky are parties to a
shareholders' agreement (the "S-C V-Tel Shareholders Agreement") pursuant to
which S-C V-Tel has certain rights relating to the appointment of one member of
the Board of Directors, a member of the Board of Directors' Executive Committee,
if any such committee is established, and the agreement of Mr. Varsavsky to
cause the Board
53
<PAGE> 57
of Directors not to take any Major Action (as defined therein) without the
consent of S-C V-Tel. In addition, in certain instances, if Mr. Varsavsky and
Mr. Aisemberg propose to sell 20.0% or more of the aggregate number of shares of
Common Stock collectively owned by them, S-C V-Tel has the right to sell its
shares of Common Stock in such a transaction on a pro rata basis with Messrs.
Varsavsky and Aisemberg and certain of the Company's other stockholders,
including the holders of Class A Common Stock exercising participation rights,
for the same consideration per share and on the same terms as Mr. Varsavsky (the
"S-C V-Tel Tag-along Rights"). With the exception of the S-C V-Tel Tag-along
Rights, all of the other rights and obligations of the parties to the agreement
terminate upon consummation of the Offerings.
On April 5, 1994, Messrs. Varsavsky and Aisemberg and COMSAT entered into a
shareholders' agreement (as subsequently amended, the "COMSAT Shareholders
Agreement"), which contains similar terms to those contained in the S-C V-Tel
Shareholders Agreement, except with respect to COMSAT's rights regarding the
nomination of directors to the Company's Board of Directors and COMSAT's rights
regarding participation in sales of shares of Common Stock by Mr. Varsavsky.
Pursuant to the terms of the COMSAT Shareholders Agreement, so long as COMSAT
beneficially owns at least 10.0% (subject to certain adjustments) of the issued
and outstanding shares of Common Stock on a fully diluted basis, COMSAT is
entitled to representation on the Company's Board of Directors in proportion to
its percentage ownership of Common Stock, subject to a minimum of one seat, and
to designate one member of an Executive Committee of the Board of Directors, if
any such committee is established. In addition, in certain instances, if Mr.
Varsavsky proposes to sell 10.0% or more of the shares of Common Stock which he
owns, COMSAT has the right to sell its shares of Common Stock in such a
transaction on a pro rata basis with Mr. Varsavsky and certain of the Company's
other stockholders, including the holders of Class A Common Stock exercising
participation rights, for the same consideration per share and on the same terms
as Mr. Varsavsky (the "COMSAT Tag-along Rights"). COMSAT's right to
representation on the Board of Directors and the Executive Committee and the
COMSAT Tag-along Rights survive the completion of the Offerings.
Voting Agreement. S-C V-Tel and COMSAT are parties to a voting agreement
(the "Voting Agreement"), pursuant to which, at all times that either S-C V-Tel
or COMSAT is entitled to nominate directors to the Company's Board of Directors,
the other party is required to vote its respective shares of Common Stock in
favor of the first party's nominees. The Voting Agreement remains in effect
until the earlier of the dissolution of the Company or the date on which either
S-C V-Tel or COMSAT no longer owns any shares of Common Stock. See "Certain
Transactions -- S-C V-Tel Investments, L.P." and "Certain Transactions -- COMSAT
Investments, Inc." for a description of the registration rights held by each of
S-C V-Tel and COMSAT.
CERTAIN TRANSACTIONS
S-C V-TEL INVESTMENTS, L.P.
Pursuant to the terms of a stock purchase agreement, dated September 30,
1993 (as subsequently amended, the "S-C V-Tel Stock Purchase Agreement"), S-C
V-Tel purchased 1,695,532 shares of Common Stock on October 1, 1993 and 2,739
shares of Common Stock on December 15, 1993 for an aggregate purchase price of
$5 million (the "S-C V-Tel Shares"). In connection with the purchase of the S-C
V-Tel Shares, for consideration in the aggregate amount of $1,000, S-C V-Tel
acquired certain warrants to purchase shares of Common Stock. Such warrants
expired on October 15, 1995.
The terms of the S-C V-Tel Stock Purchase Agreement provide that, among
other things, after six months from the effective date of the Registration
Statement of which this Prospectus forms a part, S-C V-Tel has the right to
demand registration under the Securities Act of the S-C V-Tel Shares. Such
demand right must be exercised for at least 30.0%, and no more than 70.0%, of
the S-C V-Tel Shares then owned by S-C V-Tel. No earlier than six months after
the effective date of its first demand registration, S-C V-Tel may request a
second demand registration for any remaining S-C V-Tel Shares. The expenses of
such
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<PAGE> 58
demand registrations, excluding any underwriter's commissions and discounts
relating to the sale of the S-C V-Tel Shares, will be paid by the Company. In
addition, if the Company proposes to register any of its securities under the
Securities Act at any time after the effectiveness of the Registration Statement
of which this Prospectus forms a part, S-C V-Tel will have the right, on up to
four occasions, to include in such registration a maximum of 33 1/3% of the S-C
V-Tel Shares it then owns. The expenses of any such "piggy-back" registration,
excluding any underwriter's commissions and discounts relating to the sale of
the S-C V-Tel Shares and the fees and disbursements of S-C V-Tel's legal
counsel, will be paid by the Company.
As of June 30, 1996, S-C V-Tel is entitled to sell or transfer any of the
S-C V-Tel Shares, without the consent of the Company, provided that the
transferee is not in competition with, or does not otherwise have interests
adverse to, the Company.
Prior to an initial public offering or sale of all or substantially all of
the assets of the Company or a merger in which the Company is not the surviving
entity, S-C V-Tel has certain rights of first offer on proposed private
offerings of securities by either the Company or any of its subsidiaries and has
certain rights to invest, together with COMSAT, in any joint venture proposed by
the Company. S-C V-Tel also has the right to request that the Company sell all
or substantially all of its assets or merge into another person or entity or
effect an initial public offering, if the Company has not consummated an initial
public offering or sale or merger of the Company on or prior to June 30, 1997.
Such rights of S-C V-Tel will terminate upon the effective date of the
Registration Statement of which this Prospectus forms a part. See
"Management -- Compensation Committee Interlocks and Insider
Participation -- Shareholders Agreements" for a description of certain voting
rights held by S-C V-Tel.
COMSAT INVESTMENTS, INC.
Pursuant to the terms of a stock purchase agreement, dated April 5, 1994
(as subsequently amended, the "COMSAT Purchase Agreement"), COMSAT purchased
2,140,539 shares of Common Stock for a purchase price of $8.0 million (the
"COMSAT Shares"). In connection with the purchase of the COMSAT Shares, for
consideration in the aggregate amount of $1,000, COMSAT acquired certain
warrants to purchase shares of Common Stock. Such warrants expired on October
15, 1995.
Pursuant to the terms of the COMSAT Purchase Agreement, COMSAT has been
granted the same demand and piggyback registration rights as S-C V-Tel. The
COMSAT Purchase Agreement further provides that COMSAT may not transfer any
COMSAT Shares to any transferee without first offering such shares to the
Company if, following such transfer, such transferee would own 20.0% or more of
the then outstanding shares of Common Stock. In addition, COMSAT has agreed that
it will not acquire more than 30.0% of the shares of Common Stock outstanding at
any time except in certain circumstances relating to changes in the percentage
of the outstanding Common Stock owned by Mr. Varsavsky. Such 30.0% limitation
does not apply to shares of Common Stock acquired by COMSAT pursuant to any
exercise of its right of first offer with respect to private offerings of
securities by the Company.
Prior to an initial public offering or sale of all or substantially all of
the assets of the Company or a merger in which the Company is not the surviving
entity, COMSAT has certain rights of first offer on proposed private offerings
of securities by either the Company or any of its subsidiaries and certain
rights of first offer if S-C V-Tel demands a sale of the Company. Such rights of
COMSAT will terminate upon the effective date of the Registration Statement of
which this Prospectus forms a part. In addition, prior to the sale of all or
substantially all of the assets of the Company or the consolidation or merger of
the Company with any person in which the Company is not the surviving entity,
COMSAT has certain rights to invest in any joint venture proposed by the
Company. This right of COMSAT does not terminate upon the effective date of the
Registration Statement of which this Prospectus forms a part. See "Management --
Compensation Committee Interlocks and Insider Participation -- Shareholders
Agreements" for a description of certain voting rights held by COMSAT.
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of October 1, 1996, before and after
giving effect to the Offerings, by (i) each person known by the Company to own
beneficially 5.0% or more of the Company's outstanding shares of Common Stock,
(ii) each director of the Company, (iii) each of the Named Executives, and (iv)
all current executive officers and directors of the Company, as a group. All
information with respect to beneficial ownership has been furnished to the
Company by the respective stockholders of the Company.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERINGS(1) OFFERINGS(1)(2)
------------------------------- -------------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ----------------------------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Martin Varsavsky(3)
Parque Empresarial Edificio
2,
c/o Beatriz De Bobadilla
14,5o Ofic. B
Madrid, Spain................ 5,026,667 36.7% 5,026,667 22.5%
COMSAT Investments, Inc.
6560 Rock Spring Drive
Bethesda, MD 20817........... 2,140,539(4) 15.6 2,140,539(4) 9.6
S-C V-Tel Investments, L.P.
888 Seventh Avenue
New York, NY 10106........... 1,698,271(4) 12.4 1,698,271 7.6
Juan Manuel Aisemberg(3)
Callao 1801, Buenos Aires,
Argentina 1024............... 926,073 6.8 926,073 4.1
Michael J. Mahoney........... 90,554(5) * 131,620(5) *
Alan L. Levy................. 102,151(6) * 102,151(6) *
Ardean Cary.................. 13,611(7) * 13,611(7) *
Allan L. Shaw................ 8,889(7) * 8,889(7) *
Antonio Carro................ -- -- -- --
W. James Peet................ -- -- -- --
Paul G. Pizzani.............. -- -- -- --
All directors and executive
officers as a group (11
persons)................... 5,144,814 37.3 5,185,880 23.0
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1.0% of the outstanding shares
of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares of Common Stock beneficially
owned by a person and the percentage ownership of that person, shares of
Common Stock subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of October 1, 1996 are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purposes of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, each stockholder named
in the table has sole voting and investment power with respect to the
shares set forth opposite such stockholder's name.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Messrs. Varsavsky and Aisemberg are related by marriage.
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<PAGE> 60
(4) Does not include 7,651,001 and 7,167,206 shares of Common Stock,
respectively, which COMSAT and S-C V-Tel may be deemed to beneficially own
as a result of certain voting arrangements contained in the Voting
Agreement, the COMSAT Shareholders Agreement and the S-C V-Tel Shareholders
Agreement. See "Management -- Compensation Committee Interlocks and Insider
Participation -- Voting Agreement" and "Management -- Compensation
Committee Interlocks and Insider Participation -- Shareholders Agreements."
(5) Includes vested and exercisable options to purchase 57,221 shares of Common
Stock which options were granted pursuant to the Stock Incentive Plan. Upon
completion of the Offerings, options to purchase an additional 41,066
shares will vest and become exercisable. See "Management -- Stock Option
Grants."
(6) Includes vested and exercisable options to purchase 48,817 shares of Common
Stock which options were granted pursuant to the Stock Incentive Plan.
(7) Represents vested and exercisable options to purchase shares of Common
Stock which options were granted pursuant to the Stock Incentive Plan.
57
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
GENERAL
Effective upon completion of the Offerings, the Company's authorized
capital stock will consist of (i) 50.0 million shares of Common Stock, par value
$.01 per share (the "Common Stock"), and (ii) 1.0 million shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of which 22,374,648
shares of Common Stock and no shares of Preferred Stock will be issued and
outstanding. As of October 1, 1996, there were 25 holders of record of
10,802,801 outstanding shares of Common Stock and two holders of record of
2,904,847 outstanding shares of Class A Common Stock.
The statements under this caption are brief summaries of certain material
provisions of the Certificate of Incorporation, as amended, the Bylaws, the
Indenture and a Registration Rights Agreement, dated December 15, 1994, among
the Company, Messrs. Varsavsky and Aisemberg (the "Founding Shareholders") and
Morgan Stanley & Co. Incorporated (the "Registration Rights Agreement"), each of
which are incorporated by reference as exhibits to the Registration Statement of
which this Prospectus is a part. Such summaries do not purport to be complete,
and are subject to, and are qualified in their entirety by reference to, such
documents.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters on which the holders of Common Stock are entitled to vote and do not
have any cumulative voting rights. This means that the holders of more than
50.0% of the shares voting for the election of directors can elect all of the
directors if they choose to do so; in such event, the holders of the remaining
shares of Common Stock will not be able to elect any person to the Board of
Directors. Subject to the rights of the holders of shares of any series of
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may from time to time be declared by the Board of Directors of the
Company out of funds legally available therefor. See "Dividend Policy." Holders
of shares of Common Stock have no preemptive, conversion, redemption,
subscription or similar rights. In the event of a liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, holders of shares
of Common Stock are entitled to share ratably in the assets of the Company which
are legally available for distribution, if any, remaining after the payment or
provision for the payment of all debts and other liabilities of the Company and
the payment and setting aside for payment of any preferential amount due to the
holders of shares of any series of Preferred Stock. All outstanding shares of
Common Stock are, and all shares of Common Stock offered hereby when issued will
be, upon payment therefor, validly issued, fully-paid and nonassessable.
Delaware law does not require stockholder approval for any issuance of
authorized shares of Common Stock. Such authorized and unissued shares may be
used for a variety of corporate purposes, including future public offerings to
raise additional capital or to facilitate corporate acquisitions. One of the
effects of the existence of unissued and unreserved Common Stock may be to
enable the Board of Directors to issue shares to persons friendly to current
management, which issuance could render more difficult or discourage an attempt
to obtain control of the Company by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of the Company's
current management and possibly deprive the stockholders of opportunities to
sell their shares of Common Stock at prices higher than prevailing market
prices.
At present there is no established trading market for the Common Stock. The
shares of Common Stock have been approved for quotation on the Nasdaq National
Market under the proposed symbol "VYTL," subject to official notice of issuance.
PREFERRED STOCK
Prior to completion of the Offerings, the Certificate of Incorporation, as
amended, of the Company will be amended and restated to authorize the Board of
Directors of the Company to issue from time to time up to one million shares of
Preferred Stock in one or more series and to fix the rights, designations,
58
<PAGE> 62
preferences, qualifications, limitations and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series, without any further action by the stockholders of the
Company. The issuance of Preferred Stock with voting rights could have an
adverse affect on the voting power of holders of Common Stock by increasing the
number of outstanding shares having voting rights. In addition, if the Board of
Directors authorizes Preferred Stock with conversion rights, the number of
shares of Common Stock outstanding could potentially be increased up to the
authorized amount. The issuance of Preferred Stock could decrease the amount of
earnings and assets available for distribution to holders of Common Stock. Any
such issuance could also have the effect of delaying, deterring or preventing a
change in control of the Company and may adversely affect the rights of holders
of Common Stock. The Board of Directors does not presently intend to issue any
shares of Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BYLAWS AND
INDENTURE
The Company's Certificate of Incorporation, as amended, provides that no
director of the Company shall be liable to the Company or its stockholders for
monetary damages for breach of his fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of these provisions is to eliminate the rights of the
Company and its stockholders (through stockholders' derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of
fiduciary duty as a director (including breaches resulting from grossly
negligent behavior), except in the situations described above.
The Company's Bylaws require the Company to indemnify any legal
representative, director or officer of the Company or any person who is or was
serving at the request of the Company as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, to the
fullest extent authorized by the DGCL. The Company has obtained officers' and
directors' liability insurance of $10 million for members of its Board of
Directors and executive officers. In addition to the indemnification provided in
the Company's Certificate of Incorporation, as amended, and Bylaws, the Company
has entered into agreements to indemnify its directors and officers from and
against any Expenses (as defined in the indemnity agreement) incurred by such
person in connection with investigating, defending, serving as a witness in,
participating in (including on appeal), or preparing for any of the foregoing in
any threatened, pending or contemplated action, suit, or proceeding (including
an action by or in the right of the Company), or any inquiry, hearing or
investigation, to the fullest extent permitted by law, as such law may be
amended or interpreted (but only to the extent that such amendment or
interpretation provides for broader indemnification rights). The indemnity
agreement contains certain provisions to ensure that the indemnitee receives the
benefits contemplated by the indemnity agreement in the event of a "change in
control" (as defined in the indemnity agreement) such as the establishment and
funding of a trust in an amount sufficient to satisfy any and all expenses
reasonably anticipated to be incurred by the indemnitee in connection with
investigating, preparing for, participating in and/or defending a proceeding.
Prior to completion of the Offerings, the Company's Certificate of
Incorporation, as amended, and Bylaws will be amended and restated to include
certain provisions which are intended to enhance the likelihood of continuity
and stability in the composition of the Company's Board of Directors and which
may have the effect of delaying, deterring or preventing a future takeover or
change in control of the Company unless such takeover or change in control is
approved by the Company's Board of Directors. Such provisions may also render
the removal of directors and management more difficult.
The Certificate of Incorporation, as amended and restated, will provide
that the Company's Board of Directors will be divided as equally as possible
into three classes serving staggered, three-year terms. The Company's Bylaws
will be amended to establish advance notice procedures with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as
59
<PAGE> 63
directors and with regard to certain matters to be brought before an annual
meeting of stockholders of the Company. In general, notice must be received by
the Company not less than 120 days prior to the meeting and must contain certain
specified information concerning the person to be nominated or the matter to be
brought before the meeting and concerning the stockholder submitting the
proposal.
The Indenture provides that upon the occurrence of a "Change of Control"
(as defined in the Indenture), the Company will be required to make a Change of
Control Offer (as defined in the Indenture) to purchase all of the Notes issued
and then outstanding under the Indenture at a purchase price equal to 101.0% of
the accreted value thereof, plus accrued and unpaid interest thereon, if any, to
the date of purchase. Under the Indenture, a Change of Control is deemed to
occur when (i) a person or group, other than certain Existing Stockholders (as
defined in the Indenture), becomes the beneficial owner of more than 30.0% of
the total voting power of the then outstanding voting stock of the Company on a
fully diluted basis and such ownership is greater than the amount of voting
stock on a fully diluted basis held by the Existing Stockholders on such date or
(ii) individuals who at the beginning of any period of two consecutive calendar
years constituted the Board of Directors (together with any new directors whose
election to the Board of Directors or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors then still in office who either were members
of the Board of Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in office;
provided, however, that in the case of clause (i) above, a Change of Control
will not be deemed to have occurred if a group becomes the ultimate beneficial
owner of more than 30.0% of the total voting power of the then outstanding
voting stock of the Company on a fully diluted basis so long as a majority of
the voting power of the voting stock of the Company beneficially owned by such
group is beneficially owned by the Existing Stockholders.
DELAWARE ANTI-TAKEOVER LAW
As a Delaware corporation, the Company is subject to the DGCL, including
Section 203. Section 203 of the DGCL prohibits certain transactions between a
Delaware corporation and an "interested stockholder," which is defined as a
person who, together with any affiliates or associates of such person,
beneficially owns, directly or indirectly, 15.0% or more of the outstanding
voting shares of a Delaware corporation. This provision prohibits certain
business combinations (defined broadly to include mergers, consolidations, sales
or other dispositions of assets having an aggregate value in excess of 10.0% of
the consolidated assets of the corporation, and certain transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation) between an interested stockholder and a corporation for a period of
three years after the date the interested stockholder becomes an interested
stockholder, unless (i) prior to the date the interested stockholder becomes an
interested stockholder, the business combination or the transaction by which the
stockholder becomes an interested stockholder is approved by the corporation's
board of directors, (ii) upon consummation of the transaction which resulted in
the stockholder becoming an interested stockholder, such stockholder held at
least 85.0% of the voting stock of the corporation outstanding at the time the
transaction commenced (other than stock held by directors who are also officers
or by certain employee stock plans) or (iii) the business combination is
approved by a majority of the board of directors, and at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
RIGHTS AND OBLIGATIONS TO SELL
Pursuant to the terms of the Registration Rights Agreement, in the event
that, prior to the earlier of the third anniversary of the closing of the Unit
Offering (December 21, 1997) and the effective date of an initial public
offering of the Common Stock, either or both of the Founding Shareholders, in
one or more related transactions, sell 20.0% or more of the aggregate number of
shares of Common Stock beneficially owned by them to any "person" or "group"
(within the meaning of Section 13(d) or 14(d)(2) of the Exchange Act), Holders
(as defined in the Registration Rights Agreement) will have the right to sell a
percentage, equal to the percentage of beneficially owned shares of Common Stock
sold by the
60
<PAGE> 64
Founding Shareholders, of their shares of Class A Common Stock, of shares issued
as a dividend with respect to, in exchange for, or as a replacement of the Class
A Common Stock or any securities received by Holders in exchange for their
shares of Class A Common Stock (the "Registrable Securities") to such person or
group on the same terms and conditions as the Founding Shareholders. In the
event that, prior to the earlier of the third anniversary of the closing of the
Unit Offering (December 21, 1997) and the effective date of an initial public
offering of the Common Stock, each of the Founding Shareholders sells all of the
shares of Common Stock beneficially owned by them (in a bona fide third party
transaction) to any "person" or "group" (within the meaning of Section 13(d) or
14(d)(2) of the Exchange Act), the Founding Shareholders may require Holders of
Registrable Securities to sell all of their shares of Registrable Securities to
such "person" or "group," on the same terms and conditions as the Founding
Shareholders; provided that such Holders shall not be required to sell their
shares of Registrable Securities unless such Holders shall receive, in
consideration therefor, cash (in U.S. Dollars) or securities traded on a
nationally recognized stock exchange or automated quotation system in the United
States. In the event of any merger, acquisition or consolidation of the Company
in which Holders receive any unregistered security of any entity in exchange for
their Registrable Securities, the rights referred to in the immediately
preceding sentence remain in effect, except that such rights relate to such
securities of such entity that are received by such Holders of Registrable
Securities. The Founding Shareholders are required to give Holders of the shares
of Registrable Securities specified notice of any sale by the Founding
Shareholders contemplated by this paragraph.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement, the Company is required,
subject to certain limitations and upon the written request of the Holders of
Registrable Securities, together with any holders of Common Stock, representing
in the aggregate at least 15.0% or more of the outstanding Common Stock, to file
and use its best efforts to cause to become effective under the Securities Act a
registration statement with respect to resales of such shares of Common Stock.
The Holders of Registrable Securities may make such a request at any time or
from time to time (unless a registration statement by the Company has been
declared effective during the preceding 180 days) 180 days after the Company
completes an initial public offering of Common Stock; provided that in no event
may the Holders of Registrable Securities make more than three such requests. If
specified by the Holders of the Registrable Securities to be registered, the
Company shall cause to be filed a shelf registration statement and shall use its
best efforts to keep such shelf registration statement continuously effective
for up to one year. In addition, after a public offering of shares of Common
Stock by the Company, Holders of the Registrable Securities are entitled,
subject to certain limitations, to include their Registrable Securities in a
registration of shares of Common Stock initiated by the Company or other selling
stockholders. In the event the aggregate number of Registrable Securities which
the Holders request the Company to include in any such registration, together
with the shares of Common Stock to be sold by the Company and by any selling
stockholders participating in such registration, exceeds the number of shares
which, in the opinion of the managing underwriter, can be sold in such offering
without materially affecting the offering price of such shares, the number of
Registrable Securities of each such Holder and the shares of Common Stock held
by such selling stockholders to be included in such registration will be reduced
pro rata based on the aggregate number of shares of Common Stock owned by such
Holders.
Holders of Registrable Securities are required, to the extent they do not
participate in an initial public offering, not to transfer their Registrable
Securities for a period of 180 days following such initial public offering. The
Company is also obligated to cause the Registrable Securities to be listed on a
recognized securities exchange as soon as practicable after the third
anniversary of the closing of the Unit Offering (December 21, 1997).
The Registration Rights Agreement contains customary provisions whereby the
Company and the Holders of Registrable Securities indemnify and agree to
contribute to the other with regard to losses caused by the misstatement of any
information required to be provided in a registration statement filed under the
Securities Act. The Registration Rights Agreement requires the Company to pay
all Registration
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<PAGE> 65
Expenses (as defined in the agreement) associated with any registration.
Registration Expenses do not include underwriting discounts and commissions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The Bank of New
York, 101 Barclay Street, 12W, New York, New York 10286.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has been no public market for the Common
Stock. Sales of a substantial amount of Common Stock in the public market, or
the perception that such sales may occur, could adversely affect the market
price of the Common Stock prevailing from time to time in the public market and
could impair the Company's ability to raise additional capital through the sale
of its equity securities in the future.
Upon completion of the Offerings, the Company will have approximately
22,374,648 shares of Common Stock outstanding (23,674,698 if the Underwriters'
over-allotment option is exercised in full), including 8,667,000 shares of
Common Stock sold in the Offerings (9,967,050 if the Underwriters' over-
allotment option is exercised in full) and 13,120,874 "restricted" shares of
Common Stock. Of the restricted shares held by persons other than "affiliates"
of the Company within the meaning of Rule 144, 337,811 shares of Common Stock
are currently eligible for sale under Rule 144, as currently in effect, and an
additional 2,904,847 shares of Common Stock will be eligible for sale under Rule
144, as currently in effect, beginning in December 1996.
The shares of Common Stock offered in the Offerings will be freely
tradeable without restriction or further registration under the Securities Act
by persons other than "affiliates" of the Company within the meaning of Rule
144. The holders of restricted shares generally will be entitled to sell these
shares in the public securities market without registration under the Securities
Act to the extent permitted by Rule 144 or any exemption under the Securities
Act.
In general, under Rule 144, as currently in effect, if two years have
elapsed since the later of the date of acquisition of restricted shares from the
Company or any "affiliate" of the Company, the holder is entitled to sell within
any three-month period such number of shares of Common Stock that does not
exceed the greater of 1.0% of the then outstanding shares of Common Stock or the
average weekly trading volume of shares of Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain restrictions on the
manner of sale, notice requirements and the availability of current public
information about the Company. If three years have elapsed since the holder
acquired the restricted shares from the Company or from any "affiliate" of the
Company, and the holder is deemed not to have been an affiliate of the Company
at any time during the 90 days preceding a sale, such person will be entitled to
sell such Common Stock in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, public information
requirements or notice requirements. The Commission has proposed an amendment to
Rule 144 to shorten each of the two and three year holding periods by one year.
This proposal, if adopted, would increase the number of shares of Common Stock
eligible for immediate sale following the expiration of the "lock-up period"
described below.
The Company and each of its directors and executive officers and certain
other stockholders have entered into "lock-up" agreements with the Underwriters,
providing that, subject to certain exceptions, they will not, for a period of
180 days from the date of this Prospectus, without the prior written consent of
Salomon Brothers Inc, offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offering of, any shares of Common Stock
or any securities convertible into, or exchangeable for, shares of Common Stock,
provided that the Company may issue and sell shares of Common Stock pursuant to
the Stock Incentive Plan. See "Underwriting."
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<PAGE> 66
Promptly after completion of the Offerings, the Company intends to file
with the Commission a Registration Statement on Form S-8, covering the
restricted shares of Common Stock and the shares of Common Stock underlying
options granted under the Stock Incentive Plan. This registration statement will
become effective immediately upon filing with the Commission. As a result, the
shares of Common Stock so registered and acquired pursuant to the Stock
Incentive Plan will be available for sale by non-affiliates in the public
securities market without limitation and by affiliates, subject to the volume
limitations of Rule 144.
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<PAGE> 67
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company and the U.S. Underwriters (the "U.S. Underwriting Agreement"),
the Company has agreed to sell to each of the U.S. Underwriters named below (the
"U.S. Underwriters"), and each of the U.S. Underwriters, for whom Salomon
Brothers Inc, CS First Boston Corporation and Lazard Freres & Co. LLC are acting
as the U.S. representatives (the "U.S. Representatives"), has severally agreed
to purchase from the Company the number of shares set forth opposite its name
below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
--------------------------------------------------------------- ----------
<S> <C>
Salomon Brothers Inc...........................................
CS First Boston Corporation....................................
Lazard Freres & Co. LLC........................................
----------
Total................................................ 5,200,200
=========
</TABLE>
The Company has been advised by the U.S. Representatives that the several
U.S. Underwriters initially propose to offer such shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share of Common Stock. The U.S. Underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share of
Common Stock to other dealers. After the Offerings, the public offering price
and such concessions may be changed.
The Company has granted to the U.S. Underwriters and the international
underwriters (the "International Underwriters" and, collectively with the U.S.
Underwriters, the "Underwriters") an option, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to 1,300,050 additional
shares of Common Stock from the Company at the price to public less the
underwriting discount, solely to cover over-allotments. To the extent that the
U.S. Underwriters and the International Underwriters exercise such option, each
of the U.S. Underwriters and the International Underwriters, as the case may be,
will be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such U.S. Underwriter's or International Underwriter's
initial commitment.
The Company has entered into an International Underwriting Agreement with
the International Underwriters named therein, for whom Salomon Brothers
International Limited, CS First Boston Limited and Lazard Capital Markets are
acting as the representatives (the "International Representatives," and together
with the U.S. Representatives, the "Representatives"), providing for the
concurrent offer and sale of 3,466,800 shares of Common Stock (in addition to
the shares covered by the over-allotment option described above) outside the
United States and Canada. Both the U.S. Underwriting Agreement and the
International Underwriting Agreement provide that the obligations of the U.S.
Underwriters and the International Underwriters are such that if any of the
shares of Common Stock are purchased by the U.S. Underwriters pursuant to the
U.S. Underwriting Agreement, or by the International Underwriters pursuant to
the International Underwriting Agreement, all the shares of Common Stock agreed
to be purchased by either the U.S. Underwriters or the International
Underwriters, as the case may be, pursuant to their respective agreements must
be so purchased. The price to public and underwriting discount per share of
Common Stock for the U.S. Offering and the International Offering will be
identical. The closing of the International Offering is a condition to the
closing of the U.S. Offering and the closing of the U.S. Offering is a condition
to the closing of the International Offering.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of the 5,200,200 shares of Common Stock offered by the U.S.
Underwriters, (i) it is not purchasing any shares of Common Stock for the
account of anyone other than a United States or Canadian Person and (ii) it has
not offered or
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<PAGE> 68
sold, and will not offer or sell, directly or indirectly, any shares of Common
Stock or distribute this Prospectus to any person outside the United States or
Canada or to anyone other than a United States or Canadian Person. Each
International Underwriter has severally agreed that, as part of the distribution
of the 3,466,800 shares of Common Stock by the International Underwriters, (i)
it is not purchasing any shares of Common Stock for the account of any United
States or Canadian Person, and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any shares of Common Stock or distribute
any Prospectus relating to the International Offering to any person within the
United States or Canada or to any United States or Canadian person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States" or "Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust which is subject to United States or Canadian federal income
taxation, regardless of the source of its income (other than the foreign branch
of any United States or Canadian Person), and includes any United States or
Canadian branch of a person other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed. The price of any shares of Common Stock so sold shall be the
public offering price, less an amount not greater than the concession to
securities dealers. To the extent that there are sales between the U.S.
Underwriters and the International Underwriters pursuant to the Agreement
Between U.S. Underwriters and International Underwriters, the number of shares
of Common Stock initially available for sale by the U.S. Underwriters or by the
International Underwriters may be more or less than the amount specified on the
cover page of this Prospectus.
Any offer of the shares of Common Stock in Canada will be made only
pursuant to an exemption from the registration and qualification requirements in
any jurisdiction in Canada in which such offer is made.
The U.S. Underwriting Agreement provides that the Company will indemnify
the U.S. Underwriters against certain liabilities and expenses, including
liabilities under the Securities Act, or contribute to payments the U.S.
Underwriters may be required to make in respect thereof.
The Company and each of its directors and executive officers and certain
other stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, or announce the offering of any shares of
Common Stock, including any such shares beneficially or indirectly owned or
controlled by the Company, or any securities convertible into, or exchangeable
or exercisable for, shares of Common Stock, for 180 days from the date of this
Prospectus, without the prior written consent of Salomon Brothers Inc, except
for (i) shares issued in connection with any employee benefit or incentive plans
of the Company existing on the date of this Prospectus, (ii) shares issued in
respect of obligations existing before the date of this Prospectus and (iii)
shares issued in connection with the Offerings.
The U.S. Representatives do not intend to confirm sales to any account over
which they exercise discretionary authority.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiation among the Company and the Representatives. The factors to be
considered in determining the initial public offering price include the
information set forth in this Prospectus and otherwise available to the
Representatives, the history of and future prospects for the industry in which
the Company competes, the ability of the Company's management, the general
conditions of the securities market at the time of the Offerings and the market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. There can be no
assurance that the price at which shares of Common Stock will sell in the public
market after the Offerings will not be lower than the price at which they are
sold in the Offerings by the Underwriters.
65
<PAGE> 69
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for the
Company by Kelley Drye & Warren LLP, New York, New York. Certain legal matters
in connection with the Offerings will be passed upon for the Underwriters by
Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the years in the three year period ended December
31, 1995 appearing herein and in the Registration Statement have been audited by
KPMG Peat Marwick LLP, independent Certified Public Accountants, as set forth in
their report appearing elsewhere herein and in the Registration Statement of
which this Prospectus forms a part and upon the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock being
sold in the Offerings. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedule thereto, certain portions
of which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits and
schedule filed as a part thereof. Statements contained in the Prospectus as to
the contents of any contract, agreement or other document referred to are brief
summaries of the material provisions thereof but are not necessarily complete,
and in each instance reference is made to the copy of such contract, agreement
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including exhibits and the schedule thereto, may be inspected without
charge at the Commission's principal office at 450 Fifth Street, N.W., Judiciary
Plaza, Room 1024, Washington, D.C. 20549 and at the following regional offices
of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, upon payment of fees
prescribed by the Commission.
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files periodic reports and other information
with the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. Copies of the reports and information so filed can be inspected without
charge at the public reference facility and regional offices referred to above.
Copies of such material can also be obtained from the Public Reference Section
of the Commission, upon payment of fees prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission. The address of the Commission's Web site is http://www.sec.gov.
66
<PAGE> 70
GLOSSARY
Callback -- A form of dial up access. Viatel offers callback services
utilizing "Code Calling" (a caller dials an Omaha, Nebraska telephone number
which uniquely identifies the caller), Internet Access or X.25 access. The
Company provides both "anywhere to anywhere" calling and virtual private network
calling via Callback access.
CLEC (competitive local exchange carrier) -- A company that provides its
customers with an alternative to the local exchange carrier for local transport
of private line and special access telecommunications services.
CUG (closed user group) -- A group of specified users of a voice or data
network that is assigned a facility that permits them to communicate with each
other, but precludes communications with other users of the service.
Dedicated access -- A means of accessing the Company's network through the
use of a permanent point to point circuit typically leased from the ITO. The
advantage of dedicated access is simplified premises to anywhere calling, faster
call setup times and potentially lower access costs (provided there is
sufficient traffic over the circuit to generate economies of scale).
Dedicated leased line -- Any circuit (typically supplied by and leased from
an ITO) designated to be at the exclusive disposal of a given subscriber.
Dial up access -- A form of service rendering whereby access to the Viatel
Network is obtained by means of dialing an ITF, NTF or paid local access number.
Currently, all of the Company's services except ViaCALL Plus are offered via
this access method.
Direct access -- Access to the Company's services using a dedicated leased
line from the customer's premises to the Company's switch.
Facilities-based carrier -- A carrier which owns long distance
interexchange and transmission facilities and originates and terminates calls
through local exchange systems.
IPLC (international private line circuit) -- A permanent international
point-to-point connection for voice and dial up data.
IRU -- Indefeasible right of user.
ISDN -- Integrated Services Digital Network.
ITF -- International toll-free (a form of dial up access).
ITO -- "Incumbent telecommunications operator" or "incumbent TO" previously
known as the Postal, Telephone and Telegraph company or PTT.
LCR (least cost routing) -- Routing of calls in the least expensive manner.
Local connectivity -- Physical circuits connecting the Company's switches
to the ITO.
Local exchange -- A geographic area determined by the appropriate
regulatory authority in which calls generally are transmitted without toll
charges to the calling or called party.
NTF -- National toll-free (a form of dial up access).
PLC (private line circuit) -- A permanent in-country point-to-point
connection for voice and dial up data.
POPs (points of presence) -- Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
calls to, a network switching center of that long distance carrier.
PSTN (public switched telephone network) -- An abbreviation used by the
ITU, PSTN refers to the local phone company.
G-1
<PAGE> 71
Private line -- A dedicated telecommunications connection between end user
locations.
Resale -- Resale by a provider of telecommunications services (such as a
local exchange carrier) of such services to other providers or carriers on a
wholesale or a retail basis.
Settlement agreement -- A method by which revenues are distributed between
international long distance telecommunications companies.
SNMP -- Simplified network management protocol, the defacto network
management standard for wide area voice and data networks.
SS7 (signaling system 7) -- The standard signaling protocol currently in
use.
Switch -- A device that opens or closes circuits or selects the paths or
circuits to be used for transmission of information. Switching is a process of
interconnecting circuits to form a transmission path between users.
Virtual private networks -- Carrier provided services which provide
capabilities similar to those of private lines, such as conditioning, error
testing, and higher speed, full-duplex, four wire transmission with a line
quality adequate for data.
Voice Telephony -- The commercial provision for the public of the direct
transport and switching of speech in real-time between public switched network
termination points, enabling any user to use equipment connected to such a
network termination point in order to communicate with another termination
point.
X.25 -- A form of packet switching (a system whereby messages are broken
down into smaller units called packets which are then individually addressed and
routed through the network). The Company uses X.25 packet switching as a means
of originating callback requests.
G-2
<PAGE> 72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994.......................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and
1993................................................................................ F-4
Consolidated Statements of Stockholders' (Deficit) Equity for the Years ended December
31, 1995, 1994 and 1993............................................................. F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 1995, 1994 and
1993................................................................................ F-6
Notes to Consolidated Financial Statements for the Years ended December 31, 1995, 1994
and 1993............................................................................ F-7
Consolidated Balance Sheet as of June 30, 1996 (Unaudited)............................ F-17
Consolidated Statements of Operations for the Three and Six Months ended June 30, 1996
and 1995 (Unaudited)................................................................ F-18
Consolidated Statements of Cash Flows for the Six Months ended June 30, 1996 and 1995
(Unaudited)......................................................................... F-19
Notes to Consolidated Financial Statements for the Three and Six Months ended June 30,
1996 and 1995 (Unaudited)........................................................... F-20
</TABLE>
F-1
<PAGE> 73
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Viatel, Inc. and Subsidiaries
We have audited the consolidated balance sheets of Viatel, Inc. and
Subsidiaries as of December 31, 1995 and 1994 and the consolidated statements of
operations, stockholders' (deficit) equity and cash flows for each of the years
in the three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Viatel, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
New York, New York
March 8, 1996
F-2
<PAGE> 74
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 8,934,914 $ 66,761,614
Marketable securities, current............................. 25,004,050 --
Trade accounts receivable, less allowance for doubtful
accounts of $473,000 and $475,000, respectively......... 4,723,664 3,844,595
Other receivables.......................................... 2,757,675 662,885
Prepaid expenses........................................... 742,803 263,353
------------ ------------
Total current assets............................... 42,163,106 71,532,447
------------ ------------
Marketable securities, non-current........................... 1,127,442 --
Property and equipment, net.................................. 15,715,121 6,933,462
Deferred financing and registration fees, less accumulated
amortization of $364,000 and $14,000, respectively......... 3,431,540 3,321,015
Intangible assets, net....................................... 2,070,055 1,904,414
Other assets................................................. 1,106,182 232,132
------------ ------------
$ 65,613,446 $ 83,923,470
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
Accrued telecommunications costs........................... $ 11,056,235 $ 7,754,580
Accounts payable and other accrued expenses................ 4,591,628 3,327,355
Commissions payable........................................ 300,655 233,558
Notes payable, current portion............................. -- 966,755
Current installments of obligations under capital leases... -- 700,865
------------ ------------
Total current liabilities.......................... 15,948,518 12,983,113
------------ ------------
Long term liabilities:
Senior discount notes, less discount of $53,416,992 and
$62,349,523, respectively............................... 67,283,008 58,350,477
Accrued telecommunications costs, less current portion..... -- 999,463
Obligations under capital leases, excluding current
installments............................................ -- 605,587
------------ ------------
Total long term liabilities........................ 67,283,008 59,955,527
------------ ------------
Commitments and contingencies
Stockholders' (deficit) equity:
Common Stock, $.01 par value. Authorized 50,000,000 shares,
issued and outstanding 16,104,202 and 16,074,202 shares,
respectively............................................ 161,042 160,742
Class A Common Stock, $.01 par value. Authorized 10,000,000
shares, issued and outstanding 4,357,270 shares......... 43,573 43,573
Additional paid-in capital................................. 30,030,805 29,914,105
Unearned compensation...................................... (78,000) --
Cumulative translation adjustment.......................... (164,676) 1,523
Accumulated deficit........................................ (47,610,824) (19,135,113)
------------ ------------
Total stockholders' (deficit) equity............... (17,618,080) 10,984,830
------------ ------------
$ 65,613,446 $ 83,923,470
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 75
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Telecommunications revenue........................ $ 32,313,293 $ 26,267,741 $21,392,967
------------ ------------ -----------
Operating expenses:
Costs of telecommunications services............ 27,648,340 22,952,941 18,159,410
Selling expenses................................ 7,467,874 4,458,910 2,389,314
General and administrative expense.............. 16,859,663 9,858,881 6,068,655
Depreciation and amortization................... 2,636,787 789,359 110,892
Equipment impairment loss....................... 560,419 -- --
------------ ------------ -----------
Total operating expenses................ 55,173,083 38,060,091 26,728,271
Other income (expenses):
Interest income................................. 3,281,926 213,611 21,432
Interest expense................................ (8,856,317) (771,782) --
Share in loss of affiliate...................... (41,530) (144,867) (141,903)
------------ ------------ -----------
Net loss................................ $(28,475,711) $(12,495,388) $(5,455,775)
============ ============ ===========
Net loss per common share............... $ (1.36) $ (0.79) $ (0.49)
============ ============ ===========
Weighted average common shares
outstanding........................... 20,890,688 15,787,105 11,068,207
============ ============ ===========
Pro forma net loss per common share
(unaudited) (Note 14)................. $ (2.04) $ (1.19) $ (0.74)
============ ============ ===========
Pro forma weighted average common shares
outstanding (unaudited) (Note 14)..... $ 13,927,125 $ 10,524,737 $ 7,378,805
============ ============ ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 76
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NUMBER
OF
NUMBER OF CLASS A
COMMON COMMON CLASS A ADDITIONAL CUMULATIVE
STOCK STOCK COMMON COMMON PAID-IN UNEARNED TRANSLATION ACCUMULATED
SHARES SHARES STOCK STOCK CAPITAL COMPENSATION ADJUSTMENT DEFICIT TOTAL
---------- --------- -------- ------- ----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1993........... 9,628,000 -- $ 96,280 $ -- $ (51,383) $ -- $ -- $ (1,183,950) $ (1,139,053)
Issuance of common
stock and
warrants, net of
$381,804 issue
costs............. 2,547,406 -- 25,474 -- 4,593,722 -- -- -- 4,619,196
Issuance of common
stock............. 629,160 -- 6,292 -- 1,754,305 -- -- -- 1,760,597
Issuance of common
stock, in lieu of
payment of
services.......... 38,667 -- 386 -- 38,461 -- -- -- 38,847
Issuance of
restricted common
stock............. 20,161 -- 202 -- 49,798 (36,100) -- -- 13,900
Net loss............ -- -- -- -- -- -- -- (5,455,775) (5,455,775)
----------- ---------- -------- ------- ----------- ------- --------- ------------ ------------
Balance at December
31, 1993.......... 12,863,394 -- 128,634 -- 6,384,903 (36,100) -- (6,639,725) (162,288)
Issuance of common
stock and
warrants, net of
$412,338 issue
costs............. 3,210,808 -- 32,108 -- 7,556,554 -- -- -- 7,588,662
Issuance of Class A
common stock, net
of $977,132 issue
costs............. -- 4,357,270 -- 43,573 15,972,648 -- -- -- 16,016,221
Recognition of
unearned
compensation...... -- -- -- -- -- 36,100 -- -- 36,100
Foreign currency
translation
adjustment........ -- -- -- -- -- -- 1,523 -- 1,523
Net loss............ -- -- -- -- -- -- -- (12,495,388) (12,495,388)
----------- ---------- -------- ------- ----------- ------- --------- ------------ ------------
Balance at December
31, 1994.......... 16,074,202 4,357,270 160,742 43,573 29,914,105 -- 1,523 (19,135,113) 10,984,830
Issuance of
restricted common
stock............. 30,000 -- 300 -- 116,700 (78,000) -- -- 39,000
Foreign currency
translation
adjustment........ -- -- -- -- -- -- (166,199) -- (166,199)
Net loss............ -- -- -- -- -- -- -- (28,475,711) (28,475,711)
----------- ---------- -------- ------- ----------- ------- --------- ------------ ------------
Balance at December
31, 1995.......... 16,104,202 4,357,270 $161,042 $43,573 $30,030,805 $(78,000) $(164,676) $(47,610,824) $(17,618,080)
=========== ========== ======== ======= =========== ======= ========= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 77
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(28,475,711) $(12,495,388) $(5,455,775)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred financing and registration costs.... (460,032) (3,335,015) --
Equipment impairment loss.................... 560,419 -- --
Depreciation and amortization................ 2,636,787 789,359 110,892
Interest expense on senior discount notes.... 8,773,438 364,506 --
Accrued interest income on marketable
securities................................. (714,468) -- --
Provision for losses on accounts
receivable................................. 1,229,473 900,094 703,000
Share in loss of affiliate................... 41,530 144,867 141,903
Unearned compensation........................ 39,000 36,100 13,900
Changes in assets and liabilities:
Increase in accounts receivable.............. (2,127,611) (1,052,611) (2,728,373)
Increase in prepaid expenses and other
receivables................................ (2,593,863) (540,125) (223,354)
Increase in other assets and intangible
assets..................................... (991,345) (9,273) (76,937)
Increase in accrued telecommunications costs,
accounts payable, accrued expenses and
commissions payable........................ 3,592,930 3,626,126 6,072,247
------------ ------------ -----------
Net cash used in operating activities... (18,489,453) (11,571,360) (1,442,497)
------------ ------------ -----------
Cash flows from investing activities:
Purchase of property, equipment and software.... (11,377,850) (3,671,811) (1,090,102)
Purchase of sales organizations................. -- (1,171,320) --
Purchase of Sitel assets........................ -- -- (1,553,350)
Purchase of marketable securities............... (55,495,423) -- --
Proceeds from maturity of marketable
securities................................... 30,078,399 -- --
Investment in affiliate......................... (262,214) (152,439) (305,257)
------------ ------------ -----------
Net cash used in investing activities... (37,057,088) (4,995,570) (2,948,709)
------------ ------------ -----------
Cash flows from financing activities:
Payments under capital leases................... (1,306,453) (620,979) (51,258)
Repayment of notes payable...................... (999,463) (3,000,000) --
Proceeds from issuance of senior discount
notes........................................ -- 57,999,971 --
Proceeds from issuance of Class A Common
Stock........................................ -- 16,016,221 --
Proceeds from issuance of Common Stock and
warrants..................................... -- 7,588,662 6,379,793
Borrowings on notes payable..................... -- 3,000,000 --
------------ ------------ -----------
Net cash (used in) provided by financing
activities............................ (2,305,916) 80,983,875 6,328,535
------------ ------------ -----------
Effects of exchange rate changes on cash.......... 25,757 17,212 --
------------ ------------ -----------
Net (decrease) increase in cash and cash
equivalents..................................... (57,826,700) 64,434,157 1,937,329
Cash and cash equivalents at beginning of year.... 66,761,614 2,327,457 390,128
------------ ------------ -----------
Cash and cash equivalents at end of year.......... $ 8,934,914 $ 66,761,614 $ 2,327,457
============ ============ ===========
Supplemental disclosures of cash flow information:
Interest paid................................... $ 58,040 $ 425,608 $ --
============ ============ ===========
Equipment acquired under capital lease
obligations.................................. $ -- $ 595,000 $ 1,479,411
============ ============ ===========
Common Stock issued in lieu of payment for
services..................................... $ -- $ -- $ 38,847
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 78
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
Viatel, Inc. (the "Company") provides value-added telecommunications
services primarily to businesses operating internationally. In order to
effectuate a reincorporation in the State of Delaware, VIA USA, Ltd. (a
predecessor Colorado corporation) merged with and into its wholly owned
subsidiary, Viatel, Inc., on October 11, 1994. The surviving entity, Viatel,
Inc., has reflected all assets and liabilities at historical cost.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation. Investments in affiliates in
which the Company has significant influence but does not exercise control are
accounted for under the equity method.
(c) Cash and Cash Equivalents
The Company's policy is to maintain its uninvested cash at minimum levels.
Cash equivalents, which include highly liquid debt instruments purchased with a
maturity of three months or less, were $3,116,218 and $63,111,992 at December
31, 1995 and 1994, respectively.
(d) Revenue
The Company records telecommunications revenue as earned, at the time
services are provided.
(e) Cost of Telecommunications Services and Selling Expenses
Cost of telecommunications services is recognized as incurred and consist
of charges for switched long distance services and costs of leased lines.
Selling expenses included commissions to sales representatives in the countries
in which the Company does not operate its own sales organizations. Commission
expense is recorded net of chargebacks for amounts deemed uncollectible in the
period the related services are provided.
(f) Property and Equipment
Property and equipment consist principally of telecommunications related
equipment such as switches, remote nodes and related computer software and is
stated at cost. Equipment acquired under capital leases is stated at the present
value of the future minimum lease payments.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized over
the life of the lease or useful life of the improvement, whichever is shorter.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Communications system................................................ 5 to 7 years
Leasehold improvements............................................... 2 to 5 years
Furniture, equipment and other....................................... 5 years
Maintenance and repairs are expensed as incurred.
</TABLE>
F-7
<PAGE> 79
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(g) Intangible Assets
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, seven years.
Acquired employee base and sales force in place represents the intangible
assets associated with the acquisition of independent sales organizations and is
being amortized over three years.
Deferred financing fees represent debt financing costs which are being
amortized over the term of the related debt.
The costs of all other intangible assets are being amortized over their
useful lives, ranging from one to five years.
The Company's intangible assets are assessed for recoverability at least
quarterly. The Company assesses the recoverability of its intangible assets by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through projections of undiscounted future operating cash
flows of the related intangible assets. The amount of intangible asset
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of funds.
The assessment of the recoverability of intangible assets will be impacted if
estimated future operating cash flows are not achieved.
(h) Income Taxes
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income or expense in the period that includes the enactment
date. Adoption of Statement 109 did not have a material impact on the financial
statements of the Company.
(i) Foreign Currency Translation
Foreign currency assets and liabilities are translated using the exchange
rates in effect at the balance sheet date. Results of operations are translated
using the average exchange rates prevailing throughout the year. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated as part of the foreign currency
translation adjustment in stockholders' equity. Gains and losses from foreign
currency transactions are included in general and administrative expense in the
period in which they occur. For the years ending December 31, 1995, 1994 and
1993, the Company experienced $107,846 and $15,324 in foreign exchange
transaction gains and $62,558 in foreign exchange transaction losses,
respectively.
(j) Net Loss Per Share
Net loss per common and common equivalent share is based on the weighted
average number of common shares outstanding during each period, as adjusted for
the effects of the application of Securities and Exchange Commission Staff
Accounting Bulletin ("SAB") No. 83 (429,216 shares in all periods). Pursuant to
SAB No. 83, options granted within one year of the Company's initial public
offering
F-8
<PAGE> 80
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
which have an exercise price less than the initial public offering price are
treated as outstanding for all periods presented (using the treasury stock
method at the assumed initial public offering price) even though the effect is
to reduce the loss per share. Retroactive restatement will be made to share and
per share amounts for the reverse stock split contemplated by the Company as a
part of its initial public offering.
(k) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments to
financial institutions with high credit standing. Credit risk on trade
receivables is minimized as a result of the large and diverse nature of the
Company's worldwide customer base.
(l) Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(n) Additional Accounting Policies
Additional accounting policies are incorporated into the notes herein.
(2) ACQUISITIONS
During December 1994, the Company acquired all of the issued and
outstanding stock of two of its independent sales organizations. These
acquisitions have been accounted for under the purchase method of accounting
and, accordingly, the aggregate purchase price of $1,171,320 has been allocated
to the assets acquired and liabilities assumed, based upon their estimated fair
values as of the acquisition date. Additionally, the results of operations of
these organizations are included in the consolidated statements of operations
from dates of acquisition. Included among the assets acquired are intangible
assets which principally related to the acquired employee base and sales force
in place which will be amortized over three years, which corresponds to the
estimated remaining service lives of the employee base and sales force. The
allocation of the aggregate purchase price is summarized as follows:
<TABLE>
<S> <C>
Current assets........................................................ $ 161,486
Current liabilities................................................... (232,865)
Property and equipment................................................ 102,922
Intangible and other assets acquired.................................. 1,139,777
----------
Total purchase price........................................ $1,171,320
==========
</TABLE>
F-9
<PAGE> 81
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(2) ACQUISITIONS -- (CONTINUED)
Due to the nature of the organizations acquired, pro forma revenue would
equal reported revenue and the pro forma net loss would be $194,007 and $48,387
higher than the reported net loss for the years ended December 31, 1994 and
1993, respectively, assuming the acquisitions occurred on January 1, 1993.
(3) INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination at
each balance sheet date. These investments are diversified among high credit
quality securities in accordance with the Company's investment policy. Debt
securities that the Company has both the intent and ability to hold to maturity
are carried at amortized cost. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as available for
sale. Securities available for sale are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. At December 31, 1995, the Company had no investments that
qualified as trading.
The amortized cost of debt securities classified as held to maturity and
available for sale are adjusted for amortization of premiums and accretion of
discounts to maturity over the estimated life of the security. Such amortization
and interest are included in interest income.
The following is a summary of the fair value of securities held to maturity
and securities available for sale at December 31, 1995:
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD TO AVAILABLE
MATURITY FOR SALE TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
Money market instruments................ $1,402,562 $ -- $ 1,402,562
Federal agencies obligations............ -- 5,786,796 5,786,796
Corporate debt securities............... -- 18,942,134 18,942,134
---------- ----------- -----------
Total......................... $1,402,562 $24,728,930 $26,131,492
========== =========== ===========
</TABLE>
The fair value of each investment approximates the amortized cost, and,
therefore, there are no unrealized gains or losses as of December 31, 1995.
The fair value of debt securities held to maturity and securities available
for sale at December 31, 1995 by contractual maturity are shown below:
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD TO AVAILABLE
MATURITY FOR SALE TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
Due within one year..................... $1,402,562 $23,601,488 $25,004,050
Due after one year through two years.... -- 1,127,442 1,127,442
---------- ----------- -----------
Total......................... $1,402,562 $24,728,930 $26,131,492
========== =========== ===========
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
There were no changes in the classification of any securities held to
maturity or securities available for sale from the time of purchase to the time
of maturity or sale.
F-10
<PAGE> 82
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Communications system.................................. $13,997,966 $5,495,396
Leasehold improvements................................. 1,062,742 107,331
Furniture, equipment and other......................... 2,755,600 960,678
Construction in progress............................... 679,935 1,142,835
----------- ----------
18,496,243 7,706,240
Less accumulated depreciation and amortization......... 2,781,122 772,778
----------- ----------
$15,715,121 $6,933,462
=========== ==========
</TABLE>
At December 31, 1995 and 1994, construction in progress represents a
portion of the current expansion of the European Network. As of December 31,
1995, $508,600 of interest has been capitalized with respect to this project.
(5) INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Acquired employee base and sales force in place........ $ 1,607,225 $1,091,451
Goodwill............................................... 474,065 474,065
Purchased software..................................... 661,999 418,756
Other.................................................. 133,834 67,668
----------- ----------
2,877,123 2,051,940
Less accumulated amortization.......................... 807,068 147,526
----------- ----------
$ 2,070,055 $1,904,414
=========== ==========
</TABLE>
(6) LONG TERM LIABILITIES
(a) Senior Discount Notes
On December 21, 1994, the Company issued $120,700,000, representing the
aggregate principal amount, of 15% senior unsecured discount notes due January
15, 2005 for approximately $58,000,000. The notes will fully accrete on a
semiannual compounding basis to face value on January 15, 2000 with semiannual
interest payments commencing July 15, 2000 until maturity.
The notes are redeemable at the Company's option, in whole or in part, at
any time on or after January 15, 2000 until maturity at redemption prices that
range from 110% to 100% of the notes' face value plus accrued interest. In
addition, at any time prior to January 15, 1998, the Company may redeem up to
$42,245,000 of the face value of the notes with the proceeds of one or more
public equity offerings at 115% of the then accreted value of the notes, plus
accrued interest, if any, to the redemption date. Upon a change of control, the
Company is required to make an offer to purchase the notes at a purchase price
equal to 101% of their accreted value, plus accrued interest, if any. The notes
contain certain covenants that, among other things, limit the ability of the
Company and certain of its subsidiaries to incur indebtedness, make pre-payments
of certain indebtedness and pay dividends.
F-11
<PAGE> 83
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(6) LONG TERM LIABILITIES -- (CONTINUED)
On December 31, 1995, the Company estimated the fair value of these notes
to be $67,300,000 which approximates its accreted value. The estimate is based
on quoted market prices for the notes.
(b) Note Payable -- MCI
On January 28, 1994, the Company converted $2,666,755 of its outstanding
balance to MCI Telecommunications Corporation as of December 31, 1993 to a 7%
note secured by the Company's accounts receivable. At December 31, 1994,
$966,755 was outstanding under this note and was included in notes payable,
current. At December 31, 1995, the note was no longer outstanding.
(7) STOCKHOLDERS' EQUITY
During 1993, the Company increased the number of its authorized shares of
voting, no par value Common Stock from 100 to 20,000,000. In addition, the Board
of Directors authorized a recapitalization of the amount of its issued and
outstanding Common Stock by means of a 96,666 2/3 to 1 stock split. On March 21,
1994, the Company increased the number of its authorized shares of no par value
Common Stock from 20,000,000 to 50,000,000. On October 11, 1994, the Company
changed its voting Common Stock from no par value to $.01 par value per share.
All Common Stock and additional paid-in capital amounts have been restated to
reflect these changes.
In lieu of cash payments for call switching, initial screening, account
establishment and billing services, the Sitel Corporation received 2% of the
issued and outstanding Common Stock of the Company based on a market valuation
of $10,000,000. Of these shares, 80% were issued and outstanding at December 31,
1992 and the remaining 20% were issued during February 1993.
On October 1, 1993, the Company issued 2,547,406 shares of its Common Stock
for $5,000,000 and warrants to purchase additional shares of Common Stock. As of
December 31, 1995, the warrants have expired and are no longer exercisable.
Additionally, certain rights of the Company to repurchase a portion of the
shares have expired. Certain of such shares are subject to certain registration
rights in the event of public offerings by the Company.
On April 5, 1994, the Company issued 3,210,808 shares of its Common Stock
for $8,000,000 and warrants to purchase additional shares of Common Stock. As of
December 31, 1995, the warrants have expired and are no longer exercisable.
Additionally, certain rights of the Company to repurchase a portion of the
shares have expired. Certain of such shares are subject to certain registration
rights in the event of public offerings by the Company.
On December 16, 1994, the Company authorized the creation of 10,000,000
shares of non-voting, $.01 par value, Class A Common Stock. On December 21,
1994, 4,357,270 shares of Class A Common Stock were issued for net proceeds of
$16,016,221. Each share of Class A Common Stock will automatically convert after
October 15, 1995 into one share of Common Stock upon the earlier of an initial
public offering of the Common Stock or the third anniversary of its initial sale
by the Company. Except for voting and the above described anti-dilution rights,
the rights of holders are substantially identical to those of Common
Stockholders.
(8) INCOME TAXES
The statutory Federal tax rates for the years ended December 31, 1995, 1994
and 1993 were 35%. The effective tax rates were zero for the years ended
December 31, 1995, 1994 and 1993 due to the Company incurring net operating
losses for which no tax benefit was recorded.
F-12
<PAGE> 84
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(8) INCOME TAXES -- (CONTINUED)
For Federal income tax purposes, the Company has unused net operating loss
carryforwards of approximately $37,804,000 expiring in 2007 through 2010. The
availability of the net operating loss carryforwards to offset income in future
years may be restricted if the Company undergoes an ownership change, which may
occur as a result of future sales of Company stock and other events.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
Accounts receivable principally due to allowance for
doubtful accounts.................................. $ 166,000 $ 356,000
OID Interest not deductible in current period........ 2,933,000 --
Net operating loss carryforwards..................... 13,231,000 6,271,000
------------ -----------
Total gross deferred tax assets............ 16,330,000 6,627,000
Less valuation allowance............................. (16,330,000) (6,627,000)
------------ -----------
Net deferred tax assets.................... $ -- $ --
============ ===========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning in making these assessments. During 1995, 1994 and 1993, the
valuation allowance increased by $9,703,000, $4,267,000 and $1,978,000,
respectively.
(9) SEGMENT DATA
The information below summarizes export sales by geographic area.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Latin America......................... $12,093,771 $12,914,289 $12,492,542
Europe................................ -- 7,720,166 5,589,202
Africa................................ 1,207,225 1,832,547 1,761,965
Asia/Pacific Rim...................... 4,375,412 2,061,246 652,532
Middle East........................... 554,139 1,449,093 559,387
Other................................. 369,425 290,400 337,339
----------- ----------- -----------
$18,599,972 $26,267,741 $21,392,967
=========== =========== ===========
</TABLE>
In late 1994, the European Network became operational and the Company began
to establish direct sales organizations within Europe. For the year ended
December 31, 1995, revenue, operating loss, capital expenditures and
depreciation expense from this geographic segment were approximately
$11,601,000, $11,076,000, $9,959,000 and $243,000, respectively. Identifiable
assets as of December 31, 1995 for this geographic segment were approximately
$10,216,000. For December 31, 1994 and for the year then ended, revenue, results
from operations, capital expenditures, depreciation expense and identifiable
assets for this geographic segment were not significant.
F-13
<PAGE> 85
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(10) STOCK INCENTIVE PLAN
During 1993, the Board of Directors approved the 1993 Flexible Stock
Incentive Plan (the "Stock Incentive Plan") under which "non-qualified" stock
options ("NQSOs") to acquire shares of Common Stock may be granted to employees,
directors and consultants of the Company and "incentive" stock options ("ISOs")
to acquire shares of Common Stock may be granted to employees, including non-
employee directors. The Stock Incentive Plan also provides for the grant of
stock appreciation rights ("SARs") and shares of restricted stock to the
Company's employees, directors and consultants.
The Stock Incentive Plan provides for the issuance of up to a maximum of
1,750,000 shares of Common Stock and is currently administered by the Board of
Directors. Under the Stock Incentive Plan, the option price of any ISO may not
be less than the fair market value of a share of Common Stock on the date on
which the option is granted. The option price of an NQSO may be less than the
fair market value on the date the NQSO is granted if the Board of Directors so
determines. An ISO may not be granted to a "ten percent stockholder" (as such
term is defined in Section 422A of the Internal Revenue Code) unless the
exercise price is at least 110% of the fair market value of the Common Stock and
the term of the option may not exceed five years from the date of grant. Common
Stock subject to a restricted stock purchase or bonus agreement is transferable
only as provided in such agreement. The maximum term of each stock option
granted to persons other than ten percent stockholders is ten years from the
date of grant.
As of December 31, 1995, 1994 and 1993, options to purchase 745,123,
596,514 and 121,014 shares of Common Stock were outstanding respectively, at
exercise prices ranging from $.50 to $3.90 per share. As of December 31, 1995,
no SARs have been granted.
Stock option activity under the Stock Incentive Plan is shown below:
<TABLE>
<CAPTION>
OPTION PRICE
-----------------------
NUMBER OF PER SHARE TOTAL
SHARES AVERAGE PRICE
--------- --------- ----------
<S> <C> <C> <C>
Shares under option at January 1, 1993
Granted.......................................... 121,014 $0.50 $ 60,507
-------- ----- ----------
Shares under option at December 31, 1993......... 121,014 $0.50 $ 60,507
Granted.......................................... 475,500 $2.49 $1,183,995
-------- ----- ----------
Shares under option at December 31, 1994......... 596,514 $2.09 $1,244,502
Granted.......................................... 291,500 $3.90 $1,136,850
Forfeitures...................................... (142,891) $2.65 $ (378,809)
-------- ----- ----------
Shares under option at December 31, 1995......... 745,123 $2.69 $2,002,543
======== ===== ==========
</TABLE>
As of December 31, 1995, 1994 and 1993, options exercisable under the Stock
Incentive Plan were 461,553, 377,482 and 60,507, respectively.
Prior to the adoption of the Stock Incentive Plan, 8,871 options were
granted. As of December 31, 1995, 1994 and 1993, these options were outstanding
and fully vested, subject to early termination under certain conditions and are
exercisable at $.50 per share through December 31, 2002.
The exercise price of all options was equal to the fair market value of the
Common Stock at the date of grant.
In addition, prior to the adoption of the Stock Incentive Plan, the Board
of Directors authorized the issuance of up to 350,000 shares of Common Stock as
compensation to employees and consultants of
F-14
<PAGE> 86
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(10) STOCK INCENTIVE PLAN -- (CONTINUED)
the Company. Pursuant to this authorization, the Company issued 20,542 shares in
1993 in partial payment of a finders fee in connection with a purchase of Common
Stock by a principal stockholder of the Company.
(11) EQUIPMENT IMPAIRMENT LOSS
On August 4, 1995, the Company entered into an agreement (the "Termination
Agreement") with TMI USA (Delaware), Inc. ("TMI") which terminated its existing
agreements. Pursuant to the terms of the Termination Agreement, the Company
prepaid the existing capital lease obligation of $1,025,000, thereby acquiring
all of the equipment previously leased from TMI. The capital lease obligation
was payable over a three year term expiring on December 31, 1996. In addition,
on August 4, 1995, the Company entered into a short-term facilities management
agreement with TMI effective through August 31, 1996, pursuant to which TMI will
perform maintenance, equipment housing, site preparation, network extension and
other similar services for the European Network under its present configuration.
Thereafter, the Company will manage the European Network using its own personnel
rather than a third party provider.
As a result of the Termination Agreement, the Company has written off the
costs relating to the original installation of such equipment. With respect to
the equipment which will not be redeployed, the Company expects to recover a
portion of the carrying value of such equipment. Accordingly, the Company has
recognized non-cash charges of approximately $560,000 which represent the
original installation costs of such equipment and the difference between the
carrying value and the expected selling price of the equipment not expected to
be redeployed.
(12) COMMITMENTS AND CONTINGENCIES
(a) Leases
At December 31, 1995, the Company was committed under non-cancelable
operating leases for the rental of office space and data processing equipment.
The Company's future minimum operating lease payments are as follows:
<TABLE>
<S> <C>
1996............................................ $1,062,388
1997............................................ 962,466
1998............................................ 909,238
1999............................................ 768,818
2000............................................ 688,376
Thereafter...................................... 742,195
----------
$5,133,481
==========
</TABLE>
Total rent expense amounted to $948,826, $935,267 and $420,713 for the
years ended December 31, 1995, 1994 and 1993, respectively.
On August 4, 1995, the Company entered into a termination agreement with a
vendor, pursuant to which the Company prepaid the 8% existing capital lease
obligation of approximately $1,025,000, thereby acquiring all of the equipment
previously leased.
F-15
<PAGE> 87
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(12) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
(b) Carrier Contracts
The Company has entered into contracts to purchase transmission capacity
from various domestic and foreign carriers. By committing to purchase minimum
volumes of transmission capacity from carriers, the Company is able to obtain
guaranteed rates which are more favorable than those generally offered in the
marketplace. The minimum purchase commitments are $8,300,000 for the year ending
December 31, 1996.
(c) Purchase Commitments
The Company is continually upgrading and expanding the European Network and
the Omaha, Nebraska switching facility. In connection therewith, the Company has
entered into purchase commitments to expend approximately $1,200,000. The
Company has also entered into purchase commitments of approximately $400,000 in
connection with financial and administrative software upgrades.
(d) Employment Contracts
The Company has employment contracts with certain officers at amounts
generally equal to such officers' current levels of compensation. The Company's
remaining commitments at December 31, 1995 for the next three years under such
contracts aggregates approximately $916,000.
(e) Litigation
As a result of the Company's transition to direct sales organizations in
Europe, two of its former independent sales representatives, in France and in
Spain, have asserted breach of contract and certain other claims. Arbitration
proceedings in respect to these claims are currently under way or pending. The
aggregate amount of damages sought by the representatives is $8.8 million. The
Company believes that it has meritorious defenses against the claims alleged by
the representatives and intends to vigorously pursue all such defenses but the
outcomes can not be predicted. The Company believes that any possible awards in
these suits would not be in excess of $1 million in the aggregate.
(13) REGULATORY MATTERS
The Company is subject to regulation in countries in which it does
business. The Company believes that an adverse determination as to the
permissibility of the Company's services under the laws and regulations of any
such country would not have a material adverse long-term effect on its business.
(14) PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Prior to the completion of the Company's initial public offering, the
Company will effect a reverse stock split at a ratio of 3-to-2. The share and
per share amounts in the financial statements have not been adjusted for the
reverse stock split. Pro forma weighted average shares outstanding and pro forma
net loss per share have been adjusted to give effect to the proposed reverse
stock split.
F-16
<PAGE> 88
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 7,713,531
Marketable securities, current........................................... 5,055,909
Trade accounts receivable, less allowance for doubtful accounts of
$621,000.............................................................. 6,745,493
Other receivables........................................................ 2,847,959
Prepaid expenses......................................................... 733,098
-----------
Total current assets............................................. 23,095,990
-----------
Property and equipment, less accumulated depreciation and amortization of
$4,560,000............................................................... 18,108,129
Deferred financing and registration fees, less accumulated amortization of
$553,000................................................................. 3,236,167
Intangible assets, less accumulated amortization of $1,220,000............. 2,302,340
Other assets............................................................... 1,807,008
-----------
$ 48,549,634
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued telecommunications costs......................................... $ 8,619,071
Accounts payable and other accrued expenses.............................. 5,791,109
Commissions payable...................................................... 405,199
-----------
Total current liabilities........................................ 14,815,379
-----------
Long-term liabilities:
Senior discount notes, less discount of $48,371,027...................... 72,328,973
Commitments and contingencies
Stockholders' deficit:
Common Stock, $.01 par value. Authorized 50,000,000 shares, issued and
outstanding 16,204,202 shares......................................... 162,042
Class A Common Stock, $.01 par value. Authorized 10,000,000 shares,
issued and outstanding, 4,357,270 shares.............................. 43,573
Additional paid-in capital............................................... 30,419,804
Unearned compensation.................................................... (162,600)
Cumulative translation adjustment........................................ (822,431)
Accumulated deficit...................................................... (68,235,106)
-----------
Total stockholders' deficit...................................... (38,594,718)
-----------
$ 48,549,634
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 89
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1996 1995 1996 1995
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Telecommunications revenue....... $ 11,691,959 $ 7,262,683 $ 22,282,229 $ 14,191,982
------------ ----------- ------------ ------------
Operating expenses:
Costs of telecommunications
services.................... 9,578,517 6,208,514 18,577,766 12,108,746
Selling expenses............... 2,669,744 1,832,324 5,070,968 3,369,020
General and administrative
expense..................... 7,460,623 4,315,545 12,589,713 7,218,096
Depreciation and
amortization................ 1,144,146 465,029 2,231,823 880,931
Equipment impairment loss...... -- 560,419 -- 560,419
------------ ----------- ------------ ------------
Total operating
expenses............. 20,853,030 13,381,831 38,470,270 24,137,212
------------ ----------- ------------ ------------
Other income (expenses):
Interest income................ 268,808 821,712 739,452 1,855,440
Interest expense............... (2,601,556) (2,156,581) (5,170,752) (4,326,975)
Share in loss of affiliate..... (3,639) (11,083) (4,941) (22,764)
------------ ----------- ------------ ------------
Net loss............... $ (11,497,458) $ (7,465,100) $ (20,624,282) $ (12,439,529)
============ =========== ============ ============
Net loss per common
share................ $ (0.55) $ (0.36) $ (0.98) $ (0.60)
============ =========== ============ ============
Weighted average common
shares outstanding... 20,990,688 20,890,688 20,990,688 20,890,688
============ =========== ============ ============
Pro forma net loss per
common share (Note
7)................... $ (0.81) $ (0.53) $ (1.47) $ (0.87)
============ =========== ============ ============
Pro forma weighted
average common shares
outstanding (Note
7)................... 14,279,936 14,213,269 13,993,792 13,927,125
============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 90
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................... $(20,624,282) $(12,439,529)
Adjustments to reconcile net loss to net cash used in
operating activities:
Deferred financing costs................................ -- (125,559)
Equipment impairment loss............................... -- 560,419
Depreciation and amortization........................... 2,231,823 880,931
Interest expense on senior discount notes............... 5,169,138 4,270,026
Accrued interest income on marketable securities........ (219,899) (1,195,522)
Provision for losses on accounts receivable............. 1,044,308 56,697
Share in loss of affiliate.............................. 4,941 22,764
Unearned compensation................................... 305,400 --
Changes in assets and liabilities:
Increase in accounts receivable......................... (3,048,211) (42,485)
Decrease (increase) in prepaid expenses and other
receivables........................................... 673,756 (1,000,223)
Increase in other assets................................ (464,694) (891,658)
Decrease in accrued telecommunications costs, accounts
payable, other accrued expenses and commissions
payable............................................... (1,580,529) (1,828,364)
----------- ------------
Net cash used in operating activities.............. (16,508,249) (11,732,503)
----------- ------------
Cash flows from investing activities:
Purchase of property, equipment and software............... (4,660,158) (5,360,740)
Issuance of notes receivable............................... (323,227) --
Investment in marketable securities........................ (13,774,332) (50,695,308)
Proceeds from maturity of marketable securities............ 34,159,209 8,137,443
Investment in affiliate.................................... (93,953) (202,255)
----------- ------------
Net cash provided by (used in) investment
activities....................................... 15,307,539 (48,120,860)
----------- ------------
Cash flows from financing activities:
Payments under capital leases.............................. -- (285,252)
Repayment of notes payable................................. -- (1,966,218)
----------- ------------
Net cash used in financing activities.............. -- (2,251,470)
----------- ------------
Effects of exchange rate changes on cash..................... (20,673) 30,680
----------- ------------
Net decrease in cash and cash equivalents.................... (1,221,383) (62,074,153)
Cash and cash equivalents at beginning of period............. 8,934,914 66,761,614
----------- ------------
Cash and cash equivalents at end of period................... $ 7,713,531 $ 4,687,461
=========== ============
Supplemental disclosure of cash flow information:
Interest paid.............................................. $ -- $ 56,949
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 91
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE PERIODS
ENDED JUNE 30, 1996 AND 1995 IS UNAUDITED)
(1) INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of June 30, 1996 and for the three
and six month periods ended June 30, 1996 and 1995 have been prepared by Viatel,
Inc. and Subsidiaries (collectively, the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments (consisting of only normal recurring
accruals) necessary for a fair presentation of the consolidated results of
financial position, operations and cash flows for each period presented have
been made on a consistent basis. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations although management believes that the
disclosures herein are adequate to make information presented not misleading. It
is suggested that these financial statements be read in conjunction with the
Company's 1995 annual consolidated financial statements. Operating results for
the three and six months ended June 30, 1996 may not be indicative of the
results that may be expected for the full year.
The Company has adopted Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121") and Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123") as of January 1,
1996. With respect to SFAS 123, the Company has elected the "intrinsic value"
based method of accounting for its stock-based compensation arrangements.
Neither the adoption of SFAS 121 nor SFAS 123 had a material adverse effect on
the Company.
(2) INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination at
each balance sheet date. These investments are diversified among high credit
quality securities in accordance with the Company's investment policy. Debt
securities that the Company has both the intent and ability to hold to maturity
are carried at amortized cost. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as available for
sale. Securities available for sale are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. At June 30, 1996, the Company had no investments that
qualified as trading.
The amortized cost of debt securities classified as held to maturity and
available for sale are adjusted for amortization of premiums and accretion of
discounts to maturity over the estimated life of the security. Such amortization
and interest are included in interest income. There were no securities
classified as held to maturity as of June 30, 1996.
The following is a summary of the fair value of securities available for
sale at June 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
U.S. Treasury obligations............................................... $3,936,487
Federal agencies obligations............................................ 1,119,422
----------
Total......................................................... $5,055,909
==========
</TABLE>
The fair value of each investment approximates the amortized cost and,
therefore, there are no unrealized gains or losses as of June 30, 1996.
Based upon contractual maturity, all securities available for sale at June
30, 1996 are due within one year.
F-20
<PAGE> 92
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE PERIODS
ENDING JUNE 30, 1996 AND 1995 IS UNAUDITED)
(2) INVESTMENTS IN DEBT SECURITIES -- (CONTINUED)
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
There were no changes in the classification of any securities held to
maturity or securities available for sale from the time of purchase to the time
of maturity or sale.
(3) STOCK INCENTIVE PLAN
Stock option activity under the 1993 Flexible Stock Incentive Plan (the
"Stock Incentive Plan") is shown below.
<TABLE>
<CAPTION>
OPTION PRICE
----------------------
NUMBER OF PER SHARE TOTAL
SHARES AVERAGE PRICE
--------- --------- ----------
<S> <C> <C> <C>
Shares under option at December 31, 1995................... 745,123 $2.69 $2,002,543
Granted.................................................... 820,940 $3.90 $3,201,666
Forfeitures................................................ (47,836) $3.61 $ (172,851)
--------- ----- ----------
Shares under option at June 30, 1996....................... 1,518,227 $3.31 $5,031,358
========= ===== ==========
</TABLE>
As of June 30, 1996, 537,479 options were exercisable under the Stock
Incentive Plan.
(4) REORGANIZATION
During the three months ended June 30, 1996, the Company recognized
approximately $1.3 million of general and administrative expense for
reorganizing certain elements of its operations. These expenses, of which
approximately $.4 million has been paid to date and approximately $.3 million
represents non-cash deferred compensation, are comprised principally of employee
termination costs of approximately $1.0 million associated with the termination
of 28 employees and a charge of approximately $.2 million for a portion of the
Company's lease for its administrative quarters in London. The Company undertook
this reorganization for the purpose of managing growth more effectively.
(5) REGULATORY MATTERS
The Company is subject to regulation in countries in which it does
business. The Company believes that an adverse determination as to the
permissibility of the Company's services under the laws and regulations of any
such country would not have a material adverse long-term effect on its business.
(6) COMMITMENTS AND CONTINGENCIES -- LITIGATION
On June 5, 1996, a French arbitration tribunal rendered a judgment against
the Company in connection with a claim by an independent sales representative
(the "Claimant") for alleged breach of contract and certain other claims.
Although the Claimant requested total monetary damages of approximately $3
million and sought reinstatement as the Company's exclusive sales representative
in France, the arbitration panel awarded the Claimant FF 4.3 million
(approximately $.83 million based on foreign currency exchange rates in effect
as of June 30, 1996) and the panel terminated the Claimant's sales agency. As a
result, included in general administrative expense is a charge of approximately
$.83 million for the three and six months ended June 30, 1996.
F-21
<PAGE> 93
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE PERIODS
ENDING JUNE 30, 1996 AND 1995 IS UNAUDITED)
(7) SUBSEQUENT EVENT -- REVERSE STOCK SPLIT
Prior to the completion of the Company's initial public offering, the
Company will effect a reverse stock split at a ratio of 3-to-2. The share and
per share amounts in the financial statements have not been adjusted for the
reverse stock split. Pro forma weighted average shares outstanding and pro forma
net loss per share have been adjusted to give effect to the proposed reverse
stock split.
F-22
<PAGE> 94
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
---------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
Use of Proceeds......................... 19
Dividend Policy......................... 19
Dilution................................ 20
Capitalization.......................... 21
Selected Consolidated Financial and
Other Data............................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
Business................................ 31
Management.............................. 46
Certain Transactions.................... 54
Principal Stockholders.................. 56
Description of Capital Stock............ 58
Shares Eligible for Future Sale......... 62
Underwriting............................ 64
Legal Matters........................... 66
Experts................................. 66
Additional Information.................. 66
Glossary................................ G-1
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
8,667,000 SHARES
VIATEL, INC.
COMMON STOCK
($.01 PAR VALUE)
LOGO
SALOMON BROTHERS INC
CS FIRST BOSTON
LAZARD FRERES & CO. LLC
PROSPECTUS
DATED , 1996
<PAGE> 95
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion
October 15, 1996
PROSPECTUS
8,667,000 SHARES
VIATEL, INC. LOGO
COMMON STOCK
($.01 PAR VALUE)
All of the shares of common stock (the "Common Stock") offered hereby are being
sold by Viatel, Inc. (the "Company" or "Viatel"). Of the 8,667,000 shares of
Common Stock offered, 5,200,200 shares are being offered by the U.S.
Underwriters (as defined herein) in the United States and Canada (the "U.S.
Offering") and 3,466,800 shares are being offered by the International
Underwriters (as defined herein), in a concurrent offering outside the United
States and Canada (the "International Offering" and together with the U.S.
Offering, the "Offerings"), subject to transfers between the U.S. Underwriters
and the International Underwriters (collectively, the "Underwriters"). The
initial public offering price and the aggregate underwriting discount per share
will be identical for the Offerings. See "Underwriting." The closing of the U.S.
Offering and the International Offering are conditioned upon each other.
Prior to the Offerings, there has been no public market for the Common Stock. It
is currently estimated that the initial public offering price per share will be
between $12.00 and $15.00. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price.
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "VYTL," subject to official notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE POTENTIAL INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share.................................... $ $ $
Total(2)..................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
(1) Before deducting offering expenses payable by the Company, estimated at
$1,600,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 1,300,050 additional shares of Common Stock at the Price to
Public, less the Underwriting Discount, solely to cover over-allotments, if
any. If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock offered hereby will
be made at the office of Salomon Brothers Inc, Seven World Trade Center, New
York, New York, or through the facilities of The Depository Trust Company, on or
about , 1996.
SALOMON BROTHERS INTERNATIONAL LIMITED
CS FIRST BOSTON
LAZARD CAPITAL MARKETS
The date of this Prospectus is , 1996.
<PAGE> 96
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
among the Company and the International Underwriters (the "International
Underwriting Agreement"), the Company has agreed to sell to each of the
International Underwriters named below (the "International Underwriters"), and
each of the International Underwriters, for whom Salomon Brothers International
Limited, CS First Boston Limited and Lazard Capital Markets are acting as the
international representatives (the "International Representatives"), has
severally agreed to purchase the number of shares of Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL UNDERWRITERS SHARES
------------------------------------------------------- ---------
<S> <C>
Salomon Brothers International Limited.................
CS First Boston Limited................................
Lazard Capital Markets.................................
----
Total........................................ 3,466,800
====
</TABLE>
The Company has been advised by the International Representatives that the
several International Underwriters initially propose to offer such shares of
Common Stock to the public at the public offering price set forth on the cover
page of this Prospectus and to certain dealers at such price less a concession
not in excess of $ per share of Common Stock. The International
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share of Common Stock to other dealers. After the
Offerings, the public offering price and such concessions may be changed.
The Company has granted to the International Underwriters and the U.S.
underwriters (the "U.S. Underwriters" and, collectively with the International
Underwriters, the "Underwriters") an option, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to 1,300,050 additional
shares of Common Stock from the Company at the price to public less the
underwriting discount, solely to cover over-allotments. To the extent that the
International Underwriters and the U.S. Underwriters exercise such option, each
of the International Underwriters and the U.S. Underwriters, as the case may be,
will be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such International Underwriter's or U.S. Underwriter's
initial commitment.
The Company has entered into a U.S. Underwriting Agreement with the U.S.
Underwriters named therein, for whom Salomon Brothers Inc, CS First Boston
Corporation and Lazard Freres & Co. LLC are acting as the representatives (the
"U.S. Representatives," and together with the International Representatives, the
"Representatives"), providing for the concurrent offer and sale of 5,200,200
shares of Common Stock (in addition to the shares covered by the over-allotment
option described above) in the United States and Canada. Both the International
Underwriting Agreement and the U.S. Underwriting Agreement provide that the
obligations of the International Underwriters and the U.S. Underwriters are such
that if any of the shares of Common Stock are purchased by the International
Underwriters pursuant to the International Underwriting Agreement, or by the
U.S. Underwriters pursuant to the U.S. Underwriting Agreement, all the shares of
Common Stock agreed to be purchased by either the International Underwriters or
the U.S. Underwriters, as the case may be, pursuant to their respective
agreements must be so purchased. The price to public and underwriting discount
per share of Common Stock for the International Offering and the U.S. Offering
will be identical. The closing of the U.S. Offering is a condition to the
closing of the International Offering and the closing of the International
Offering is a condition to the closing of the U.S. Offering.
64
<PAGE> 97
Each International Underwriter has severally agreed that, as part of the
distribution of the 3,466,800 shares of Common Stock offered by the
International Underwriters, (i) it is not purchasing any shares of Common Stock
for the account of any United States or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute this Prospectus to any person within the United
States or Canada or to any United States or Canadian Person. Each U.S.
Underwriter has severally agreed that, as part of the distribution of the
5,200,200 shares of Common Stock by the U.S. Underwriters, (i) it is not
purchasing any shares of Common Stock for the account of anyone other than a
United States or Canadian Person, and (ii) it has not offered or sold, and will
not offer or sell, directly or indirectly, any shares of Common Stock or
distribute any Prospectus relating to the U.S. Offering to any person outside
the United States or Canada or to anyone other than a United States or Canadian
person.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement Between U.S. Underwriters
and International Underwriters. "United States" or "Canadian Person" means any
person who is a national or resident of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or of any political subdivision thereof, and
any estate or trust which is subject to United States or Canadian federal income
taxation, regardless of the source of its income (other than the foreign branch
of any United States or Canadian Person), and includes any United States or
Canadian branch of a person other than a United States or Canadian Person.
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the International Underwriters and the
U.S. Underwriters of such number of shares of Common Stock as may be mutually
agreed. The price of any shares of Common Stock so sold shall be the public
offering price, less an amount not greater than the concession to securities
dealers. To the extent that there are sales between the International
Underwriters and the U.S. Underwriters pursuant to the Agreement Between U.S.
Underwriters and International Underwriters, the number of shares of Common
Stock initially available for sale by the International Underwriters or by the
U.S. Underwriters may be more or less than the amount specified on the cover
page of this Prospectus.
Each International Underwriter has severally represented and agreed that:
(i) it has not offered or sold and, prior to the date six months after the
closing date of the Offerings, will not offer to sell any shares of Common Stock
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "Regulations"); (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and the
Regulations with respect to anything done by it in relation to the shares of
Common Stock in, from or otherwise involving the United Kingdom; and (iii) it
has only issued or passed on or will only issue or pass on in the United Kingdom
any document received by it in connection with the issue of the shares of Common
Stock, to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996, or is a
person to whom the document may otherwise lawfully be issued or passed on.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page thereof.
The International Underwriting Agreement provides that the Company will
indemnify the International Underwriters against certain liabilities and
expenses, including liabilities under the Securities Act, or contribute to
payments the International Underwriters may be required to make in respect
thereof.
The Company and each of its directors and executive officers and certain
other stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, or announce the offering of any shares of
Common Stock, including any such shares beneficially or indirectly owned or
controlled by the Company, or any securities convertible into, or exchangeable
or exercisable for, shares
65
<PAGE> 98
of Common Stock, for 180 days from the date of this Prospectus, without the
prior written consent of Salomon Brothers Inc except for (i) shares issued in
connection with any employee benefit or incentive plans of the Company existing
on the date of this Prospectus, (ii) shares issued in respect of obligations
existing before the date of this Prospectus and (iii) shares issued in
connection with the Offerings.
The International Representatives do not intend to confirm sales to any
account over which they exercise discretionary authority.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiation among the Company and the Representatives. The factors to be
considered in determining the initial public offering price include the
information set forth in this Prospectus and otherwise available to the
Representatives, the history of and future prospects for the industry in which
the Company competes, the ability of the Company's management, the general
conditions of the securities market at the time of the Offerings and the market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. There can be no
assurance that the price at which shares of Common Stock will sell in the public
market after the Offerings will not be lower than the price at which they are
sold in the Offerings by the Underwriters.
66
<PAGE> 99
CERTAIN UNITED STATES TAX CONSIDERATIONS FOR NON-UNITED STATES HOLDERS
The following is a discussion of certain United States federal income and
estate tax consequences of the acquisition, ownership and disposition of shares
applicable to Non-United States Holders of Common Stock. In general, a "Non-U.S.
Holder" is any person other than (i) a citizen or resident of the United States,
(ii) a corporation created or organized in the United States or under the laws
of the United States or of any State or (iii) an estate or trust whose income is
includable in gross income for United States federal income tax purposes
regardless of its source. The discussion is based on current law and is for
general information only. The discussion assumes that the Common Stock will be
included in the Nasdaq National Market. The discussion does not address aspects
of taxation other than federal income and estate taxation and does not address
all aspects of federal income and estate taxation. The discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder. The discussion assumes that a Non-U.S. Holder holds its Common
Stock as a "capital asset" (generally, non-depreciable property held for
investment) for federal income tax purposes. Moreover, the discussion does not
address legislation which is currently being considered by Congress or has been
proposed by the Treasury Department that could adversely effect a Non-U.S.
Holder. Accordingly, prospective investors are urged to consult their tax
advisors regarding the United States federal, state, local, non-United States
income and other tax consequences of acquiring, holding and disposing of shares
of Common Stock, and whether such a prospective investor would be treated as a
resident of the United States for federal income tax purposes.
Dividends. In general, dividends paid to a Non-U.S. Holder that are not
effectively connected with a trade or business carried on by the Non-U.S. Holder
within the United States will be subject to United States withholding tax at a
rate of 30.0% of the gross amount thereof. Dividends effectively connected with
a United States trade or business of a Non-U.S. Holder generally will not be
subject to withholding (if the Non-U.S. Holder files certain forms with the
payor of the dividend) and generally will be subject to United States federal
income tax at the same rates and in the same manner as if the income had been
received by a domestic taxpayer. In the case of Non-U.S. Holder corporations,
such effectively connected income also may be subject to the branch profits tax
(which generally is imposed on a foreign corporation in connection with earnings
and profits effectively connected with a U.S. trade or business). Non-U.S.
Holders should consult any applicable income tax treaties, which may provide for
reduced withholding or other rules different from those described above. A
Non-U.S. Holder may be required to satisfy certain certification requirements in
order to claim treaty benefits or to otherwise claim a reduction of or exemption
from withholding under the foregoing rules.
Sale of Common Stock. Generally, a Non-U.S. Holder will not be subject to
United States federal income tax on any gain realized upon the disposition of
his Common Stock unless (i) the Company is or has been during the five-year
period ending on the date of disposition, a "United States real property holding
corporation" for federal income tax purposes (which the Company has not been, is
not and is not likely to become) and the Non-U.S. Holder held, directly or
indirectly at anytime during the five-year period ending on the date of
disposition, more than 5.0% of the Common Stock, (ii) the gain is effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States or, if a tax treaty applies, is attributable to a permanent
establishment (generally an office or other fixed place of business maintained
by the Non-U.S. Holder in the United States), or (iii) the Non-U.S. Holder is an
individual who holds the Common Stock as a capital asset and is present in the
United States for 183 days or more in the taxable year of the disposition and
either (a) such Non-U.S. Holder individual has a "tax home" (as defined for
United States federal income tax purposes) in the United States and either the
gain from the disposition is not attributable to an office or other fixed place
of business maintained by the Non-U.S. Holder individual in a foreign country
or, if it is, an income tax equal to at least 10.0% of the gain is not actually
paid to a foreign country or (b) the gain from the disposition is attributable
to an office or other fixed place of business maintained in the United States by
such Non-U.S. Holder individual. Gain that is effectively connected with the
conduct of a trade or business within the United States by a Non-U.S. Holder
will be subject to United States federal income tax on net income that applies
to United States persons (and, with respect to corporate holders under certain
circumstances, the branch profits
67
<PAGE> 100
tax), but will not be subject to withholding. An individual described in (iii)
above generally will be subject to tax at a 30.0% rate on any gain recognized on
such disposition, but will not be subject to withholding. Individual Non-U.S.
Holders also may be subject to tax pursuant to provisions of United States
federal income tax law applicable to expatriates of the United States. Non-U.S.
Holders should consult applicable treaties, which may provide for different
rules.
Estate Tax. Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as defined for United States federal estate tax
purposes) of the United States at the time of death will be includable in the
individual's gross estate for United States federal estate tax purposes, unless
an applicable tax treaty provides otherwise. Such individual's estate may be
subject to United States federal estate tax on the property includable in the
estate for United States federal estate tax purposes. Estates of nonresident
aliens are generally allowed a $13,000 credit against the estate tax otherwise
due; however, applicable tax treaties may provide for an increased estate tax
credit.
Backup Withholding and Information Reporting. The Company must report
annually to the Internal Revenue Service (the "IRS") and to each Non-U.S. Holder
the amount of dividends paid to, and the tax withheld with respect to, each
Non-U.S. Holder. These information reporting requirements apply regardless of
whether withholding was reduced or eliminated by an applicable tax treaty or
eliminated because such dividends were effectively connected with a United
States trade or business and the Non-U.S. Holder files certain forms with the
payor. Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides. United States backup withholding
tax (which generally is a withholding tax imposed at the rate of 31% on certain
payments to United States persons that fail to furnish the information required
under the United States information reporting requirements) generally will not
apply to dividends paid on Common Stock to a Non-U.S. Holder if the dividends
are subject to withholding at the 30.0% rate (or lower treaty rate) or would be
subject to withholding at the 30.0% rate (or lower treaty rate) but for the fact
that such dividends are effectively connected with a United States trade or
business.
The payment of the proceeds from the disposition of Common Stock to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the owner, under penalties of perjury,
certifies, among other things, as to its status as a Non-U.S. Holder or
otherwise establishes an exemption (and the broker has no actual knowledge to
the contrary). The payment of the proceeds from the disposition of Common Stock
to or through a non-United States office of a broker generally will not be
subject to information reporting or backup withholding. However, information
reporting (but not backup withholding) will apply to a payment of the proceeds
from a sale of Common Stock if the payment is made through a non-United States
office of a United States broker or through a non-United States office of a
non-United States broker that is (i) a "controlled foreign corporation" (as
defined for United States federal income tax purposes) as to the United States
or (ii) a person 50.0% or more of whose gross income for a certain three-year
period is effectively connected with a United States trade or business, unless
the broker has documentary evidence in its records that the holder is a Non-U.S.
Holder and the broker does not have actual knowledge to the contrary and certain
conditions are met, or the holder otherwise establishes an exemption.
Backup withholding tax is not an additional tax and may be credited against
a holder's United States federal income tax liability, provided that required
information is furnished to the IRS. Non-U.S. Holders generally may obtain a
refund of any excess amount withheld under the backup withholding rules by
filing the appropriate refund claim with the IRS.
The Treasury Department has issued proposed regulations that would modify
the information reporting and withholding rules as they apply to Non-U.S.
Holders. The proposed regulations would unify the current certification
procedures and forms and would, in certain circumstances, require additional
information from Non-U.S. Holders claiming treaty benefits. The proposed
regulations are scheduled to take effect January 1, 1998, and are subject to
further changes. Consequently, the proposed regulations are not discussed in
this section.
68
<PAGE> 101
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR, BY ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
---------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 7
Use of Proceeds......................... 19
Dividend Policy......................... 19
Dilution................................ 20
Capitalization.......................... 21
Selected Consolidated Financial and
Other Data............................ 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
Business................................ 31
Management.............................. 46
Certain Transactions.................... 54
Principal Stockholders.................. 56
Description of Capital Stock............ 58
Shares Eligible for Future Sale......... 62
Underwriting............................ 64
Certain United States Tax Considerations
for Non-United States Holders......... 67
Legal Matters........................... 69
Experts................................. 69
Additional Information.................. 69
Glossary................................ G-1
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
8,667,000 SHARES
VIATEL, INC.
COMMON STOCK
($.01 PAR VALUE)
LOGO
SALOMON BROTHERS
INTERNATIONAL LIMITED
CS FIRST BOSTON
LAZARD CAPITAL MARKETS
PROSPECTUS
DATED , 1996
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of U.S. Underwriting Agreement between the Company and the U.S.
Underwriters.
1.2 -- Form of International Underwriting Agreement between the Company and the
International Underwriters.
3.1(i)(a) -- Certificate of Incorporation of the Company, as amended (filed as Exhibit 3.1
to the Company's Registration Statement on Form S-4, File No. 33-92696, filed
on May 24, 1995).**
3.1(i)(b) -- Amended and Restated Certificate of Incorporation of the Company.
3.1(ii)(a) -- Bylaws of the Company (filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
3.1(ii)(b) -- Amended and Restated Bylaws of the Company.
4.1 -- See Exhibit numbers 3.1(i)(a), 3.1(i)(b), 3.1(ii)(a) and 3.1(ii)(b) for
provisions of the Certificate of Incorporation and Bylaws of the Company
defining the rights of the holders of Common Stock.
4.2 -- Indenture, dated as of December 15, 1994, between the Company and United
States Trust Company of New York, as Trustee (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-4, File No. 33-92696, filed on May
24, 1995).**
4.3 -- Notes Registration Rights Agreement, dated as of December 15, 1994, between
the Company and Morgan Stanley & Co. Incorporated in connection with the
Company's 15% Senior Discount Notes due 2005 (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-4, File No. 33- 92696, filed on
May 24, 1995).**
4.4 -- Form of Company Common Stock Certificate.***
4.5 -- Amendment No. 1 to the Indenture, dated as of December 15, 1994, between the
Company and United States Trust Company of New York, as Trustee.
5.1 -- Opinion of Kelley Drye & Warren LLP (including the consent of such firm) as
to the validity of the securities being offered.***
10.1 -- Employment Agreement, dated as of September 30, 1993, and as further amended
as of April 5, 1994, between the Company and Martin Varsavsky (filed as
Exhibit 10.1 to the Company's Registration Statement on Form S-4, File No.
33-92696, filed on May 24, 1995).+**
10.2 -- Expatriate Agreement, dated August 22, 1995, between the Company and Michael
Mahoney (filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995, filed on April 1, 1996).+**
10.3 -- Placement Agreement, dated as of December 15, 1994, between the Company and
Morgan Stanley & Co. Incorporated (filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**
10.4 -- Common Stock Registration Rights Agreement, dated as of December 15, 1994,
among the Company, Martin Varsavsky, Juan Manuel Aisemberg and Morgan Stanley
& Co. Incorporated in connection with the Company's shares of non-voting
Class A Common Stock (filed as Exhibit 10.4 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
10.5 -- The Company's 1993 Flexible Stock Incentive Plan, dated as of September 29,
1993 (filed as Exhibit 10.5 to the Company's Registration Statement on Form
S-4, File No. 33-92696, filed on May 24, 1995).+**
</TABLE>
II-1
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------
<C> <C> <S>
10.6 -- Carrier Contract, dated as of May 3, 1993, between the Company and AT&T Corp.
(filed as Exhibit 10.6 to the Company's Registration Statement on Form S-4,
File No. 33-92696, filed on May 24, 1995).**
10.7 -- MCI Carrier Agreement, dated as of January 1, 1995, between the Company and
MCI Telecommunications Corporation (filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**
10.8 -- Mercury Carrier Services Agreement, dated as of March 1, 1994, between the
Company and Mercury Communications Limited (filed as Exhibit 10.8 to the
Company's Registration Statement on Form S-4, File No. 33-92696, filed on May
24, 1995).**
10.9 -- Provision and Management Facilities Agreement, dated as of October 17, 1994,
between the Company and Mercury Communications Limited (filed as Exhibit 10.9
to the Company's Registration Statement on Form S-4, File No. 33-92696, filed
on May 24, 1995).**
10.10 -- Managed Telecommunications Network Agreement, dated as of February 5, 1993,
between the Company and TMI USA, Inc. (Delaware) (filed as Exhibit 10.10 to
the Company's Registration Statement on Form S-4, File No. 33-92696, filed on
May 24, 1995).**
10.11 -- Representative Agreement, dated as of June 1, 1993, and as amended as of
April 19, 1995, between the Company and Maximiliano Fernandez (filed as
Exhibit 10.11 to the Company's Registration Statement on Form S-4, File No.
33-92696, filed on May 24, 1995).**
10.12 -- Representative Agreement, dated as of April 23, 1993, between the Company and
Viatel de Colombia Comunicaciones S.A. (filed as Exhibit 10.12 to the
Company's Registration Statement on Form S-4, File No. 33-92696, filed on May
24, 1995).**
10.13 -- Stock Purchase Agreement, dated as of September 30, 1993, as amended as of
April 5, 1994, and as further amended as of December 21, 1994, between the
Company and S-C V-Tel Investments, L.P. (filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-4, File No. 33-92696, filed on May
24, 1995).**
10.14 -- Stock Purchase Agreement, dated as of April 5, 1994, between the Company and
COMSAT Investments, Inc. (filed as Exhibit 10.14 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**
10.15 -- Stock Purchase Agreement, dated as of December 3, 1993, between the Company
and Herald L. Ritch.***
10.16 -- Stock Purchase Agreement, dated as of October 1, 1993, between the Company
and Robert Conrads (filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
10.17 -- Stock Purchase Agreement, dated as of December 9, 1993, between the Company
and Robert Conrads (filed as Exhibit 10.17 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
10.18 -- Shareholders' Agreement, dated as of April 5, 1994, and as amended as of
November 22, 1994, by and among the Company, Martin Varsavsky, Juan Manuel
Aisemberg and COMSAT Investments, Inc. (filed as Exhibit 10.19 to the
Company's Registration Statement on Form S-4, File No. 33-92696, filed on May
24, 1995).**
10.19 -- Shareholders' Agreement, dated as of September 30, 1993, as amended as of
December 9, 1993 and as further amended as of April 5, 1994, November 22,
1994 and December 21, 1994, by and among the Company, Martin Varsavsky and
S-C V-Tel Investments, L.P. (filed as Exhibit 10.21 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**
10.20 -- Purchase Agreement, dated as of December 8, 1994, between the Company and ECI
Telecom, Inc. (filed as Exhibit 10.22 to the Company's Registration Statement
on Form S-4, File No. 33-92696, filed on May 24, 1995).**
</TABLE>
II-2
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------
<C> <C> <S>
10.21 -- Carrier Digital Services Agreement, dated as of November 29, 1994, between
the Company and Norline Communications, Inc. (filed as Exhibit 10.23 to the
Company's Registration Statement on Form S-4, File No. 33-92696, filed on May
24, 1995).**
10.22 -- Commercial Lease Agreement, dated as of November 1, 1993, and Addendum, dated
as of December 8, 1994, between the Company and 123rd Street Partnership in
connection with the Company's premises located in Omaha, Nebraska (filed as
Exhibit 10.24 to the Company's Registration Statement on Form S-4, File No.
33-92696, filed on May 24, 1995).**
10.23 -- Asset Purchase Agreement, dated as of August 27, 1993, between the Company
and Sitel Corporation (filed as Exhibit 10.26 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
10.24 -- Memorandum of Understanding, dated as of August 4, 1994, between the Company
and TMI USA, Inc. (filed as Exhibit 10.27 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
10.25 -- Settlement Agreement, dated as of August 4, 1994, between the Company and TMI
USA, Inc. (filed as Exhibit 10.28 to the Company's Registration Statement on
Form S-4, File No. 33- 92696, filed on May 24, 1995).**
10.26 -- Release and Settlement Agreement, dated as of August 1, 1994, between the
Company and AT&T Corp. (filed as Exhibit 10.29 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
10.27 -- Termination Agreement, dated August 4, 1995, between the Company and
Telemedia International, Inc. (filed as Exhibit 10.31 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**
10.28 -- Facilities Management and Services Agreement, dated as of August 4, 1995,
between Viatel U.K. Limited and Telemedia International Ltd. (filed as
Exhibit 10.32 to the Company's Registration Statement on Form S-4, File No.
33-92696, filed on May 24, 1995).**
10.29 -- Agreement of Lease, dated August 7, 1995, between the Company and Joseph P.
Day Realty Corp. (filed as Exhibit 10.33 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24, 1995).**
10.30 -- Severance Agreement, dated July 30, 1996, between the Company and Alan
Levy.***
10.31 -- Employment Agreement between the Company and Martin Varsavsky.+
10.32 -- Employment Agreement between the Company and Michael J. Mahoney.+
10.33 -- The Company's Amended Flexible Stock Incentive Plan.
21.1 -- Subsidiaries of the Company.
23.1 -- Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1).***
23.2 -- Consent of KPMG Peat Marwick LLP.
23.3 -- Consent of Edward Isaacs & Company LLP.
24.1 -- Power of Attorney.***
27.1 -- Financial Data Schedule (December 31, 1995).***
27.2 -- Financial Data Schedule (June 30, 1996) (filed as Exhibit 27 to the Company's
Form 10-Q for the quarterly period ended June 30, 1996, filed on August 14,
1996).**
</TABLE>
- ---------------
* To be filed by amendment.
** Incorporated herein by reference.
*** Previously filed.
+ Management contract or compensatory plan or arrangement.
II-3
<PAGE> 105
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
II-4
<PAGE> 106
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment No. 4 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 15th day of
October, 1996.
VIATEL, INC.
By: MARTIN VARSAVSKY*
Martin Varsavsky
Chairman of the Board
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 4 to the Registration Statement was signed on the
15th day of October, 1996, by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
- -------------------------------------------- -----------------------------------------------
<C> <S>
MARTIN VARSAVSKY* Chairman of the Board, Chief Executive Officer
- -------------------------------------------- and Director (Principal Executive Officer)
Martin Varsavsky
MICHAEL J. MAHONEY* President, Chief Operating Officer and Director
- --------------------------------------------
Michael J. Mahoney
ALLAN L. SHAW* Vice President, Finance; Chief Financial
- -------------------------------------------- Officer (Principal Financial and Accounting
Allan L. Shaw Officer); Treasurer and Director
Director
- --------------------------------------------
Antonio Carro
PAUL G. PIZZANI* Director
- --------------------------------------------
Paul G. Pizzani
W. JAMES PEET* Director
- --------------------------------------------
W. James Peet
*By: /s/ SHELDON M.
GOLDMAN
- --------------------------------------------
Sheldon M. Goldman
Attorney-in-fact
</TABLE>
II-5
<PAGE> 107
VIATEL, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS/ OTHER AT END
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS CHARGES OF PERIOD
- ------------------------------------- ----------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted from
asset accounts:
Allowances for uncollectible
accounts receivable
Year ended December 31, 1993.... $ 77,000 $ 703,000 $ 444,000 -- $ 336,000
Year ended December 31, 1994.... $ 336,000 $ 900,000 $ 761,000 -- $ 475,000
Year ended December 31, 1995.... $ 475,000 $1,229,000 $1,231,000 -- $ 473,000
Allowance for asset impairment
Year ended December 31, 1995....... -- $ 560,000 -- -- $ 560,000
</TABLE>
S-1
<PAGE> 108
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
1.1 -- Form of U.S. Underwriting Agreement between the Company and the
U.S. Underwriters.................................................
1.2 -- Form of International Underwriting Agreement between the Company
and the International Underwriters................................
3.1(i)(a) -- Certificate of Incorporation of the Company, as amended (filed as
Exhibit 3.1 to the Company's Registration Statement on Form S-4,
File No. 33-92696, filed on May 24, 1995).**......................
3.1(i)(b) -- Amended and Restated Certificate of Incorporation of the
Company...........................................................
3.1(ii)(a) -- Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on
May 24, 1995).**..................................................
3.1(ii)(b) -- Amended and Restated Bylaws of the Company........................
4.1 -- See Exhibit numbers 3.1(i)(a), 3.1(i)(b), 3.1(ii)(a) and
3.1(ii)(b) for provisions of the Certificate of Incorporation and
Bylaws of the Company defining the rights of the holders of Common
Stock. ...........................................................
4.2 -- Indenture, dated as of December 15, 1994, between the Company and
United States Trust Company of New York, as Trustee (filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-4,
File No. 33-92696, filed on May 24, 1995).**......................
4.3 -- Notes Registration Rights Agreement, dated as of December 15,
1994, between the Company and Morgan Stanley & Co. Incorporated in
connection with the Company's 15% Senior Discount Notes due 2005
(filed as Exhibit 4.3 to the Company's Registration Statement on
Form S-4, File No. 33- 92696, filed on May 24, 1995).**...........
4.4 -- Form of Company Common Stock Certificate***.......................
4.5 -- Amendment No. 1 to the Indenture, dated as of December 15, 1994,
between the Company and United States Trust Company of New York,
as Trustee........................................................
5.1 -- Opinion of Kelley Drye & Warren LLP (including the consent of such
firm) as to the validity of the securities being offered.***......
10.1 -- Employment Agreement, dated as of September 30, 1993, and
as further amended as of April 5, 1994, between the Company
and Martin Varsavsky (filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on
May 24, 1995).+**.................................................
10.2 -- Expatriate Agreement, dated August 22, 1995, between the Company
and Michael Mahoney (filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995,
filed on April 1, 1996).+**.......................................
10.3 -- Placement Agreement, dated as of December 15, 1994, between the
Company and Morgan Stanley & Co. Incorporated (filed as Exhibit
10.3 to the Company's Registration Statement on Form S-4, File No.
33-92696, filed on May 24, 1995).**...............................
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.4 -- Common Stock Registration Rights Agreement, dated as of December
15, 1994, among the Company, Martin Varsavsky, Juan Manuel
Aisemberg and Morgan Stanley & Co. Incorporated in connection with
the Company's shares of non-voting Class A Common Stock (filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-4,
File No. 33-92696, filed on May 24, 1995).**......................
10.5 -- The Company's 1993 Flexible Stock Incentive Plan, dated as of
September 29, 1993 (filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-4, File No. 33-92696, filed on
May 24, 1995).+**.................................................
10.6 -- Carrier Contract, dated as of May 3, 1993, between the Company and
AT&T Corp. (filed as Exhibit 10.6 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**..........................................................
10.7 -- MCI Carrier Agreement, dated as of January 1, 1995, between the
Company and MCI Telecommunications Corporation (filed as Exhibit
10.7 to the Company's Registration Statement on Form S-4, File No.
33-92696, filed on May 24, 1995).**...............................
10.8 -- Mercury Carrier Services Agreement, dated as of March 1, 1994,
between the Company and Mercury Communications Limited (filed as
Exhibit 10.8 to the Company's Registration Statement on Form S-4,
File No. 33-92696, filed on May 24, 1995).**......................
10.9 -- Provision and Management Facilities Agreement, dated as of October
17, 1994, between the Company and Mercury Communications Limited
(filed as Exhibit 10.9 to the Company's Registration Statement on
Form S-4, File No. 33-92696, filed on May 24, 1995).**............
10.10 -- Managed Telecommunications Network Agreement, dated as of February
5, 1993, between the Company and TMI USA, Inc. (Delaware) (filed
as Exhibit 10.10 to the Company's Registration Statement on Form
S-4, File No. 33-92696, filed on May 24, 1995).**.................
10.11 -- Representative Agreement, dated as of June 1, 1993, and as amended
as of April 19, 1995, between the Company and Maximiliano
Fernandez (filed as Exhibit 10.11 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**..........................................................
10.12 -- Representative Agreement, dated as of April 23, 1993, between the
Company and Viatel de Colombia Comunicaciones S.A. (filed as
Exhibit 10.12 to the Company's Registration Statement on Form S-4,
File No. 33-92696, filed on May 24, 1995).**......................
10.13 -- Stock Purchase Agreement, dated as of September 30, 1993, as
amended as of April 5, 1994, and as further amended as of December
21, 1994, between the Company and S-C V-Tel Investments, L.P.
(filed as Exhibit 10.13 to the Company's Registration Statement on
Form S-4, File No. 33-92696, filed on May 24, 1995).**............
10.14 -- Stock Purchase Agreement, dated as of April 5, 1994, between the
Company and COMSAT Investments, Inc. (filed as Exhibit 10.14 to
the Company's Registration Statement on Form S-4, File No.
33-92696, filed on May 24, 1995).**...............................
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.15 -- Stock Purchase Agreement, dated as of December 3, 1993, between
the Company and Herald L. Ritch.***...............................
10.16 -- Stock Purchase Agreement, dated as of October 1, 1993, between the
Company and Robert Conrads (filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.17 -- Stock Purchase Agreement, dated as of December 9, 1993, between
the Company and Robert Conrads (filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.18 -- Shareholders' Agreement, dated as of April 5, 1994, and as amended
as of November 22, 1994, by and among the Company, Martin
Varsavsky, Juan Manuel Aisemberg and COMSAT Investments, Inc.
(filed as Exhibit 10.19 to the Company's Registration Statement on
Form S-4, File No. 33-92696, filed on May 24, 1995).**............
10.19 -- Shareholders' Agreement, dated as of September 30, 1993, as
amended as of December 9, 1993 and as further amended as of April
5, 1994, November 22, 1994 and December 21, 1994, by and among the
Company, Martin Varsavsky and S-C V-Tel Investments, L.P. (filed
as Exhibit 10.21 to the Company's Registration Statement on Form
S-4, File No. 33-92696, filed on May 24, 1995).**.................
10.20 -- Purchase Agreement, dated as of December 8, 1994, between the
Company and ECI Telecom, Inc. (filed as Exhibit 10.22 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.21 -- Carrier Digital Services Agreement, dated as of November 29, 1994,
between the Company and Norline Communications, Inc. (filed as
Exhibit 10.23 to the Company's Registration Statement on Form S-4,
File No. 33-92696, filed on May 24, 1995).**......................
10.22 -- Commercial Lease Agreement, dated as of November 1, 1993, and
Addendum, dated as of December 8, 1994, between the Company and
123rd Street Partnership in connection with the Company's premises
located in Omaha, Nebraska (filed as Exhibit 10.24 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.23 -- Asset Purchase Agreement, dated as of August 27, 1993, between the
Company and Sitel Corporation (filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.24 -- Memorandum of Understanding, dated as of August 4, 1994, between
the Company and TMI USA, Inc. (filed as Exhibit 10.27 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.25 -- Settlement Agreement, dated as of August 4, 1994, between the
Company and TMI USA, Inc. (filed as Exhibit 10.28 to the Company's
Registration Statement on Form S-4, File No. 33- 92696, filed on
May 24, 1995).**..................................................
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.26 -- Release and Settlement Agreement, dated as of August 1, 1994,
between the Company and AT&T Corp. (filed as Exhibit 10.29 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.27 -- Termination Agreement, dated August 4, 1995, between the Company
and Telemedia International, Inc. (filed as Exhibit 10.31 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.28 -- Facilities Management and Services Agreement, dated as of August
4, 1995, between Viatel U.K. Limited and Telemedia International
Ltd. (filed as Exhibit 10.32 to the Company's Registration
Statement on Form S-4, File No. 33-92696, filed on May 24,
1995).**..........................................................
10.29 -- Agreement of Lease, dated August 7, 1995, between the Company and
Joseph P. Day Realty Corp. (filed as Exhibit 10.33 to the
Company's Registration Statement on Form S-4, File No. 33-92696,
filed on May 24, 1995).**.........................................
10.30 -- Severance Agreement, dated July 30, 1996, between the Company and
Alan Levy.***.....................................................
10.31 -- Employment Agreement between the Company and Martin Varsavsky.+...
10.32 -- Employment Agreement between the Company and Michael J.
Mahoney.+.........................................................
10.33 -- The Company's Amended Flexible Stock Incentive Plan...............
21.1 -- Subsidiaries of the Company.......................................
23.1 -- Consent of Kelley Drye & Warren LLP (included in Exhibit
5.1).***..........................................................
23.2 -- Consent of KPMG Peat Marwick LLP. ................................
23.3 -- Consent of Edward Isaacs & Company LLP. ..........................
24.1 -- Power of Attorney.*** ............................................
27.1 -- Financial Data Schedule (December 31, 1995).***...................
27.2 -- Financial Data Schedule (June 30, 1996) (filed as Exhibit 27 to
the Company's Form 10-Q for the quarterly period ended June 30,
1996, filed on August 14, 1996).** ...............................
</TABLE>
- ---------------
* To be filed by amendment.
** Incorporated herein by reference.
*** Previously filed.
+ Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 1.1
VIATEL, INC.
Common Stock
($.01 par value)
U.S. Underwriting Agreement
New York, New York
, 1996
Salomon Brothers Inc
CS First Boston Corporation
Lazard Freres & Co. LLC
As U.S. Representatives of the several U.S. Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
Viatel, Inc., a Delaware corporation (the "Company"), proposes
to sell to the underwriters named in Schedule I hereto (the "U.S.
Underwriters"), for whom you (the "U.S. Representatives") are acting as
representatives, 5,200,200 shares of Common Stock, $.01 par value ("Common
Stock"), of the Company, (the "U.S. Underwritten Securities"). The Company
also proposes to grant to the U.S. Underwriters an option to purchase up to
780,030 additional shares of Common Stock (the "U.S. Option Securities"; the
U.S. Option Securities, together with the U.S. Underwritten Securities, being
hereinafter called the "U.S. Securities"). It is understood that the Company
is concurrently entering into an International Underwriting Agreement dated the
date hereof (the "International Underwriting Agreement") providing for the sale
by the Company of an aggregate of 3,466,800 shares of Common Stock (said shares
to be sold by the Company pursuant to the International Underwriting Agreement
being hereinafter called the "International Underwritten Securities"), outside
the United States and Canada through arrangements with certain underwriters
outside the United States and Canada (the "International Underwriters"), for
whom Salomon Brothers International Limited, CS First Boston Limited and Lazard
Capital Markets are acting as representatives (the "International
Representatives"), and providing for the grant to the International
Underwriters of an option to purchase from the Company up to 520,020 additional
shares of Common Stock (the "International Option Securities"; the
<PAGE> 2
2
International Option Securities, together with the International Underwritten
Securities, being hereinafter called the "International Securities" and the
U.S. Securities, together with the International Securities, being hereinafter
called the "Securities"). It is further understood and agreed that the U.S.
Underwriters and the International Underwriters have entered into an Agreement
Between U.S. Underwriters and International Underwriters dated the date hereof
(the "Agreement Between U.S. Underwriters and International Underwriters"),
pursuant to which, among other things, the International Underwriters may
purchase from the U.S. Underwriters a portion of the U.S. Securities to be sold
pursuant to the U.S. Underwriting Agreement and the U.S. Underwriters may
purchase from the International Underwriters a portion of the International
Securities to be sold pursuant to the International Underwriting Agreement.
In this Agreement, unless otherwise specified, all reference
to "dollars" or "$" are to the currency of the United States.
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with,
each U.S. Underwriter as set forth below in this Section 1. Certain terms used
in this Section 1 are defined in paragraph (ix) hereof.
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (file number
333-09699) on Form S-1, including related preliminary prospectuses,
for the registration under the Securities Act of 1933, as amended (the
"Act"), of the offering and sale of the Securities. The Company may
have filed one or more amendments thereto, including the related
preliminary prospectuses, each of which has previously been furnished
to you. The Company will next file with the Commission either (A)
prior to effectiveness of such registration statement, a further
amendment to such registration statement (including the form of final
prospectuses) or (B) after effectiveness of such registration
statement, final prospectuses in accordance with Rules 430A and
424(b)(1) or (4). In the case of clause (B), the Company has included
in such registration statement, as amended at the Effective Date, all
information (other than Rule 430A
<PAGE> 3
3
Information) required by the Act and the rules and regulations
thereunder to be included in the Prospectuses with respect to the
Securities and the offering thereof. As filed, such amendment and
form of final prospectuses, or such final prospectuses, shall contain
all Rule 430A Information, together with all other such required
information, with respect to the Securities and the offering thereof
and, except to the extent the U.S. Representatives shall agree in
writing to a modification, shall be in all substantive respects in
the form furnished to you prior to the Execution Time or, to the
extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that
contained in the latest U.S. Preliminary Prospectus) as the Company
has advised you, prior to the Execution Time, will be included or made
therein. Upon your request, but not without your agreement, the
Company also will file with the Commission a Rule 462(b) Registration
Statement in accordance with Rule 462(b).
It is understood that two forms of prospectus are to be used
in connection with the offering and sale of the Securities: one form
of prospectus relating to the U.S. Securities, which are to be offered
and sold to United States and Canadian Persons (as defined herein)
which for purposes of distribution to Canadian Persons shall have a
Canadian "wrap-around" (the "Canadian Offering Memorandum"), and one
form of prospectus relating to the International Securities, which are
to be offered and sold to persons other than United States and
Canadian Persons. The two forms of prospectus are identical except
for the outside front cover page, the discussion under the headings
"Underwriting" and "Certain United States Tax Considerations for
Non-United States Holders" and the outside back cover page. Such form
of prospectus relating to the U.S. Securities as first filed with the
Commission pursuant to Rule 424(b) or, if no filing pursuant to Rule
424(b) is made, such form of prospectus included in the Registration
Statement at the Effective Date, is hereinafter called the "U.S.
Prospectus"; such form of prospectus relating to the International
Securities as first filed with the Commission pursuant to Rule 424(b)
or, if no filing pursuant to Rule 424(b) is made, such form of
prospectus included in the Registration Statement at the Effective
Date, is hereinafter called the "International Prospectus"; and the
U.S. Prospectus
<PAGE> 4
4
and the International Prospectus are hereinafter collectively called
the "Prospectuses". Insofar as they relate to offers or sales of
Securities in Canada, all references herein to the U.S. Preliminary
Prospectus (as defined in paragraph (ix) below) and the U.S.
Prospectus shall include the Canadian Offering Memorandum.
(ii) On the Effective Date, the Registration Statement did or
will, and when the Prospectuses are first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined
herein) and on any date on which shares sold in respect of the U.S.
Underwriters' over-allotment option are purchased, if such date is not
the Closing Date (a "Settlement Date"), the Prospectuses (and any
supplements thereto) will comply in all material respects with the
applicable requirements of the Act and the rules and regulations
thereunder; on the Effective Date, the Registration Statement did not
or will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, on the
Effective Date, the Prospectuses, if not filed pursuant to Rule
424(b), did not or will not, and on the date of any filing pursuant to
Rule 424(b) and on the Closing Date and any Settlement Date, the
Prospectuses (together with any supplement thereto) will not, include
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or
warranties as to the information contained in or omitted from the
Registration Statement or the Prospectuses (or any supplement
thereto) in reliance upon and in conformity with information furnished
in writing to the Company by or on behalf of any U.S. Underwriter
through the U.S. Representatives specifically for inclusion in the
Registration Statement or the U.S. Prospectus (or any supplement
thereto).
(iii) The Company and its subsidiaries listed in Schedule II
attached hereto (individually, a "Subsidiary" and collectively, the
"Subsidiaries") have in effect all the telecommunications regulatory
licenses, permits, authorizations, consents and
<PAGE> 5
5
approvals ("Telecommunications Licenses") required to be obtained from
the Federal Communications Commission ("FCC") for the Company and its
Subsidiaries to conduct their respective businesses as presently
conducted and, to the extent required, have filed applications,
received comfort letters, or obtained Telecommunications Licenses from
the applicable regulatory authorities outside the United States,
except for Telecommunications Licenses that the failure to obtain
would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. The Company and its Subsidiaries are
not required to obtain any Telecommunications Licenses or to file any
tariffs for telecommunications services in the States of New York,
Nebraska or Delaware, those states where it is currently qualified to
transact business, because the Company and its Subsidiaries do not
market intrastate services and do not provide intrastate
telecommunications services in those states. To the best of the
Company's knowledge, the Telecommunications Licenses obtained by the
Company or its Subsidiaries have been duly and validly issued and are
in full force and effect and no proceedings to revoke or restrict such
Telecommunications Licenses are pending or threatened, except that the
Section 214 UK Facilities Authorization (as such term is defined in
the Prospectuses) is still subject to third party petitions for
reconsideration up to and until October 21, 1996, and the Section 214
Global Authorization (as such term is defined in the Prospectuses)
and the Section 214 UK Authorization are subject to FCC
reconsideration on its own motion up to and until October 22, 1996 and
October 30, 1996, respectively. In addition, the Company and its
Subsidiaries have in effect with the FCC all international switched,
international private line and/or United States domestic interexchange
service tariffs necessary to conduct their respective businesses in
the manner presently conducted, except to the extent that the failure
to file such tariffs would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
(iv) The Company and its Subsidiaries are not in violation of
any rule or regulation or any judgment, injunction, order or decree of
the FCC or of the telecommunications regulatory authority of the
States of New York, Nebraska or Delaware or of any foreign
<PAGE> 6
6
jurisdiction in which the Company or its Subsidiaries conduct business
having jurisdiction over the Company or the Subsidiaries,
respectively, or over their respective properties except for
violations which would not have a material adverse effect on the
Company and its Subsidiaries, taken as a whole.
(v) Except as described in the Prospectuses, within and
between the member states of the European Union (as defined in the
Prospectuses) where the Company operates, the Company is not offering
services that are prohibited as Voice Telephony (as defined in the
Prospectuses). The Company and its Subsidiaries are not in violation
of any of the terms and conditions of any of the Telecommunications
Licenses and are not in violation of any of the applicable statutes,
ordinances, rules, regulations or laws of any of the respective
countries in which the Company or its Subsidiaries conduct their
respective businesses, except to the extent that such violation would
not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, and except as described in the
Prospectuses.
(vi) The Company is not offering services within Switzerland
or Japan or between either of these countries and any other country,
that are prohibited by Switzerland or Japan.
(vii) The Company is using its leased line between the United
States and the United Kingdom only for calls that (1) originate in one
of those countries and terminate in the other, (2) originate or
terminate in countries which the FCC deems to be "equivalent" or (3)
originate in third countries and are routed between such countries and
the United Kingdom end of the leased line over the international
public switched telephone network as International Message
Telecommunications Services ("IMTS").
(viii) There is no outstanding adverse judgment, injunction,
decree or order that has been issued by the Public Utilities
Commission ("PUC") of the States of New York, Nebraska or Delaware
against the Company or any of its Subsidiaries or any action,
proceeding or investigation pending before or threatened by the PUC of
the States of New York, Nebraska or Delaware against the Company or
any of its Subsidiaries which would have
<PAGE> 7
7
a material adverse effect on the Company and its Subsidiaries, taken
as a whole.
(ix) The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "the Effective Date"
shall mean each date that the Registration Statement, any
post-effective amendment or amendments thereto and any Rule 462(b)
Registration Statement became or become effective. "Execution Time"
shall mean the date and time that this Agreement is executed and
delivered by the parties hereto. The "U.S. Preliminary Prospectus"
and the "International Preliminary Prospectus", respectively, shall
mean any preliminary prospectus with respect to the offering of the
U.S. Securities and the International Securities, as the case may be,
referred to in paragraph (i) above and any preliminary prospectus with
respect to the offering of the U.S. Securities and the International
Securities, as the case may be, included in the Registration Statement
at the Effective Date that omits Rule 430A Information; and the U.S.
Preliminary Prospectus and the International Preliminary Prospectus
are hereinafter collectively called the "Preliminary Prospectuses".
"Registration Statement" shall mean the registration statement
referred to in paragraph (i) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date (as hereinafter defined), shall also mean such registration
statement as so amended or such Rule 462(b) Registration Statement, as
the case may be. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by
Rule 430A. "Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act. "Rule 430A Information" means information with respect
to the Securities and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to
Rule 430A. "Rule 462(b) Registration Statement" shall mean a
registration statement and any amendments thereto filed pursuant to
Rule 462(b) relating to the offering covered by the initial
registration statement (file number 333-09699). "United States or
Canadian Person" shall mean any person who is a national or resident
of the
<PAGE> 8
8
United States or Canada, any corporation, partnership, or other entity
created or organized in or under the laws of the United States or
Canada or of any political subdivision thereof, or any estate or trust
the income of which is subject to United States or Canadian Federal
income taxation, regardless of its source (other than any non-United
States or non-Canadian branch of any United States or Canadian
Person), and shall include any United States or Canadian branch of a
person other than a United States or Canadian Person. "U.S." or
"United States" shall mean the United States of America (including the
states thereof and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction.
2. Purchase and Sale. (a) Subject to the terms and
conditions and in reliance upon the representations and warranties herein set
forth, the Company agrees to sell to each U.S. Underwriter, and each U.S.
Underwriter agrees, severally and not jointly, to purchase from the Company, at
a purchase price of $ per share, the amount of the U.S. Underwritten
Securities set forth opposite such U.S. Underwriter's name in Schedule I
hereto, plus any additional number of Securities which such U.S. Underwriter
may be obligated to purchase pursuant to Section 9 of this Agreement. It is
understood that the Company is not obligated to sell, and the U.S. Underwriters
are not obligated to purchase, any U.S. Underwritten Securities, unless all the
International Underwritten Securities are contemporaneously purchased by the
International Underwriters.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby grants
an option to the several U.S. Underwriters to purchase, severally and not
jointly, up to 780,030 shares of the U.S. Option Securities at the same
purchase price per share as the U.S. Underwriters shall pay for the U.S.
Underwritten Securities. Said option may be exercised only to cover
over-allotments in the sale of the U.S. Underwritten Securities by the U.S.
Underwriters. Said option may be exercised in whole or in part at any time
(but not more than once) on or before the 30th day after the date of the U.S.
Prospectus upon written notice by the U.S. Representatives to the Company
setting forth the number of shares of the U.S. Option Securities as to which
the several U.S. Underwriters are exercising the option and, subject to
Section 3 hereof, the Settlement Date. The Settlement Date
<PAGE> 9
9
may be the same as the Closing Date but not earlier than the Closing Date nor
later than ten business days after the date of such notice. Delivery of
certificates for the shares of U.S. Option Securities by the Company and
payment therefor to the Company shall be made as provided in Section 3 hereof.
The number of shares of the U.S. Option Securities to be purchased by each U.S.
Underwriter shall be the same percentage of the total number of shares of the
U.S. Option Securities to be purchased by the several U.S. Underwriters as such
U.S. Underwriter is purchasing of the U.S. Underwritten Securities, subject to
such adjustments as you in your absolute discretion shall make to eliminate any
fractional shares.
3. Delivery and Payment. Delivery of and payment for the U.S.
Underwritten Securities and the U.S. Option Securities (if the option provided
for in Section 2(b) hereof shall have been exercised on or before the second
business day prior to the Closing Date) shall be made at 10:00 a.m., New York
City time, on , 1996, or such later date (not later than
, 1996) as the U.S. Representatives and the International Representatives shall
designate, which date and time may be postponed by agreement among the U.S.
Representatives, the International Representatives and the Company or as
provided in Section 9 hereof (such date and time of delivery and payment for
the U.S. Securities being herein called the "Closing Date"). Delivery of the
U.S. Securities shall be made to the U.S. Representatives for the respective
accounts of the several U.S. Underwriters against payment by the several U.S.
Underwriters through the U.S. Representatives of the purchase price thereof to
or upon the order of the Company by wire transfer of New York Clearing House
same day funds. Delivery of the U.S. Underwritten Securities and the U.S.
Option Securities shall be made at such location as the U.S. Representatives
shall reasonably designate at least one business day in advance of the Closing
Date and payment for such U.S. Securities shall be made at the office of
Cravath, Swaine & Moore or at such location as may be agreed to by the U.S.
Representatives and the Company. Certificates for the U.S. Securities shall be
registered in such names and in such denominations as the U.S. Representatives
may request not less than two full business days in advance of the Closing
Date.
The Company agrees to have the U.S. Securities available for
inspection, checking and packaging by the U.S.
<PAGE> 10
10
Representatives in New York, New York, not later than 1:00 p.m. on the business
day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised
after the second business day prior to the Closing Date, the Company will
deliver (at the expense of the Company) to the U.S. Representatives, at Seven
World Trade Center, New York, New York or at such location as may be agreed to
by the U.S. Representatives and the Company, on the date specified by the U.S.
Representatives (which shall be within three business days after exercise of
said option), certificates for the U.S. Option Securities in such names and
denominations as the U.S. Representatives shall have requested against payment
of the purchase price thereof to or upon the order of the Company by wire
transfer of New York Clearing House same day funds. If settlement for the U.S.
Option Securities occurs after the Closing Date, the Company will deliver to
the U.S. Representatives on the Settlement Date for the U.S. Option Securities,
and the obligation of the U.S. Underwriters to purchase the U.S. Option
Securities shall be conditioned upon receipt of, supplemental opinions,
certificates and letters confirming as of such date the opinions, certificates
and letters delivered on the Closing Date pursuant to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the International Underwriting
Agreement, and that the Settlement Date, if any, shall occur simultaneously
with the "Settlement Date" under the International Underwriting Agreement.
4. Offering by U.S. Underwriters. It is understood that the
several U.S. Underwriters propose to offer the U.S. Securities for sale to the
public as set forth in the U.S. Prospectus.
5. Agreements.
(a) The Company agrees with the several U.S. Underwriters
that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereof to become effective. Prior to the termination
of the offering of the Securities, the Company will not file any
amendment to the Registration Statement, supplement to the
<PAGE> 11
11
Prospectuses or any Rule 462(b) Registration Statement without your
prior consent. Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule 430A, or
filing of the Prospectuses is otherwise required under Rule 424(b),
the Company will cause the Prospectuses, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the U.S. Representatives of
such timely filing. Upon your request, the Company will cause the
Rule 462(b) Registration Statement, completed in compliance with the
Act and the applicable rules and regulations thereunder, to be filed
with the Commission pursuant to Rule 462(b) and will provide evidence
satisfactory to the U.S. Representatives of such filing. The Company
will promptly advise the U.S. Representatives (A) when the
Registration Statement, if not effective at the Execution Time, and
any amendment thereto, shall have become effective, (B) when the
Prospectuses, any supplement thereto or any Rule 462(b) Registration
Statement, shall have been filed (if required) with the Commission
pursuant to Rule 424(b), (C) when, prior to termination of the
offering of the Securities, any amendment to the Registration
Statement shall have been filed or become effective, (D) of any
request by the Commission for any amendment to the Registration
Statement, or any Rule 462(b) Registration Statement, or supplement to
the Prospectuses or for any additional information, (E) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (F) of the receipt
by the Company of any notification with respect to the suspension of
the qualification of the Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such
stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which either of the Prospectuses as then supplemented
would include any untrue statement of a material fact or omit to state
<PAGE> 12
12
any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or if it shall be necessary to amend the Registration Statement or
supplement either of the Prospectuses to comply with the Act or the
rules and regulations thereunder, the Company promptly will (i)
prepare and file with the Commission, subject to the second sentence
of paragraph (a) of this Section 5, an amendment or supplement which
will correct such statement or omission or effect such compliance and
(ii) supply any supplemented Prospectuses to you in such quantities as
you may reasonably request.
(iii) As soon as practicable, the Company will make generally
available to its security holders and to the U.S. Representatives an
earnings statement or statements of the Company and its Subsidiaries
which will satisfy the provisions of Section 11(a) of the Act and Rule
158 under the Act.
(iv) The Company will furnish to the U.S. Representatives
and counsel for the U.S. Underwriters, without charge, signed copies
of the Registration Statement (including exhibits thereto) and to each
other U.S. Underwriter a copy of the Registration Statement (without
exhibits thereto) and, so long as delivery of a prospectus by a U.S.
Underwriter or dealer may be required by the Act or otherwise
required, as many copies of each of the U.S. Preliminary Prospectus
and the U.S. Prospectus and any supplement thereto as the U.S.
Representatives may reasonably request. The Company will furnish or
cause to be furnished to the U.S. Representatives copies of all
reports on Form SR required by Rule 463 under the Act. The Company
will pay the expenses of printing or other production of all documents
relating to the offering.
(v) The Company will endeavor, in good faith, in
cooperation with the U.S. Representatives to arrange for the
qualification of the Securities for sale under the laws of such
jurisdictions as the U.S. Representatives may designate, will maintain
such qualifications in effect so long as required for the distribution
of the Securities; provided, however, that the Company shall not be
required to qualify as a foreign corporation or file a general consent
to service of process in any such jurisdiction; and will
<PAGE> 13
13
pay the fee of the National Association of Securities Dealers, Inc.,
in connection with its review of the offering.
(vi) The Company will not, for a period of 180 days
following the Execution Time, without the prior written consent of
Salomon Brothers Inc, offer, sell or contract to sell, or otherwise
dispose of, directly or indirectly, or announce the offering of, any
other shares of Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock; provided, however, that the
Company may issue and sell Common Stock pursuant to any employee stock
option plan of the Company in effect at the Execution Time.
(vii) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 517.075, Florida
Statutes, relating to issuers doing business with the Government of
Cuba or with any person or affiliate located in Cuba, and the Company
further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba
after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if
the information reported in the Prospectuses, if any, concerning the
Company's business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a
form acceptable to the Department.
(b) Each U.S. Underwriter agrees with the Company that
(i) it is not purchasing any of the U.S. Securities for the account of anyone
other than a United States or Canadian Person, (ii) it has not offered or sold,
and will not offer or sell, directly or indirectly, any of the U.S. Securities
or distribute any U.S. Prospectus to any person outside of the United States or
Canada, or to anyone other than a United States or Canadian Person, and (iii)
any dealer to whom it may sell any of the U.S. Securities will represent that
it is not purchasing for the account of anyone other than a United States or
Canadian Person and agree that it will not offer or resell, directly or
indirectly, any of the U.S. Securities outside of the United States or Canada,
or
<PAGE> 14
14
to anyone other than a United States or Canadian Person or to any other dealer
who does not so represent and agree; provided, however, that the foregoing
shall not restrict (A) purchases and sales between the U.S. Underwriters on the
one hand and the International Underwriters on the other hand pursuant to the
Agreement Between U.S. Underwriters and International Underwriters, (B)
stabilization transactions contemplated under the Agreement Between U.S.
Underwriters and International Underwriters, conducted through Salomon Brothers
Inc (or through the U.S. Representatives and the International Representatives)
as part of the distribution of the Securities, and (C) sales to or through (or
distributions of U.S. Prospectuses or U.S. Preliminary Prospectuses to) United
States or Canadian Persons who are investment advisors, or who otherwise
exercise investment discretion, and who are purchasing for the account of
anyone other than a United States or Canadian Person.
(c) The agreements of the U.S. Underwriters set forth in
paragraph (b) of this Section 5 shall terminate upon the earlier of the
following events:
(i) a mutual agreement of the U.S. Representatives and
the International Representatives to terminate the selling
restrictions set forth in paragraph (b) of this Section 5 and in
Section 5(b) of the International Underwriting Agreement; or
(ii) the expiration of a period of 30 days after the
Closing Date, unless (A) the International Representatives shall have
given notice to the Company and the U.S. Representatives that the
distribution of the International Securities by the International
Underwriters has not yet been completed, or (B) the U.S.
Representatives shall have given notice to the Company and the
International Underwriters that the distribution of the U.S.
Securities by the U.S. Underwriters has not yet been completed. If
such notice by the U.S. Representatives or the International
Representatives is given, the agreements set forth in such paragraph
(b) shall survive until the earlier of (1) the event referred to in
clause (i) of this subsection (c) or (2) the expiration of an
additional period of 30 days from the date of any such notice.
6. Conditions to the Obligations of the U.S. Underwriters.
The obligations of the U.S. Underwriters to purchase the U.S. Underwritten
Securities and the U.S.
<PAGE> 15
15
Option Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as
of the Execution Time, the Closing Date and any Settlement Date pursuant to
Section 3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional
conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the U.S. Representatives and the
International Representatives agree in writing to a later time, the
Registration Statement will become effective not later than (i) 5:30 p.m., New
York City time, on the date of determination of the public offering price, if
such determination occurred at or prior to 3:00 p.m., New York City, time on
such date or (ii) 12:00 noon on the business day following the day on which the
public offering price was determined, if such determination occurred after 3:00
p.m., New York City time, on such date; if filing of either of the
Prospectuses, or any supplement thereto, is required pursuant to Rule 424(b),
the Prospectuses, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the U.S.
Representatives the opinion of Sheldon M. Goldman, Esq., U.S. General Counsel,
for the Company, dated the Closing Date, to the effect that:
(i) each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full
corporate power and corporate authority to own its properties and to
conduct its business as described in the Prospectuses, and is duly
qualified to transact business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or
conducts material business, except to the extent that the failure to
be so qualified or to be in good standing would not have a
<PAGE> 16
16
material adverse effect on the Company and its Subsidiaries, taken as
a whole, or such other opinion as is satisfactory to counsel for the
U.S. Underwriters;
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly authorized and are validly issued, fully
paid and nonassessable, all outstanding shares of capital stock of the
Subsidiaries are owned by the Company, either directly or through
wholly owned subsidiaries, free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry
(without investigation of the laws of any jurisdiction other than New
York), any other security interests, claims, liens or encumbrances, or
such other opinion as is satisfactory to counsel for the U.S.
Underwriters;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectuses under the caption "Description of Capital
Stock"; the capital stock of the Company conforms to the description
thereof contained in the Prospectuses; the outstanding shares of
Common Stock have been duly authorized and are validly issued, fully
paid and nonassessable; the Securities have been duly authorized, and,
when issued and delivered to and paid for by the U.S. Underwriters
pursuant to this Agreement and by the International Underwriters
pursuant to the International Underwriting Agreement, will be validly
issued, fully paid and nonassessable; the certificates for the
Securities are in valid and sufficient form; and the holders of
outstanding shares of capital stock of the Company are not entitled to
preemptive or other rights to subscribe for the Securities;
(iv) to the best knowledge of such counsel, there are no
pending or threatened actions, suits or proceedings before any court
or governmental agency, authority or body or any arbitrator involving
the Company or any of its Subsidiaries of a character required to be
disclosed in the Registration Statement or the Prospectuses which are
not adequately described therein, and there is no franchise, contract
or other document of a character required to be described in the
Registration Statement or the Prospectuses, or to be filed as an
exhibit to the Registration Statement, which is not described or filed
as required; and the statements in the Prospectuses under the caption
"Business--Legal Proceedings" present the information
<PAGE> 17
17
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(v) this Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Company;
(vi) no consent, approval, authorization or order of any
court or governmental agency or body is required by the Company or any
of the Subsidiaries for the consummation of the transactions
contemplated herein or in the International Underwriting Agreement;
provided, that such counsel need not express an opinion with respect
to state securities or Blue Sky laws or statutes, rules and
regulations relating to the FCC and matters regulated by the FCC or
statutes, rules and regulations relating to foreign telecommunications
regulatory authorities and matters regulated by such authorities;
(vii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions contemplated herein or
in the International Underwriting Agreement nor the fulfillment of the
terms hereof or thereof will conflict with, result in a breach or
violation of, or constitute a default under any provision of
applicable law or the certificate of incorporation or by-laws of the
Company or, to the best of such counsel's knowledge, the terms of any
indenture or other agreement or instrument to which the Company or any
of its Subsidiaries is a party or bound that is material to the
Company and its Subsidiaries, taken as a whole, or, to the best of
such counsel's knowledge, any judgment, injunction, order or decree of
any court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over the Company or any of its
Subsidiaries; and
(viii) no holders of securities of the Company have rights to
the registration of such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the State of New York,
the United States or the General Corporation Law of the State of Delaware, to
the extent such counsel deems proper and as
<PAGE> 18
18
specified in such opinion, upon the opinion of other counsel of good standing
whom such counsel believes to be reliable and who are satisfactory to counsel
for the U.S. Underwriters and (B) as to matters of fact, to the extent deemed
proper, on certificates of responsible officers of the Company and public
officials. References to the Prospectuses in this paragraph (b) include any
supplements thereto at the Closing Date.
In addition, such counsel shall state that nothing has come to his attention
that leads him to believe that the Registration Statement at the time the
Registration Statement became effective (other than the financial statements
and supporting notes and schedules and other financial and statistical data
contained therein, as to which such counsel need not comment) contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectuses (other than the financial
statements and supporting notes and schedules and other financial and
statistical data contained therein, as to which such counsel need not comment)
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) The Company shall have furnished to the U.S.
Representatives the opinion of Kelley Drye & Warren LLP, special counsel for
the Company, dated the Closing Date, to the effect that:
(i) each of the Company and YYC Communications, Inc. (the
"U.S. Subsidiary") has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware with full corporate power and corporate authority to own its
properties and to conduct its business as described in the
Prospectuses, and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or
leases material properties or conducts material business, except to
the extent that the failure to be so qualified or to be in good
standing would not have a material adverse effect on the Company and
its Subsidiaries, taken as a whole;
<PAGE> 19
19
(ii) the Company's authorized equity capitalization is as set
forth in the Prospectuses under the caption "Description of Capital
Stock"; the capital stock of the Company conforms to the description
thereof contained under the captions "Description of Capital
Stock--Common Stock" and "Description of Capital Stock--Preferred
Stock" in the Prospectuses and the capital stock of the Company
conforms in all material respects to the description thereof contained
under the caption "Description of Capital Stock--General" in the
Prospectuses; the Securities have been duly authorized, and, when
issued and delivered to and paid for by the U.S. Underwriters pursuant
to this Agreement and by the International Underwriters pursuant to
the International Underwriting Agreement, will be validly issued,
fully paid and nonassessable; and the certificates for the Securities
are in valid and sufficient form;
(iii) the Registration Statement has become effective under
the Act; any required filing of the Prospectuses, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); to the best knowledge
of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that
purpose have been instituted or threatened and the Registration
Statement and each of the Prospectuses (other than the financial
statements and supporting notes and schedules and other financial and
statistical data contained therein as to which such counsel need not
comment) comply as to form in all material respects with the
applicable requirements of the Act and the rules thereunder;
(iv) this Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the
Company;
(v) to the best of such counsel's knowledge, no consent,
approval, authorization or order of any court or governmental agency
or body is required by the Company or any of the Subsidiaries for the
consummation of the transactions contemplated herein or in the
International Underwriting Agreement; provided, that such counsel need
not express an opinion with respect to state securities or Blue Sky
laws or statutes, rules
<PAGE> 20
20
and regulations relating to the FCC and matters regulated by the FCC;
and
(vi) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions contemplated herein or
in the International Underwriting Agreement nor the fulfillment of the
terms hereof or thereof will conflict with, result in a breach or
violation of, or constitute a default under any provision of
applicable law or the certificate of incorporation or by-laws of the
Company or, to the best of such counsel's knowledge, the terms of any
indenture or other agreement or instrument to which the Company or any
of its Subsidiaries is a party or bound that is material to the
Company and its Subsidiaries, taken as a whole, or, to the best of
such counsel's knowledge, any judgment, injunction, order or decree of
any court, regulatory body, administrative agency, governmental body
or arbitrator having jurisdiction over the Company or any of its
Subsidiaries.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the State of New York,
the United States or the General Corporation Law of the State of Delaware, to
the extent such counsel deems proper and as specified in such opinion, upon the
opinion of other counsel of good standing whom such counsel believes to be
reliable and who are satisfactory to counsel for the U.S. Underwriters and (B)
as to matters of fact, to the extent such counsel deems proper, on certificates
of responsible officers of the Company and public officials. References to the
Prospectuses in this paragraph (c) include any supplements thereto at the
Closing Date.
In addition, such counsel shall state that nothing has come to
their attention that leads them to believe that the Registration Statement at
the time the Registration Statement became effective (other than the financial
statements and supporting notes and schedules and other financial and
statistical data contained therein, as to which such counsel need not comment)
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectuses (other than the
financial statements and supporting notes and schedules and other financial and
statistical data contained therein, as to which such counsel
<PAGE> 21
21
need not comment) contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. In
rendering such opinion, such counsel may state that their opinion and belief is
based upon their participation in the preparation of the Registration Statement
and Prospectuses and review and discussion of the contents thereof, but is
without independent check or verification.
(d) The Company shall have furnished to the U.S.
Representatives the opinion of Morrison & Foerster LLP, special communications
counsel for the Company, dated the Closing Date, to the effect that:
(i) the Section 214 Private Line Authorization, the Section
214 Switched Authorization, the Section 214 Global Authorization and
the Section 214 UK Facilities Authorization (as such terms are defined
in the Prospectuses) are the only Telecommunications Licenses required
from the FCC for the Company and its Subsidiaries to conduct their
business as presently conducted, except for FCC Telecommunications
Licenses that the failure to obtain would not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole. The FCC
Telecommunications Licenses currently held by the Company and its
Subsidiaries have been duly and validly issued and are in full force
and effect, and to the best knowledge of such counsel no proceedings to
revoke or restrict such FCC Telecommunications Licenses are pending or
threatened, except that the Section 214 Global Authorization and the
Section 214 UK Facilities Authorization and are still subject to FCC
reconsideration on its own motion up to and until October 22, 1996 and
October 30, 1996, respectively. To the best of such counsel's
knowledge after due inquiry and based upon a certificate of an officer
of the Company, a copy of which is attached to such opinion as an
exhibit (stating that the Company is using its leased line between the
United States and the United Kingdom only for calls that (1) originate
in one of those countries and terminate in the other, (2) originate or
terminate in countries which the FCC deems to be "equivalent" or (3)
originate in third
<PAGE> 22
22
countries and are routed between such countries and the United Kingdom
end of the leased line over the international public switched telephone
network as IMTS), the Company and its Subsidiaries are not in violation
of any of the terms and conditions of any of their FCC
Telecommunications Licenses, are not in violation of the Communications
Act and are not in violation of any FCC rules or regulations, except to
the extent that such violation would not have a material adverse effect
on the Company and its Subsidiaries, taken as a whole, and except as
described in the Prospectuses under the captions "Risk Factors --
Substantial Government Regulation" and "Business -- Government
Regulation -- Overview." Insofar as this opinion pertains to the
application or interpretation of any non-U.S. law, such counsel has
performed no due diligence in this regard other than discussing with
management of the Company the Company's operations and compliance with
applicable FCC requirements and reviewing any portions of the opinions
of local counsel of Argentina, Belgium, Brazil, Colombia, France,
Germany, Italy, Japan, Korea, the Netherlands, Spain, Switzerland, and
the United Kingdom specifically regarding the provision of
international call-back service in certain jurisdictions in which the
Company operates, without any further inquiry or any independent review
of any laws of any such jurisdictions. The Company and its Subsidiaries
have in effect with the FCC all international switched, international
private line and/or United States domestic interexchange service
tariffs necessary to conduct their respective businesses in the manner
presently conducted, except to the extent that the failure to file such
tariffs would not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole;
(ii) to the extent they constitute a summary of the legal
matters, documents or proceedings referred to therein, the statements
in the Prospectuses under the captions "Risk Factors--Substantial
Government Regulation," "Risk Factors--Competition," "Business--Market
Opportunity," "Business--Services," "Business--The Viatel Network,"
"Business--Competition" and "Business--Government Regulation," fairly
present the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to
therein;
(iii) the Company and its Subsidiaries are not required to
obtain any state Telecommunications Licenses or to file any tariffs
required for the provision of telecommunications services in the
States of New York, Nebraska or Delaware to conduct their respective
businesses as presently conducted;
(iv) there is no outstanding adverse judgment, injunction,
decree or order that has been issued by the FCC against the Company or
any of its Subsidiaries or, to the best of such counsel's knowledge
after due inquiry, any action, proceeding or investigation pending
before the FCC or pending or threatened by the FCC against the Company
or any of its Subsidiaries which, if the subject of an unfavorable
decision,
<PAGE> 23
23
ruling or finding, would have a material adverse effect on the Company
and its Subsidiaries, taken as a whole, except that the Section 214
Global Authorization and the Section 214 UK Facilities Authorization
are still subject to FCC reconsideration on its own motion up to and
until October 22, 1996 and October 30, 1996, respectively;
(v) based on discussions with management, an inquiry
concerning and review of relevant publicly available documents and a
certificate of an officer of the Company, a copy of which is attached
to such opinion as an exhibit, there is no outstanding adverse
judgment, injunction, decree or order that has been issued by the PUC
of the States of New York, Nebraska or Delaware against the Company or
any of its Subsidiaries or, to the best of such counsel's knowledge
after due inquiry, any action, proceeding or investigation pending
before or threatened by the PUC of the States of New York, Nebraska or
Delaware against the Company or any of its Subsidiaries which, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Company and its Subsidiaries, taken as
a whole;
(vi) no license, permit, consent, approval, order or
authorization of, or filing with, the FCC or with the PUC of the
States of New York, Nebraska or Delaware on the part of the Company or
its Subsidiaries is required in connection with the issuance of the
Securities; and
(vii) neither the issue and sale of the Securities nor the
performance by the Company of its obligations under this Agreement or
the International Underwriting Agreement will result in a violation of
the Communications Act, or any applicable rules or the regulations
promulgated under the Communications Act binding on the Company or its
Subsidiaries or, to the best of such counsel's knowledge after due
inquiry, any order, writ, judgment, injunction, decree or award of the
FCC binding on the Company or its Subsidiaries.
In rendering such opinion, such counsel may rely (A) with respect to the
opinion expressed in paragraphs (iii) and
<PAGE> 24
24
(vi) above on a certificate of officers of the Company, a copy of which shall
be attached to such opinion as an exhibit, to the effect that the Company's
business as conducted does not and will not until the proper regulatory
approvals are obtained, allow intrastate calls originating and terminating in
the States of New York, Nebraska or Delaware, (B) to the extent such counsel
deems proper and as specified in such opinion, upon the opinion of other
counsel of good standing whom such counsel believes to be reliable and who are
satisfactory to counsel for the U.S. Underwriters and (C) as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which shall be attached
to such counsel's opinion as exhibits. References to the Prospectuses in this
paragraph (d) include any supplements thereto at the Closing Date.
Such counsel also shall state that the Section 214 Switched Authorization, the
Section 214 Private Line Authorization and the Section 214 Global Authorization
require the Company and its Subsidiaries to provide any international
call-back service using uncompleted call signaling in a manner that is
consistent with the laws of the countries in which they operate. Such counsel
shall state that although such counsel does not provide legal services to the
Company or its Subsidiaries regarding the application or interpretation of any
non-U.S. law and although such counsel has performed no due diligence in this
regard other than discussing with management of the Company the Company's
operations and compliance with applicable FCC requirements and reviewing any
portions of
<PAGE> 25
25
the opinions of local counsel of Argentina, Belgium, Brazil, Colombia, France,
Germany, Italy, Japan, Korea, the Netherlands, Spain, Switzerland, and the
United Kingdom specifically regarding the provision of international call-back
service in certain jurisdictions in which the Company operates, such counsel is
not aware of any non-compliance in the provision of international call-back
service by the Company with the laws of any foreign jurisdiction in which the
Company operates that would constitute a violation of the Section 214 Switched
Authorization, the Section 214 Private Line Authorization or the Section 214
Global Authorization and have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. For the purpose of making such statement, such
counsel may rely, to the extent such counsel deems proper and as specified in
such opinion, upon such counsel's review of any portions of the opinions of
local counsel of Argentina, Belgium, Brazil, Colombia, France, Germany, Italy,
Japan, Korea, the Netherlands, Spain, Switzerland, and the United Kingdom
specifically regarding the provision of international call-back service
provided by the Company, without any further inquiry or any independent review
of any laws of any such jurisdictions.
(e) The Company shall have furnished to the U.S. Representatives the
opinions of local counsel of good standing whom the Company believes to be
reliable, and who are satisfactory to counsel for the U.S. Underwriters, in
each of Argentina, Belgium, Brazil, Colombia, France, Germany, Italy, Japan,
Korea, the Netherlands, Spain, Switzerland, and the United Kingdom dated the
Closing Date, or such date prior to the Closing Date as is satisfactory to
counsel for the U.S. Underwriters, in the following form or in such other form
as is acceptable to counsel for the U.S. Underwriters:
(i) if applicable to such country, each of the Subsidiaries
operating in such country (the "Local Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full
corporate power and corporate authority to own its properties and to
conduct its business as described in the Prospectuses, and is duly
qualified to transact business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or
conducts material business, except to the extent that the failure to
be so qualified or to be in good standing would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole;
(ii) all the outstanding shares of capital stock of the Local
Subsidiaries have been duly authorized and are validly issued, fully
paid and nonassessable, and all outstanding shares of capital stock of
the Local Subsidiaries are owned by the Company, either directly or
through wholly owned subsidiaries, free and clear of any perfected
security interest and, to the best knowledge of such counsel, any
other security interests, claims, liens or encumbrances.
(iii) if applicable to such country, neither the issue and
sale of the Securities, nor the consummation of any other of the
transactions contemplated herein or
<PAGE> 26
26
in the International Underwriting Agreement nor the fulfillment of the
terms hereof or thereof will conflict with, result in a breach or
violation of, or constitute a default under any provision of
applicable law or the charter or by-laws of the Local Subsidiaries or,
to the best of such counsel's knowledge, the terms of any indenture or
other agreement or instrument to which any of the Local Subsidiaries
is a party or bound or, to the best of such counsel's knowledge, any
judgment, injunction, order or decree of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Local Subsidiaries;
(iv) the Company and the Local Subsidiaries have all
Telecommunications Licenses necessary for the Company and the Local
Subsidiaries to conduct their respective businesses as presently
conducted in such country except for Telecommunications Licenses that
the failure to obtain would not have a material adverse effect on the
Company or the Local Subsidiaries; to the knowledge of such counsel
such Telecommunications Licenses are in full force and effect and no
proceedings to revoke or restrict such Telecommunications Licenses are
pending or threatened; and to the knowledge of such counsel the
Company and its Subsidiaries are in material compliance with all of
the applicable telecommunications laws and rules and regulations of
such country; and
(v) to the knowledge of such counsel after due inquiry of
Company officers, the Company and the Local Subsidiaries are not in
violation of any telecommunications law, rule or regulation of such
country or of any judgment, injunction, order or decree of the
telecommunications regulatory authority having jurisdiction over the
Company or such Local Subsidiaries, respectively, or over its
properties except for violations which would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole.
In addition, counsel from European Union member states and from Switzerland
shall state in their opinions that the Company is not offering services that
are prohibited as Voice Telephony (as defined in the Prospectuses). Counsel
from Switzerland shall state that the Company is not offering services in
Switzerland or between Switzerland and any other country that are prohibited by
Switzerland.
<PAGE> 27
27
Counsel from Japan shall state that, to the best of such counsel's knowledge
based solely upon discussions with the Company's management and a certificate
from an officer of the Company, the Company's client in Japan is in material
compliance with all applicable telecommunications laws and related rules and
regulations in Japan. Additionally, counsel from the United Kingdom shall also
state that to the extent they constitute a summary of the legal matters,
documents or proceedings referred to therein, the statements in the
Prospectuses under the heading "Business--Government Regulation--Regulatory
Framework--Europe," fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the matters
referred to therein.
(f) The U.S. Representatives shall have received from
Cravath, Swaine & Moore, counsel for the U.S. Underwriters, such opinion or
opinions, dated the Closing Date, with respect to the issuance and sale of the
Securities, the Registration Statement, the Prospectuses (together with any
supplement thereto) and other related matters as the U.S. Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(g) The Company shall have furnished to the U.S.
Representatives a certificate of the Company, signed by (1) the Chairman of the
Board and Chief Executive Officer or the President and Chief Operating Officer
and (2) the Vice President, Finance, Treasurer and Chief Financial Officer of
the Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectuses, any supplements to the Prospectuses and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
<PAGE> 28
28
(iii) since the date of the most recent financial statements
included in the Prospectuses (exclusive of any supplement thereto),
there has been no material adverse change in the condition (financial
or otherwise), earnings, business or properties of the Company and its
Subsidiaries, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
(h) At the Execution Time and at the Closing Date, KPMG Peat
Marwick LLP shall have furnished to the U.S. Representatives a letter or
letters, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the U.S. Representatives,
confirming that they are independent accountants within the meaning of the Act
and the applicable published rules and regulations thereunder and that they
have performed a review of the unaudited financial information for the six
months ended June 30, 1996 in accordance with Statement of Auditing Standards
No. 71 and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedule included in the Registration Statement
and the Prospectuses and reported on by them comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
Subsidiaries; carrying out certain specified procedures (but not an
examination in accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter; a reading of the
minutes of the meetings of the stockholders, directors and
compensation and audit committees of the Company and the Subsidiaries;
and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company and
the Subsidiaries as to
<PAGE> 29
29
transactions and events subsequent to December 31, 1995, nothing came
to their attention which caused them to believe that:
(1) any unaudited financial statements included in
the Registration Statement and the Prospectuses do not comply
in form in all material respects with applicable accounting
requirements of the Act and with the published rules and
regulations of the Commission with respect to registration
statements on Form S-1; and said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement and the Prospectuses;
or
(2) with respect to the period subsequent to June 30,
1996, there were any changes, at a specified date not more
than five business days prior to the date of the letter, in
the long-term liabilities of the Company and its Subsidiaries
or capital stock of the Company and its Subsidiaries or
decreases in the total stockholders' equity of the Company as
compared with the amounts shown on the June 30, 1996
consolidated balance sheet included in the Registration
Statement and the Prospectuses; or for the period from July 1,
1996 to such specified date there were any decreases, as
compared with the corresponding period in the preceding year,
in telecommunications revenue or increases in net losses or in
total or per share amounts of net losses of the Company and
its Subsidiaries or in total operating expenses, except in all
instances for changes or decreases set forth in such letter,
in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof
unless said explanation is not deemed necessary by the U.S.
Representatives; or
(3) the information included in the Registration
Statement and the Prospectuses in response to Regulation S-K,
Item 301 (Selected Financial Data), Item 302 (Supplementary
Financial Information) and Item 402 (Executive Compensation)
<PAGE> 30
30
is not in conformity with the applicable disclosure
requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures
as a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its Subsidiaries) set
forth in the Registration Statement and the Prospectuses, including
the information set forth under the captions "Prospectus Summary",
"Risk Factors", "Use of Proceeds", "Capitalization", "Selected
Consolidated Financial and Other Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations",
"Business", "Management", and "Certain Transactions" in the
Prospectuses, agrees with the accounting records of the Company and
its Subsidiaries, excluding any questions of legal interpretation.
References to the Prospectuses in this paragraph (h) include
any supplement thereto at the date of the letter.
The U.S. Representatives shall have also received from KPMG
Peat Marwick LLP a letter stating that the Company's system of internal
accounting controls taken as a whole is sufficient to meet the broad objectives
of internal accounting control insofar as those objectives pertain to the
prevention or detection of errors or irregularities in amounts that would be
material in relation to the financial statements of the Company and its
Subsidiaries.
(i) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectuses (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in the
letter or letters referred to in paragraph (h) of this Section 6 or (ii) any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company and its Subsidiaries the effect of which,
in any case referred to in clause (i) or (ii) above, is, in the judgment of the
U.S. Representatives, so material and adverse as to make it impractical or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the
<PAGE> 31
31
Registration Statement (exclusive of any amendment thereof) and the
Prospectuses (exclusive of any supplement thereto).
(j) At the Execution Time, the Company shall have furnished
to the U.S. Representatives a letter substantially in the form of Exhibit A
hereto from each officer and director of the Company and each holder of one
percent (1%) or more of outstanding shares of Common Stock of the Company
addressed to the U.S. Representatives, in which each such person agrees not to
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offering of, any shares of Common Stock beneficially
owned by such person or any securities convertible into, or exchangeable for,
shares of Common Stock for a period of 180 days following the Execution Time
without the prior written consent of Salomon Brothers Inc, other than shares of
Common Stock disposed of as bona fide gifts.
(k) Prior to the Closing Date, the Company shall have
furnished to the U.S. Representatives such further information, certificates
and documents as the U.S. Representatives may reasonably request.
(l) The closing of the purchase of the International
Underwritten Securities to be issued and sold by the Company pursuant to the
International Underwriting Agreement shall occur concurrently with the closing
described herein.
(m) The Securities shall be duly authorized for listing,
subject to official notice of issuance, on the Nasdaq National Market
("Nasdaq").
(n) At the Execution Time and at the Closing Date, Edward
Isaacs & Company LLP shall have furnished to the U.S. Representatives a letter
or letters, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the U.S. Representatives,
confirming that they are independent accountants within the meaning of the Act
and the applicable published rules and regulations thereunder and that they
have performed specified procedures as a result of which they determined that
certain information of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information derived from the
general accounting records of the Company and its Subsidiaries) set forth in
the Registration Statement and the Prospectuses under the caption "Selected
Consolidated
<PAGE> 32
32
Financial and Other Data" agrees with the accounting records of the Company and
its Subsidiaries, excluding any questions of legal interpretation.
If any of the conditions specified in this Section 6 shall
not have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the U.S. Representatives and counsel for
the U.S. Underwriters, this Agreement and all obligations of the U.S.
Underwriters hereunder may be canceled at, or at any time prior to, the Closing
Date by the U.S. Representatives. Notice of such cancellation shall be given to
the Company in writing, by facsimile or by telephone confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Cravath, Swaine & Moore at Worldwide Plaza, 825
Eighth Avenue, New York, New York, on the Closing Date or such other place as
the U.S. Representatives and the Company shall mutually agree.
7. Reimbursement of U.S. Underwriters' Expenses. If the sale
of the Securities provided for herein is not consummated because any condition
to the obligations of the U.S. Underwriters set forth in Section 6 hereof is
not satisfied, because of any termination pursuant to Section 10 hereof or
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by any of the U.S. Underwriters, the Company will
reimburse the U.S. Underwriters severally upon demand for all out-of-pocket
expenses (including reasonable fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities.
8. Indemnification and Contribution. (a) The Company agrees
to indemnify and hold harmless each U.S. Underwriter, the directors, officers,
employees and agents of each U.S. Underwriter and each person who controls any
U.S. Underwriter within the meaning of either the Act or the Securities
Exchange Act of 1934 (the "Exchange Act") against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
<PAGE> 33
33
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Securities as originally filed or in any amendment thereof, or in any U.S.
or International Preliminary Prospectus or in either of the Prospectuses, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and agrees to reimburse each such indemnified party, as incurred, for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that (i) the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any U.S. Underwriter
through the U.S. Representatives specifically for inclusion therein and (ii)
with respect to any untrue statement or omission of a material fact made in any
U.S. Preliminary Prospectus, the indemnity agreement contained in this Section
8(a) shall not inure to the benefit of any U.S. Underwriter (or any of the
directors, officers, employees and agents of such U.S. Underwriter or any
controlling person of such U.S. Underwriter) from whom the person asserting any
such loss, claim, damage or liability purchased the Securities concerned, to
the extent that any such loss, claim, damage or liability of such U.S.
Underwriter occurs under the circumstances where it shall have been determined
by a court of competent jurisdiction by final and nonappealable judgment that
(w) the Company had previously furnished copies of the U.S. Prospectus to the
U.S. Underwriters, (x) delivery of the U.S. Prospectus was required by the Act
to be made to such person, (y) the untrue statement or omission of a material
fact contained in the U.S. Preliminary Prospectus was corrected in the U.S.
Prospectus and (z) there was not sent or given to such person, at or prior to
the written confirmation of the sale of such Securities to such person, a copy
of the U.S. Prospectus. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
<PAGE> 34
34
(b) Each U.S. Underwriter severally agrees to indemnify and
hold harmless the Company, each of its directors, each of its officers who
signs the Registration Statement, and each person who controls the Company
within the meaning of either the Act or the Exchange Act, to the same extent as
the foregoing indemnity from the Company to each U.S. Underwriter, but only
with reference to written information relating to such U.S. Underwriter
furnished to the Company by or on behalf of such U.S. Underwriter through the
U.S. Representatives specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to any
liability which any U.S. Underwriter may otherwise have. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and under the heading "Underwriting" in any U.S. or International
Preliminary Prospectus and the Prospectuses constitute the only information
furnished in writing by or on behalf of the several U.S. Underwriters for
inclusion in any U.S. or International Preliminary Prospectus or the
Prospectuses, and you, as the U.S. Representatives, confirm that such
statements are correct.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall
<PAGE> 35
35
have the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise
or consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the U.S. Underwriters agree
to contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) (collectively "Losses") to which the Company
and one or more of the U.S. Underwriters may be subject in such proportion as
is appropriate to reflect the relative benefits received by the Company and by
the U.S. Underwriters from the offering of the U.S. Securities; provided,
however, that in no case shall any U.S. Underwriter (except as may be provided
in any agreement among underwriters relating to the offering of the U.S.
Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such U.S.
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any
<PAGE> 36
36
reason, the Company and the U.S. Underwriters shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of the Company and of the U.S. Underwriters in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company shall be deemed to be equal to the total net proceeds from the offering
(before deducting expenses), and benefits received by the U.S. Underwriters
shall be deemed to be equal to the total underwriting discounts and
commissions, in each case as set forth on the cover page of the U.S.
Prospectus. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
Company or the U.S. Underwriters. The Company and the U.S. Underwriters agree
that it would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls a
U.S. Underwriter within the meaning of either the Act or the Exchange Act and
each director, officer, employee and agent of a U.S. Underwriter shall have
the same rights to contribution as such U.S. Underwriter, and each person who
controls the Company within the meaning of either the Act or the Exchange Act,
each officer of the Company who shall have signed the Registration Statement
and each director of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of
this paragraph (d).
9. Default by a U.S. Underwriter. If any one or more U.S.
Underwriters shall fail to purchase and pay for any of the U.S. Securities
agreed to be purchased by such U.S. Underwriter or U.S. Underwriters hereunder
and such failure to purchase shall constitute a default in the performance of
its or their obligations under this Agreement, the remaining U.S. Underwriters
shall be obligated severally to take up and pay for (in the respective
proportions which the amount of U.S. Securities set forth opposite their names
in Schedule I hereto bears to the aggregate amount of U.S. Securities set forth
opposite the names of all the remaining U.S. Underwriters) the U.S.
<PAGE> 37
37
Securities which the defaulting U.S. Underwriter or U.S. Underwriters agreed
but failed to purchase; provided, however, that in the event that the aggregate
amount of U.S. Securities which the defaulting U.S. Underwriter or U.S.
Underwriters agreed but failed to purchase shall exceed 10% of the aggregate
amount of U.S. Securities set forth in Schedule I hereto, the remaining U.S.
Underwriters shall have the right to purchase all, but shall not be under any
obligation to purchase any, of the U.S. Securities, and if such nondefaulting
U.S. Underwriters do not purchase all the U.S. Securities, this Agreement will
terminate without liability to any nondefaulting U.S. Underwriter or the
Company. In the event of a default by any U.S. Underwriter as set forth in
this Section 9, the Closing Date shall be postponed for such period, not
exceeding seven days, as the U.S. Representatives shall determine in order that
the required changes in the Registration Statement and the Prospectuses or in
any other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting U.S. Underwriter of its liability, if
any, to the Company and any nondefaulting U.S. Underwriter for damages
occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the U.S. Representatives, by notice
given to the Company prior to delivery of and payment for the U.S. Securities,
if prior to such time (i) trading in the Company's Common Stock shall have been
suspended by the Commission or the Nasdaq or trading in securities generally on
the New York Stock Exchange or the Nasdaq shall have been suspended or limited
or minimum prices shall have been established on the New York Stock Exchange or
the Nasdaq, (ii) a banking moratorium shall have been declared either by
Federal or New York State authorities or (iii) there shall have occurred any
outbreak or escalation of hostilities, declaration by the United States of a
national emergency or war or other calamity or crisis the effect of which on
financial markets is such as to make it, in the judgment of the U.S.
Representatives, impracticable or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the U.S. Prospectus (exclusive
of any supplement thereto).
11. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers and of the U.S. Underwriters set
forth in or made
<PAGE> 38
38
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation made by or on behalf of any U.S. Underwriter or the Company
or any of the officers, directors or controlling persons referred to in Section
8 hereof, and will survive delivery of and payment for the U.S. Securities.
The provisions of Sections 7 and 8 hereof shall survive the termination or
cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the U.S. Representatives, will
be mailed, delivered or telecopied and confirmed to them care of Salomon
Brothers Inc, at Seven World Trade Center, New York, New York, 10048,
attention: Legal Department; or, if sent to the Company, will be mailed,
delivered or telecopied and confirmed to it at 800 Third Avenue, New York, New
York 10022, attention of Sheldon M. Goldman, Esq.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your
<PAGE> 39
39
acceptance shall represent a binding agreement among the Company and the
several U.S. Underwriters.
Very truly yours,
Viatel, Inc.
By:
-------------------------
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
CS First Boston Corporation
Lazard Freres & Co. LLC
By: Salomon Brothers Inc
By:
----------------------------
Name:
Title:
For themselves and the other
several U.S. Underwriters named
in Schedule I to the foregoing
Agreement.
<PAGE> 40
SCHEDULE I
to the U.S. Underwriting Agreement
<TABLE>
<CAPTION>
Number of Shares of U.S.
Underwritten Securities
U.S. Underwriters To Be Purchased
- ----------------- -----------------------
<S> <C>
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . .
CS First Boston Corporation . . . . . . . . . . . . . . . .
Lazard Freres & Co. LLC . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . .
=========
</TABLE>
<PAGE> 41
SCHEDULE II
to the U.S. Underwriting Agreement
SUBSIDIARIES
1. Viatel U.K. Limited (U.K.)
2. Viaphone S.R.L. (Italy)
3. Viatel S.R.L. (Italy)
4. VPN, S.A. (France)
5. Viatel S.A. (France)
6. YYC Communications, Inc. (Delaware)
7. Viafon Dat Iberica, S.A. (Spain)
8. Viatel Global Communication Espana S.A. (Spain)
9. Viatel SA/NV (Belgium)
10. Viatel BV (branch) of Viatel Belgium (Belgium)
11. Viatel Gmbh (Germany)
12. In Liquidation Datex S.R.L.
<PAGE> 42
EXHIBIT A
[Letterhead of executive officer, director or 1% stockholder of Viatel, Inc.]
Viatel, Inc.
Public Offering of Common Stock
, 1996
Salomon Brothers Inc
CS First Boston Corporation
Lazard Freres & Co. LLC
Salomon Brothers International Limited
CS First Boston Limited
Lazard Capital Markets
As U.S. and International Representatives
of the several U.S. and International
Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, NY 10048
Dear Sirs:
This letter is being delivered to you in connection with the
proposed U.S. and International Underwriting Agreements (the "Underwriting
Agreements"), between Viatel, Inc., a Delaware corporation (the "Company"), and
you as representatives of a group of U.S. and International Underwriters named
in the Underwriting Agreements, relating to an underwritten public offering of
common stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other U.S. and International
Underwriters to enter into the Underwriting Agreements, the undersigned agrees
not to offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offering of, any shares of Common Stock beneficially
owned by the undersigned or any securities convertible into, or exchangeable
for, shares of Common Stock for a period of 180 days following the day on which
the Underwriting Agreements are executed without the prior written consent of
Salomon Brothers Inc, other than shares of Common Stock disposed of as bona
fide gifts.
<PAGE> 43
2
If for any reason the Underwriting Agreements shall be
terminated prior to the Closing Date (as defined in the Underwriting
Agreements), the agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of executive officer,
director or 1% stockholder]
[Name and address of
executive officer, director or 1%
stockholder]
<PAGE> 1
EXHIBIT 1.2
VIATEL, INC.
Common Stock
($.01 par value)
International Underwriting Agreement
New York, New York
, 1996
Salomon Brothers International Limited
CS First Boston Limited
Lazard Capital Markets
As International Representatives of the several
International Underwriters,
c/o Salomon Brothers International Limited
Victoria Plaza
111 Buckingham Palace Road
London SW1W OSB England
Dear Sirs:
Viatel, Inc., a Delaware corporation (the "Company"), proposes
to sell to the underwriters named in Schedule I hereto (the "International
Underwriters"), for whom you (the "International Representatives") are acting
as representatives, 3,466,800 shares of Common Stock, $.01 par value ("Common
Stock"), of the Company (the "International Underwritten Securities"). The
Company also proposes to grant to the International Underwriters an option to
purchase up to 520,020 additional shares of Common Stock (the "International
Option Securities"; the International Option Securities, together with the
International Underwritten Securities, being hereinafter called the
"International Securities"). It is understood that the Company is concurrently
entering into a U.S. Underwriting Agreement dated the date hereof (the "U.S.
Underwriting Agreement") providing for the sale by the Company of an aggregate
of 5,200,200 shares of Common Stock (said shares to be sold by the Company
pursuant to the U.S. Underwriting Agreement being hereinafter called the "U.S.
Underwritten Securities"), in the United States and Canada through arrangements
with certain underwriters in the United States and Canada (the "U.S.
Underwriters"), for whom Salomon Brothers Inc, CS First Boston Corporation and
Lazard Freres & Co. LLC are acting as representatives (the "U.S.
Representatives"), and providing for the grant to the U.S. Underwriters of an
option to purchase from the Company
<PAGE> 2
2
up to 780,030 additional shares of Common Stock (the "U.S. Option Securities";
the U.S. Option Securities, together with the U.S. Underwritten Securities,
being hereinafter called the "U.S. Securities" and the International
Securities, together with the U.S. Securities, being hereinafter called the
"Securities"). It is further understood and agreed that the U.S. Underwriters
and the International Underwriters have entered into an Agreement Between U.S.
Underwriters and International Underwriters dated the date hereof (the
"Agreement Between U.S. Underwriters and International Underwriters"), pursuant
to which, among other things, the International Underwriters may purchase from
the U.S. Underwriters a portion of the U.S. Securities to be sold pursuant to
the U.S. Underwriting Agreement and the U.S. Underwriters may purchase from
the International Underwriters a portion of the International Securities to be
sold pursuant to the International Underwriting Agreement.
In this Agreement, unless otherwise specified, all reference
to "dollars" or "$" are to the currency of the United States.
1. Representations and Warranties.
(a) The Company represents and warrants to, and agrees with,
each International Underwriter as set forth below in this Section 1. Certain
terms used in this Section 1 are defined in paragraph (ix) hereof.
(i) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement (file number
333-09699) on Form S-1, including related preliminary prospectuses,
for the registration under the Securities Act of 1933, as amended (the
"Act"), of the offering and sale of the Securities. The Company may
have filed one or more amendments thereto, including the related
preliminary prospectuses, each of which has previously been furnished
to you. The Company will next file with the Commission either (A)
prior to effectiveness of such registration statement, a further
amendment to such registration statement (including the form of final
prospectuses) or (B) after effectiveness of such registration
statement, final prospectuses in accordance with Rules 430A and
424(b)(1) or (4). In the case of clause (B), the Company has included
in such registration statement, as amended at the Effective
<PAGE> 3
3
Date, all information (other than Rule 430A Information) required by
the Act and the rules and regulations thereunder to be included in the
Prospectuses with respect to the Securities and the offering thereof.
As filed, such amendment and form of final prospectuses, or such final
prospectuses, shall contain all Rule 430A Information, together with
all other such required information, with respect to the Securities
and the offering thereof and, except to the extent the International
Representatives shall agree in writing to a modification, shall be in
all substantive respects in the form furnished to you prior to the
Execution Time or, to the extent not completed at the Execution Time,
shall contain only such specific additional information and other
changes (beyond that contained in the latest International Preliminary
Prospectus) as the Company has advised you, prior to the Execution
Time, will be included or made therein. Upon your request, but not
without your agreement, the Company also will file with the Commission
a Rule 462(b) Registration Statement in accordance with Rule 462(b).
It is understood that two forms of prospectus are to be used
in connection with the offering and sale of the Securities: one form
of prospectus relating to the U.S. Securities, which are to be offered
and sold to United States and Canadian Persons (as defined herein)
which for purposes of distribution to Canadian Persons shall have a
Canadian "wrap-around" (the "Canadian Offering Memorandum"), and one
form of prospectus relating to the International Securities, which are
to be offered and sold to persons other than United States and
Canadian Persons. The two forms of prospectus are identical except
for the outside front cover page, the discussion under the headings
"Underwriting" and "Certain United States Tax Considerations for
Non-United States Holders" and the outside back cover page. Such form
of prospectus relating to the U.S. Securities as first filed with the
Commission pursuant to Rule 424(b) or, if no filing pursuant to Rule
424(b) is made, such form of prospectus included in the Registration
<PAGE> 4
4
Statement at the Effective Date, is hereinafter called the "U.S.
Prospectus"; such form of prospectus relating to the International
Securities as first filed with the Commission pursuant to Rule 424(b)
or, if no filing pursuant to Rule 424(b) is made, such form of
prospectus included in the Registration Statement at the Effective
Date, is hereinafter called the "International Prospectus"; and the
U.S. Prospectus and the International Prospectus are hereinafter
collectively called the "Prospectuses". Insofar as they relate to
offers or sales of Securities in Canada, all references herein to the
U.S. Preliminary Prospectus (as defined in paragraph (ix) below) and
the U.S. Prospectus shall include the Canadian Offering Memorandum.
(ii) On the Effective Date, the Registration Statement did or
will, and when the Prospectuses are first filed (if required) in
accordance with Rule 424(b) and on the Closing Date (as defined
herein) and on any date on which shares sold in respect of the
International Underwriters' over-allotment option are purchased, if
such date is not the Closing Date (a "Settlement Date"), the
Prospectuses (and any supplements thereto) will comply in all material
respects with the applicable requirements of the Act and the rules
and regulations thereunder; on the Effective Date, the Registration
Statement did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Prospectuses, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any
filing pursuant to Rule 424(b) and on the Closing Date and any
Settlement Date, the Prospectuses (together with any supplement
thereto) will not, include any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes
no representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectuses (or any
supplement thereto) in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of any
International Underwriter through the International Representatives
specifically for inclusion in the Registration Statement or the
International Prospectus (or any supplement thereto).
(iii) The Company and its subsidiaries listed in Schedule II
attached hereto (individually a "Subsidiary" and collectively, the
"Subsidiaries") have
<PAGE> 5
5
in effect all the telecommunications regulatory licenses,
permits, authorizations, consents and approvals ("Telecommunications
Licenses") required to be obtained from the Federal Communications
Commission ("FCC") for the Company and its Subsidiaries to conduct
their respective businesses as presently conducted and, to the extent
required, have filed applications, received comfort letters, or
obtained Telecommunications Licenses from the applicable regulatory
authorities outside the United States, except for Telecommunications
Licenses that the failure to obtain would not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole. The
Company and its Subsidiaries are not required to obtain any
Telecommunications Licenses or to file any tariffs for
telecommunications services in the States of New York, Nebraska or
Delaware, those States where it is currently qualified to transact
business, because the Company and its Subsidiaries do not market
intrastate services and do not provide intrastate telecommunications
services in those states. To the best of the Company's knowledge, the
Telecommunications Licenses obtained by the Company or its
Subsidiaries have been duly and validly issued and are in full force
and effect and no proceedings to revoke or restrict such
Telecommunications Licenses are pending or threatened, except that the
Section 214 UK Facilities Authorization (as such term is defined in
the Prospectuses) is still subject to third party petitions for
reconsideration up to and until October 21, 1996, and the Section 214
Global Authorization (as such term is defined in the Prospectuses) and
the Section 214 UK Authorization are subject to FCC reconsideration on
its own motion up to and until October 22, 1996 and October 30, 1996,
respectively. In addition, the Company and its Subsidiaries have in
effect with the FCC all international switched, international private
line and/or United States domestic interexchange service tariffs
necessary to conduct their respective businesses in the manner
presently conducted, except to the extent that the failure to file
such tariffs would not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
(iv) The Company and its Subsidiaries are not in violation of
any rule or regulation or any judgment, injunction, order or decree of
the FCC or of the
<PAGE> 6
6
telecommunications regulatory authority of the States of New York,
Nebraska or Delaware or of any foreign jurisdiction in which the
Company or its Subsidiaries conduct business having jurisdiction over
the Company or the Subsidiaries, respectively, or over their
respective properties except for violations which would not have a
material adverse effect on the Company and its Subsidiaries, taken as
a whole.
(v) Except as described in the Prospectuses, within and
between the member states of the European Union (as defined in the
Prospectuses) where the Company operates, the Company is not offering
services that are prohibited as Voice Telephony (as defined in the
Prospectuses). The Company and its Subsidiaries are not in violation
of any of the terms and conditions of any of the Telecommunications
Licenses and are not in violation of any of the applicable statutes,
ordinances, rules, regulations or laws of any of the respective
countries in which the Company or its Subsidiaries conduct their
respective businesses, except to the extent that such violation would
not have a material adverse effect on the Company and its
Subsidiaries, taken as a whole, and except as described in the
Prospectuses.
(vi) The Company is not offering services within Switzerland
or Japan or between either of these countries and any other country,
that are prohibited by Switzerland or Japan.
(vii) The Company is using its leased line between the United
States and the United Kingdom only for calls that (1) originate in one
of those countries and terminate in the other, (2) originate or
terminate in countries which the FCC deems to be "equivalent" or (3)
originate in third countries and are routed between such countries and
the United Kingdom end of the leased line over the international
public switched telephone network as International Message
Telecommunications Services ("IMTS").
(viii) There is no outstanding adverse judgment, injunction,
decree or order that has been issued by the Public Utilities
Commission ("PUC") of the States of New York, Nebraska or Delaware
against the Company or any of its Subsidiaries or any action,
proceeding or investigation pending before or threatened by the PUC
<PAGE> 7
7
of the States of New York, Nebraska or Delaware against the Company or
any of its Subsidiaries which would have a material adverse effect on
the Company and its Subsidiaries, taken as a whole.
(ix) The terms which follow, when used in this Agreement,
shall have the meanings indicated. The term "the Effective Date"
shall mean each date that the Registration Statement, any
post-effective amendment or amendments thereto and any Rule 462(b)
Registration Statement became or become effective. "Execution Time"
shall mean the date and time that this Agreement is executed and
delivered by the parties hereto. The "U.S. Preliminary Prospectus"
and the "International Preliminary Prospectus", respectively, shall
mean any preliminary prospectus with respect to the offering of the
U.S. Securities and the International Securities, as the case may be,
referred to in paragraph (i) above and any preliminary prospectus with
respect to the offering of the U.S. Securities and the International
Securities, as the case may be, included in the Registration Statement
at the Effective Date that omits Rule 430A Information; and the U.S.
Preliminary Prospectus and the International Preliminary Prospectus
are hereinafter collectively called the "Preliminary Prospectuses".
"Registration Statement" shall mean the registration statement
referred to in paragraph (i) above, including exhibits and financial
statements, as amended at the Execution Time (or, if not effective at
the Execution Time, in the form in which it shall become effective)
and, in the event any post-effective amendment thereto or any Rule
462(b) Registration Statement becomes effective prior to the Closing
Date (as hereinafter defined), shall also mean such registration
statement as so amended or such Rule 462(b) Registration Statement, as
the case may be. Such term shall include any Rule 430A Information
deemed to be included therein at the Effective Date as provided by
Rule 430A. "Rule 424", "Rule 430A" and "Rule 462" refer to such rules
under the Act. "Rule 430A Information" means information with respect
to the Securities and the offering thereof permitted to be omitted
from the Registration Statement when it becomes effective pursuant to
Rule 430A. "Rule 462(b) Registration Statement" shall mean a
registration statement and any amendments thereto filed pursuant to
Rule 462(b) relating to the offering covered by the initial
registration statement (file number 333-09699).
<PAGE> 8
8
"United States or Canadian Person" shall mean any person who is a
national or resident of the United States or Canada, any corporation,
partnership, or other entity created or organized in or under the laws
of the United States or Canada or of any political subdivision
thereof, or any estate or trust the income of which is subject to
United States or Canadian Federal income taxation, regardless of its
source (other than any non-United States or non-Canadian branch of any
United States or Canadian Person), and shall include any United States
or Canadian branch of a person other than a United States or Canadian
Person. "U.S." or "United States" shall mean the United States of
America (including the states thereof and the District of Columbia),
its territories, its possessions and other areas subject to its
jurisdiction.
2. Purchase and Sale. (a) Subject to the terms and
conditions and in reliance upon the representations and warranties herein set
forth, the Company agrees to sell to each International Underwriter, and each
International Underwriter agrees, severally and not jointly, to purchase from
the Company, at a purchase price of $ per share, the amount of the
International Underwritten Securities set forth opposite such International
Underwriter's name in Schedule I hereto, plus any additional number of
Securities which such International Underwriter may be obligated to purchase
pursuant to Section 9 of this Agreement. It is understood that the Company is
not obligated to sell, and the International Underwriters are not obligated to
purchase, any International Underwritten Securities, unless all the U.S.
Underwritten Securities are contemporaneously purchased by the U.S.
Underwriters.
(b) Subject to the terms and conditions and in reliance upon
the representations and warranties herein set forth, the Company hereby grants
an option to the several International Underwriters to purchase, severally and
not jointly, up to 520,020 shares of the International Option Securities at the
same purchase price per share as the International Underwriters shall pay for
the International Underwritten Securities. Said option may be exercised only
to cover over-allotments in the sale of the International Underwritten
Securities by the International Underwriters. Said option may be exercised in
whole or in part at any time (but not more than once) on or before the 30th day
after the date of the International Prospectus upon written notice by the
International Representatives to the Company setting
<PAGE> 9
9
forth the number of shares of the International Option Securities as to which
the several International Underwriters are exercising the option and, subject
to Section 3 hereof, the Settlement Date. The Settlement Date may be the same
as the Closing Date but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Delivery of certificates for the
shares of International Option Securities by the Company and payment therefor
to the Company shall be made as provided in Section 3 hereof. The number of
shares of the International Option Securities to be purchased by each
International Underwriter shall be the same percentage of the total number of
shares of the International Option Securities to be purchased by the several
International Underwriters as such International Underwriter is purchasing of
the International Underwritten Securities, subject to such adjustments as you
in your absolute discretion shall make to eliminate any fractional shares.
3. Delivery and Payment. Delivery of and payment for the
International Underwritten Securities and the International Option Securities
(if the option provided for in Section 2(b) hereof shall have been exercised on
or before the second business day prior to the Closing Date) shall be made at
10:00 a.m., New York City time, on , 1996, or such later date (not
later than , 1996) as the International Representatives and the U.S.
Representatives shall designate, which date and time may be postponed by
agreement among the International Representatives, the U.S. Representatives and
the Company or as provided in Section 9 hereof (such date and time of delivery
and payment for the International Securities being herein called the "Closing
Date"). Delivery of the International Securities shall be made to the
International Representatives for the respective accounts of the several
International Underwriters against payment by the several International
Underwriters through the International Representatives of the purchase price
thereof to or upon the order of the Company by wire transfer of New York
Clearing House same day funds. Delivery of the International Underwritten
Securities and the International Option Securities shall be made at such
location as the International Representatives shall reasonably designate at
least one business day in advance of the Closing Date and payment for such
International Securities shall be made at the office of Cravath, Swaine & Moore
or at such location as may be agreed to by the International Representatives
and the Company. Certificates for the International Securities
<PAGE> 10
10
shall be registered in such names and in such denominations as the
International Representatives may request not less than two full business days
in advance of the Closing Date.
The Company agrees to have the International Securities
available for inspection, checking and packaging by the International
Representatives in New York, New York, not later than 1:00 p.m. on the business
day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised
after the second business day prior to the Closing Date, the Company will
deliver (at the expense of the Company) to the International Representatives,
at Seven World Trade Center, New York, New York or at such location as may be
agreed to by the International Representatives and the Company, on the date
specified by the International Representatives (which shall be within three
business days after exercise of said option), certificates for the
International Option Securities in such names and denominations as the
International Representatives shall have requested against payment of the
purchase price thereof to or upon the order of the Company by wire transfer of
New York Clearing House same day funds. If settlement for the International
Option Securities occurs after the Closing Date, the Company will deliver to
the International Representatives on the Settlement Date for the International
Option Securities, and the obligation of the International Underwriters to
purchase the International Option Securities shall be conditioned upon receipt
of, supplemental opinions, certificates and letters confirming as of such date
the opinions, certificates and letters delivered on the Closing Date pursuant
to Section 6 hereof.
It is understood and agreed that the Closing Date shall occur
simultaneously with the "Closing Date" under the U.S. Underwriting Agreement,
and that the Settlement Date, if any, shall occur simultaneously with the
"Settlement Date" under the U.S. Underwriting Agreement.
4. Offering by International Underwriters. It is understood
that the several International Underwriters propose to offer the International
Securities for sale to the public as set forth in the International Prospectus.
<PAGE> 11
11
5. Agreements.
(a) The Company agrees with the several International
Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereof to become effective. Prior to the termination
of the offering of the Securities, the Company will not file any
amendment to the Registration Statement, supplement to the
Prospectuses or any Rule 462(b) Registration Statement without your
prior consent. Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule 430A, or
filing of the Prospectuses is otherwise required under Rule 424(b),
the Company will cause the Prospectuses, properly completed, and any
supplement thereto to be filed with the Commission pursuant to the
applicable paragraph of Rule 424(b) within the time period prescribed
and will provide evidence satisfactory to the International
Representatives of such timely filing. Upon your request, the Company
will cause the Rule 462(b) Registration Statement, completed in
compliance with the Act and the applicable rules and regulations
thereunder, to be filed with the Commission pursuant to Rule 462(b)
and will provide evidence satisfactory to the International
Representatives of such filing. The Company will promptly advise the
International Representatives (A) when the Registration Statement, if
not effective at the Execution Time, and any amendment thereto, shall
have become effective, (B) when the Prospectuses, any supplement
thereto or any Rule 462(b) Registration Statement, shall have been
filed (if required) with the Commission pursuant to Rule 424(b), (C)
when, prior to termination of the offering of the Securities, any
amendment to the Registration Statement shall have been filed or
become effective, (D) of any request by the Commission for any
amendment to the Registration Statement, or any Rule 462(b)
Registration Statement, or supplement to the Prospectuses or for any
additional information, (E) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
or the institution or threatening of any proceeding for that purpose
and (F) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Securities for
<PAGE> 12
12
sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to
prevent the issuance of any such stop order and, if issued, to obtain
as soon as possible the withdrawal thereof.
(ii) If, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event occurs
as a result of which either of the Prospectuses as then supplemented
would include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
or if it shall be necessary to amend the Registration Statement or
supplement either of the Prospectuses to comply with the Act or the
rules and regulations thereunder, the Company promptly will (i)
prepare and file with the Commission, subject to the second sentence
of paragraph (a) of this Section 5, an amendment or supplement which
will correct such statement or omission or effect such compliance and
(ii) supply any supplemented Prospectuses to you in such quantities as
you may reasonably request.
(iii) As soon as practicable, the Company will make generally
available to its security holders and to the International
Representatives an earnings statement or statements of the Company and
its Subsidiaries which will satisfy the provisions of Section 11(a) of
the Act and Rule 158 under the Act.
(iv) The Company will furnish to the International
Representatives and counsel for the International Underwriters,
without charge, signed copies of the Registration Statement (including
exhibits thereto) and to each other International Underwriter a copy
of the Registration Statement (without exhibits thereto) and, so long
as delivery of a prospectus by an International Underwriter or dealer
may be required by the Act or otherwise required, as many copies of
each of the International Preliminary Prospectus and the International
Prospectus and any supplement thereto as the International
Representatives may reasonably request. The Company will furnish or
cause to be furnished to the International Representatives copies of
all reports on Form SR required by Rule 463 under the Act. The
Company will pay the expenses of printing
<PAGE> 13
13
or other production of all documents relating to the offering.
(v) The Company will endeavor, in good faith, in cooperation
with the International Representatives to arrange for the
qualification of the Securities for sale under the laws of such
jurisdictions as the International Representatives may designate, will
maintain such qualifications in effect so long as required for the
distribution of the Securities; provided, however, that the Company
shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction; and
will pay the fee of the National Association of Securities Dealers,
Inc., in connection with its review of the offering.
(vi) The Company will not, for a period of 180 days following
the Execution Time, without the prior written consent of Salomon
Brothers Inc, offer, sell or contract to sell, or otherwise dispose
of, directly or indirectly, or announce the offering of, any other
shares of Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock; provided, however, that the
Company may issue and sell Common Stock pursuant to any employee stock
option plan of the Company in effect at the Execution Time.
(vii) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 517.075, Florida
Statutes, relating to issuers doing business with the Government of
Cuba or with any person or affiliate located in Cuba, and the Company
further agrees that if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba
after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of
Banking and Finance (the "Department"), whichever date is later, or if
the information reported in the Prospectuses, if any, concerning the
Company's business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the
Department notice of such business or change, as appropriate, in a
form acceptable to the Department.
<PAGE> 14
14
(b) Each International Underwriter agrees with the
Company that (i) it is not purchasing any of the International Securities for
the account of any United States or Canadian Person, (ii) it has not offered or
sold, and will not offer or sell, directly or indirectly, any of the
International Securities or distribute any International Prospectus to any
person in the United States or Canada, or to any United States or Canadian
Person, and (iii) any dealer to whom it may sell any of the International
Securities will represent that it is not purchasing for the account of any
United States or Canadian Person and agree that it will not offer or resell,
directly or indirectly, any of the International Securities in the United
States or Canada, or to any United States or Canadian Person or to any other
dealer who does not so represent and agree; provided, however, that the
foregoing shall not restrict (A) purchases and sales between the U.S.
Underwriters on the one hand and the International Underwriters on the other
hand pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, (B) stabilization transactions contemplated under the Agreement
Between U.S. Underwriters and International Underwriters, conducted through
Salomon Brothers Inc (or through the U.S. Representatives and the International
Representatives) as part of the distribution of the Securities, and (C) sales
to or through (or distributions of International Prospectuses or International
Preliminary Prospectuses to) persons not United States or Canadian Persons who
are investment advisors, or who otherwise exercise investment discretion, and
who are purchasing for the account of any United States or Canadian Person.
(c) The agreements of the International Underwriters set
forth in paragraph (b) of this Section 5 shall terminate upon the earlier of
the following events:
(i) a mutual agreement of the U.S. Representatives and
the International Representatives to terminate the selling
restrictions set forth in paragraph (b) of this Section 5 and in
Section 5(b) of the U.S. Underwriting Agreement; or
(ii) the expiration of a period of 30 days after the
Closing Date, unless (A) the International Representatives shall have
given notice to the Company and the U.S. Representatives that the
distribution of the International Securities by the International
Underwriters has not yet been completed, or (B) the
<PAGE> 15
15
U.S. Representatives shall have given notice to the Company and the
International Underwriters that the distribution of the U.S.
Securities by the U.S. Underwriters has not yet been completed. If
such notice by the U.S. Representatives or the International
Representatives is given, the agreements set forth in such paragraph
(b) shall survive until the earlier of (1) the event referred to in
clause (i) of this subsection (c) or (2) the expiration of an
additional period of 30 days from the date of any such notice.
(d) Each International Underwriter severally represents
and agrees with the Company that:
(i) it has not offered or sold and, prior to the expiry
of six months from the closing of the International Offering, will not
offer or sell in the United Kingdom, by means of any document, any
International Securities other than to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing
of investments (whether as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
in and will not result in an offer to the public within the meaning of
the Public Offers of Securities Regulations 1995;
(ii) it has complied and will comply with all applicable
provisions of The Financial Services Act 1986 with respect to anything
done by it in relation to the International Securities, in, from or
otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue
or pass on in the United Kingdom any document received by it in
connection with the issue of the International Securities to a person
who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or a
person to whom such document may otherwise lawfully be issued or
passed on.
6. Conditions to the Obligations of the International
Underwriters. The obligations of the International Underwriters to purchase
the International Underwritten Securities and the International Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part
<PAGE> 16
16
of the Company contained herein as of the Execution Time, the Closing Date and
any Settlement Date pursuant to Section 3 hereof, to the accuracy of the
statements of the Company made in any certificates pursuant to the provisions
hereof, to the performance by the Company of its obligations hereunder and to
the following additional conditions:
(a) If the Registration Statement has not become effective
prior to the Execution Time, unless the U.S. Representatives and the
International Representatives agree in writing to a later time, the
Registration Statement will become effective not later than (i) 5:30 p.m., New
York City time, on the date of determination of the public offering price, if
such determination occurred at or prior to 3:00 p.m., New York City, time on
such date or (ii) 12:00 noon on the business day following the day on which the
public offering price was determined, if such determination occurred after 3:00
p.m., New York City time, on such date; if filing of either of the
Prospectuses, or any supplement thereto, is required pursuant to Rule 424(b),
the Prospectuses, and any such supplement, will be filed in the manner and
within the time period required by Rule 424(b); and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or threatened.
(b) The Company shall have furnished to the International
Representatives the opinion of Sheldon M. Goldman, Esq., U.S. General Counsel,
for the Company, dated the Closing Date, to the effect that:
(i) each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full
corporate power and corporate authority to own its properties and to
conduct its business as described in the Prospectuses, and is duly
qualified to transact business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or
conducts material business, except to the extent that the failure to
be so qualified or to be in good standing would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole,
or such other opinion as is satisfactory to counsel for the
International Underwriters;
<PAGE> 17
17
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly authorized and are validly issued, fully paid
and nonassessable, and all outstanding shares of capital stock of the
Subsidiaries are owned by the Company, either directly or through
wholly owned subsidiaries, free and clear of any perfected security
interest and, to the knowledge of such counsel, after due inquiry
(without investigation of the laws of any jurisdiction other than New
York), any other security interests, claims, liens or encumbrances, or
such other opinion as is satisfactory to counsel for the International
Underwriters;
(iii) the Company's authorized equity capitalization is as set
forth in the Prospectuses under the caption "Description of Capital
Stock"; the capital stock of the Company conforms to the description
thereof contained in the Prospectuses; the outstanding shares of
Common Stock have been duly authorized and are validly issued, fully
paid and nonassessable; the Securities have been duly authorized, and,
when issued and delivered to and paid for by the International
Underwriters pursuant to this Agreement and by the U.S. Underwriters
pursuant to the U.S. Underwriting Agreement, will be validly issued,
fully paid and nonassessable; the certificates for the Securities are
in valid and sufficient form; and the holders of outstanding shares of
capital stock of the Company are not entitled to preemptive or other
rights to subscribe for the Securities;
(iv) to the best knowledge of such counsel, there are no
pending or threatened actions, suits or proceedings before any court
or governmental agency, authority or body or any arbitrator involving
the Company or any of its Subsidiaries of a character required to be
disclosed in the Registration Statement or the Prospectuses which are
not adequately described therein, and there is no franchise, contract
or other document of a character required to be described in the
Registration Statement or the Prospectuses, or to be filed as an
exhibit to the Registration Statement, which is not described or filed
as required; and the statements in the Prospectuses under the caption
"Business--Legal Proceedings" present the information called for with
respect to such legal matters, documents and proceedings and fairly
summarize the matters referred to therein;
<PAGE> 18
18
(v) this Agreement and the U.S. Underwriting Agreement have
been duly authorized, executed and delivered by the Company;
(vi) no consent, approval, authorization or order of any court
or governmental agency or body is required by the Company or any of
the Subsidiaries for the consummation of the transactions contemplated
herein or in the U.S. Underwriting Agreement; provided, that such
counsel need not express an opinion with respect to state securities
or Blue Sky laws or statutes, rules and regulations relating to the
FCC and matters regulated by the FCC or statutes, rules and
regulations relating to foreign telecommunications regulatory
authorities and matters regulated by such authorities;
(vii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions contemplated herein or
in the U.S. Underwriting Agreement nor the fulfillment of the terms
hereof or thereof will conflict with, result in a breach or violation
of, or constitute a default under any provision of applicable law or
the certificate of incorporation or by-laws of the Company or, to the
best of such counsel's knowledge, the terms of any indenture or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or bound that is material to the Company and
its Subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, injunction, order or decree of any court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company or any of its
Subsidiaries; and
(viii) no holders of securities of the Company have rights to
the registration of such securities under the Registration Statement.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the State of New York,
the United States or the General Corporation Law of the State of Delaware to
the extent such counsel deems proper and as specified in such opinion, upon the
opinion of other counsel of good standing whom such counsel believes to be
reliable and who are satisfactory to counsel for the International Underwriters
and (B) as to matters of fact, to the extent deemed proper, on certificates of
responsible officers of
<PAGE> 19
19
the Company and public officials. References to the Prospectuses in this
paragraph (b) include any supplements thereto at the Closing Date.
In addition, such counsel shall state that nothing has come to his attention
that leads him to believe that the Registration Statement at the time the
Registration Statement became effective (other than the financial statements
and supporting notes and schedules and other financial and statistical data
contained therein, as to which such counsel need not comment) contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectuses (other than the financial
statements and supporting notes and schedules and other financial and
statistical data contained therein, as to which such counsel need not comment)
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) The Company shall have furnished to the International
Representatives the opinion of Kelley Drye & Warren LLP, special counsel for
the Company, dated the Closing Date, to the effect that:
(i) each of the Company and YYC Communications, Inc. (the
"U.S. Subsidiary") has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware with full corporate power and corporate authority to own its
properties and to conduct its business as described in the
Prospectuses, and is duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each
jurisdiction which requires such qualification wherein it owns or
leases material properties or conducts material business, except to
the extent that the failure to be so qualified or to be in good
standing would not have a material adverse effect on the Company and
its Subsidiaries, taken as a whole;
(ii) the Company's authorized equity capitalization is as set
forth in the Prospectuses under the caption "Description of Capital
Stock"; the capital stock of the Company conforms to the description
thereof contained under the captions "Description of Capital
Stock--Common Stock" and "Description of Capital Stock--Preferred
Stock" in the Prospectuses and the capital stock of the Company
conforms in all material respects to the description thereof contained
under the caption "Description of Capital
<PAGE> 20
20
Stock--General" in the Prospectuses; the Securities have been duly
authorized, and, when issued and delivered to and paid for by the
International Underwriters pursuant to this Agreement and by the U.S.
Underwriters pursuant to the U.S. Underwriting Agreement, will be
validly issued, fully paid and nonassessable; and the certificates for
the Securities are in valid and sufficient form;
(iii) the Registration Statement has become effective under the
Act; any required filing of the Prospectuses, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and within
the time period required by Rule 424(b); to the best knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued, no proceedings for that purpose have been
instituted or threatened and the Registration Statement and each of the
Prospectuses (other than the financial statements and supporting notes
and schedules and other financial and statistical data contained
therein as to which such counsel need not comment) comply as to form in
all material respects with the applicable requirements of the Act and
the rules thereunder; the statements in the International Prospectus
under the caption "Certain United States Tax Considerations for
Non-United States Holders," insofar as they purport to constitute
summaries of matters of United States federal tax law and regulations
or legal conclusions with respect thereto, constitute accurate
summaries of the matters described therein in all material respects;
(iv) this Agreement and the U.S. Underwriting Agreement have
been duly authorized, executed and delivered by the Company;
(v) to the best of such counsel's knowledge, no consent,
approval, authorization or order of any court or governmental agency
or body is required by the Company or any of the Subsidiaries for the
consummation of the transactions contemplated herein or in the U.S.
Underwriting Agreement; provided, that such counsel need not express
an opinion with respect to state securities or Blue Sky laws or
statutes, rules and
<PAGE> 21
21
regulations relating to the FCC and matters regulated by the FCC; and
(vi) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions contemplated herein or
in the U.S. Underwriting Agreement nor the fulfillment of the terms
hereof or thereof will conflict with, result in a breach or violation
of, or constitute a default under any provision of applicable law or
the certificate of incorporation or by-laws of the Company or, to the
best of such counsel's knowledge, the terms of any indenture or other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or bound that is material to the Company and
its Subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, injunction, order or decree of any court,
regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Company or any of its
Subsidiaries.
In rendering such opinion, such counsel may rely (A) as to matters involving
the application of laws of any jurisdiction other than the State of New York,
the United States or the General Corporation Law of the State of Delaware, to
the extent such counsel deems proper and as specified in such opinion, upon the
opinion of other counsel of good standing whom such counsel believes to be
reliable and who are satisfactory to counsel for the International Underwriters
and (B) as to matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and public officials.
References to the Prospectuses in this paragraph (c) include any supplements
thereto at the Closing Date.
In addition, such counsel shall state that nothing has come to
their attention that leads them to believe that the Registration Statement at
the time the Registration Statement became effective (other than the financial
statements and supporting notes and schedules and other financial and
statistical data contained therein, as to which such counsel
<PAGE> 22
22
need not comment) contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, or that the Prospectuses (other
than the financial statements and supporting notes and schedules and other
financial and statistical data contained therein, as to which such counsel need
not comment) contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. In rendering
such opinion, such counsel may state that their opinion and belief is based
upon their participation in the preparation of the Registration Statement and
Prospectuses and review and discussion of the contents thereof, but is without
independent check or verification.
(d) The Company shall have furnished to the International
Representatives the opinion of Morrison & Foerster LLP, special communications
counsel for the Company, dated the Closing Date, to the effect that:
(i) the Section 214 Private Line Authorization, the Section 214
Switched Authorization, the Section 214 Global Authorization and the
Section 214 UK Facilities Authorization (as such terms are defined in
the Prospectuses) are the only Telecommunications Licenses required
from the FCC for the Company and its Subsidiaries to conduct their
business as presently conducted, except for FCC Telecommunications
Licenses that the failure to obtain would not have a material adverse
effect on the Company and its Subsidiaries, taken as a whole. The FCC
Telecommunications Licenses currently held by the Company and its
Subsidiaries have been duly and validly issued and are in full force
and effect, and to the best knowledge of such counsel no proceedings
to revoke or restrict such FCC Telecommunications Licenses are pending
or threatened, except that the Section 214 Global Authorization and
the Section 214 UK Facilities Authorization are still subject to
FCC reconsideration on its own motion up to and until October 22, 1996
and October 30, 1996, respectively. To the best of such counsel's
knowledge after due inquiry and based upon a certificate of an officer
of the Company, a copy of which is attached to such opinion as an
exhibit (stating that the Company is using its leased line between the
United States and the United Kingdom only for calls that (1) originate
in one of those countries and terminate in the other, (2) originate or
terminate in countries which the FCC deems to be "equivalent" or (3)
originate in third
<PAGE> 23
23
countries and are routed between such countries and the United
Kingdom end of the leased line over the international public switched
telephone network as IMTS), the Company and its Subsidiaries are not
in violation of any of the terms and conditions of any of their FCC
Telecommunications Licenses, are not in violation of the
Communications Act and are not in violation of any FCC rules or
regulations, except to the extent that such violation would not have a
material adverse effect on the Company and its Subsidiaries, taken as
a whole and except as described in the Prospectuses under the captions
"Risk Factors -- Substantial Government Regulation" and "Business --
Government Regulation -- Overview." Insofar as this opinion pertains
to the application or interpretation of any non-U.S. law, such counsel
has performed no due diligence in this regard other than discussing
with management of the Company the Company's operations and compliance
with applicable FCC requirements and reviewing any portions of the
opinions of local counsel of Argentina, Belgium, Brazil, Colombia,
France, Germany, Italy, Japan, Korea, the Netherlands, Spain,
Switzerland, and the United Kingdom specifically regarding the
provision of international call-back service in certain jurisdictions
in which the Company operates, without any further inquiry or any
independent review of any laws of any such jurisdictions. The Company
and its Subsidiaries have in effect with the FCC all international
switched, international private line and/or United States domestic
interexchange service tariffs necessary to conduct their respective
businesses in the manner presently conducted, except to the extent
that the failure to file such tariffs would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole;
(ii) to the extent they constitute a summary of the legal
matters, documents or proceedings referred to therein, the statements
in the Prospectuses under the captions "Risk Factors--Substantial
Government Regulation," "Risk Factors--Competition," "Business--Market
Opportunity," "Business--Services," "Business--The Viatel Network,"
"Business--Competition" and "Business--Government Regulation," fairly
present the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to
therein;
(iii) the Company and its Subsidiaries are not required to
obtain any state Telecommunications Licenses or to file any tariffs
required for the provision of telecommunications services in the
States of New York, Nebraska or Delaware to conduct their respective
businesses as presently conducted;
(iv) there is no outstanding adverse judgment, injunction,
decree or order that has been issued by the FCC against the Company or
any of its Subsidiaries or, to the best of such counsel's knowledge
after due inquiry, any action, proceeding or investigation pending
before the FCC or pending or threatened by the FCC against the Company
or any of its Subsidiaries which, if the subject of an unfavorable
decision,
<PAGE> 24
24
ruling or finding, would have a material adverse effect on the
Company and its Subsidiaries, taken as a whole, except that the Section
214 Global Authorization and the Section 214 UK Facilities
Authorization are still subject to FCC reconsideration on its own
motion up to and until October 22, 1996 and October 30, 1996,
respectively;
(v) based on discussions with management, an inquiry
concerning and review of relevant publicly available documents and a
certificate of an officer of the Company, a copy of which is attached
to such opinion as an exhibit, there is no outstanding adverse
judgment, injunction, decree or order that has been issued by the PUC
of the States of New York, Nebraska or Delaware against the Company or
any of its Subsidiaries or, to the best of such counsel's knowledge
after due inquiry, any action, proceeding or investigation pending
before or threatened by the PUC of the States of New York, Nebraska or
Delaware against the Company or any of its Subsidiaries which, if the
subject of an unfavorable decision, ruling or finding, would have a
material adverse effect on the Company and its Subsidiaries, taken as
a whole;
(vi) no license, permit, consent, approval, order or
authorization of, or filing with, the FCC or with the PUC of the
States of New York, Nebraska or Delaware on the part of the Company or
its Subsidiaries is required in connection with the issuance of the
Securities; and
(vii) neither the issue and sale of Securities nor the
performance by the Company of its obligations under this Agreement or
the U.S. Underwriting Agreement will result in a violation of the
Communications Act, or any applicable rules or the regulations
promulgated under the Communications Act binding on the Company or its
Subsidiaries or, to the best of such counsel's knowledge after due
inquiry, any order, writ, judgment, injunction, decree or award of the
FCC binding on the Company or its Subsidiaries.
In rendering such opinion, such counsel may rely (A) with respect to the
opinion expressed in paragraphs (iii) and
<PAGE> 25
25
(vi) above on a certificate of officers of the Company, a copy of which shall
be attached to such opinion as an exhibit, to the effect that the Company's
business as conducted does not and will not until the proper regulatory
approvals are obtained, allow intrastate calls originating and terminating in
the States of New York, Nebraska or Delaware, (B) to the extent such counsel
deems proper and as specified in such opinion, upon the opinion of other
counsel of good standing whom such counsel believes to be reliable and who are
satisfactory to counsel for the International Underwriters and (C) as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials, copies of which shall
be attached to such counsel's opinion as exhibits. References to the
Prospectuses in this paragraph (d) include any supplements thereto at the
Closing Date.
Such counsel also shall state that the Section 214 Switched
Authorization, the Section 214 Private Line Authorization and the Section 214
Global Authorization require the Company and its Subsidiaries to provide any
international call-back service using uncompleted call signaling in a manner
that is consistent with the laws of the countries in which they operate. Such
counsel shall state that although such counsel does not provide legal services
to the Company or its Subsidiaries regarding the application or interpretation
of any non-U.S. law and although such counsel has performed no due diligence in
this regard other than discussing with management of the Company the Company's
operations and compliance with applicable FCC requirements and reviewing any
portions of the opinions of local counsel of Argentina, Belgium, Brazil,
Colombia, France, Germany, Italy, Japan, Korea, the Netherlands, Spain,
Switzerland, and the United Kingdom specifically regarding the provision of
international call-back service in certain jurisdictions in which the Company
operates, such counsel is not aware of any non-compliance in the provision of
international call-back service by the Company with the laws of any foreign
jurisdiction in which the Company operates that would constitute a violation of
the Section 214 Switched Authorization, the Section 214 Private Line
Authorization or the Section 214 Global Authorization and have a material
adverse effect on the Company and its Subsidiaries taken as a whole. For the
purpose of making such statement, such counsel may rely, to the extent such
counsel deems proper and as specified in such opinion, upon such counsel's
review of any portions of
<PAGE> 26
26
the opinions of local counsel of Argentina, Belgium, Brazil, Colombia, France,
Germany, Italy, Japan, Korea, the Netherlands, Spain, Switzerland, and the
United Kingdom specifically regarding the provision of international call-back
service provided by the Company, without any further inquiry or any independent
review of any laws of any such jurisdictions.
(e) The Company shall have furnished to the International
Representatives the opinions of local counsel of good standing whom the Company
believes to be reliable, and who are satisfactory to counsel for the
International Underwriters, in each of Argentina, Belgium, Brazil, Colombia,
France, Germany, Italy, Japan, Korea, the Netherlands, Spain, Switzerland, and
the United Kingdom dated the Closing Date, or such date prior to the Closing
Date as is satisfactory to counsel for the International Underwriters, in the
following form or in such other form as is acceptable to counsel for the
International Underwriters:
(i) if applicable to such country, each of the Subsidiaries
operating in such country (the "Local Subsidiaries") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with full
corporate power and corporate authority to own its properties and to
conduct its business as described in the Prospectuses, and is duly
qualified to transact business as a foreign corporation and is in good
standing under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or
conducts material business, except to the extent that the failure to
be so qualified or to be in good standing would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole;
(ii) all the outstanding shares of capital stock of the Local
Subsidiaries have been duly authorized and are validly issued, fully
paid and nonassessable, and all outstanding shares of capital stock of
the Local Subsidiaries are owned by the Company, either directly or
through wholly owned subsidiaries, free and clear of any perfected
security interest and, to the best knowledge of such counsel, any
other security interests, claims, liens or encumbrances.
(iii) if applicable to such country, neither the issue and
sale of the Securities, nor the consummation
<PAGE> 27
27
of any other of the transactions contemplated herein or in the U.S.
Underwriting Agreement nor the fulfillment of the terms hereof or
thereof will conflict with, result in a breach or violation of, or
constitute a default under any provision of applicable law or the
charter or by-laws of the Local Subsidiaries or, to the best of such
counsel's knowledge, the terms of any indenture or other agreement or
instrument to which any of the Local Subsidiaries is a party or bound
or, to the best of such counsel's knowledge, any judgment, injunction,
order or decree of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Local
Subsidiaries;
(iv) the Company and the Local Subsidiaries have all
Telecommunications Licenses necessary for the Company and the Local
Subsidiaries to conduct their respective businesses as presently
conducted in such country except for Telecommunications Licenses that
the failure to obtain would not have a material adverse effect on the
Company or the Local Subsidiaries; to the knowledge of such counsel
such Telecommunications Licenses are in full force and effect and no
proceedings to revoke or restrict such Telecommunications Licenses are
pending or threatened; and to the knowledge of such counsel the
Company and its Subsidiaries are in material compliance with all of
the applicable telecommunications laws and rules and regulations of
such country; and
(v) to the knowledge of such counsel after due inquiry of
Company officers, the Company and the Local Subsidiaries are not in
violation of any telecommunications law, rule or regulation of such
country or of any judgment, injunction, order or decree of the
telecommunications regulatory authority having jurisdiction over the
Company or such Local Subsidiaries, respectively, or over its
properties except for violations which would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole.
In addition, counsel from European Union member states and from Switzerland
shall state in their opinions that the Company is not offering services that
are prohibited as Voice Telephony (as defined in the Prospectuses). Counsel
from Switzerland shall state that the Company is not
<PAGE> 28
28
offering services in Switzerland or between Switzerland and any other country
that are prohibited by Switzerland. Counsel from Japan shall state that, to the
best of such counsel's knowledge based solely upon discussions with the
Company's management and a certificate from an officer of the Company, the
Company's client in Japan is in material compliance with all applicable
telecommunications laws and related rules and regulations in Japan.
Additionally, counsel from the United Kingdom shall also state that to the
extent they constitute a summary of the legal matters, documents or proceedings
referred to therein, the statements in the Prospectuses under the heading
"Business--Government Regulation--Regulatory Framework--Europe," fairly present
the information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein.
(f) The International Representatives shall have received
from Cravath, Swaine & Moore, counsel for the International Underwriters, such
opinion or opinions, dated the Closing Date, with respect to the issuance and
sale of the Securities, the Registration Statement, the Prospectuses (together
with any supplement thereto) and other related matters as the International
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
(g) The Company shall have furnished to the International
Representatives a certificate of the Company, signed by (1) the Chairman of the
Board and Chief Executive Officer or the President and Chief Operating Officer
and (2) the Vice President, Finance, Treasurer and Chief Financial Officer of
the Company, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the
Prospectuses, any supplements to the Prospectuses and this Agreement and that:
(i) the representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of
the Closing Date with the same effect as if made on the Closing Date
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
<PAGE> 29
29
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Company's knowledge,
threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectuses (exclusive of any supplement thereto),
there has been no material adverse change in the condition (financial
or otherwise), earnings, business or properties of the Company and its
Subsidiaries, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectuses (exclusive of any supplement thereto).
(h) At the Execution Time and at the Closing Date, KPMG Peat
Marwick LLP shall have furnished to the International Representatives a letter
or letters, dated respectively as of the Execution Time and as of the Closing
Date, in form and substance satisfactory to the International Representatives,
confirming that they are independent accountants within the meaning of the Act
and the applicable published rules and regulations thereunder and that they
have performed a review of the unaudited financial information for the six
months ended June 30, 1996 in accordance with Statement of Auditing Standards
No. 71 and stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedule included in the Registration Statement
and the Prospectuses and reported on by them comply in form in all
material respects with the applicable accounting requirements of the
Act and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and its
Subsidiaries; carrying out certain specified procedures (but not an
examination in accordance with generally accepted auditing standards)
which would not necessarily reveal matters of significance with
respect to the comments set forth in such letter; a reading of the
minutes of the meetings of the stockholders, directors and
compensation and audit committees of the Company and the Subsidiaries;
and inquiries of certain officials of the Company who have
responsibility for financial and accounting
<PAGE> 30
30
matters of the Company and the Subsidiaries as to transactions and
events subsequent to December 31, 1995, nothing came to their
attention which caused them to believe that:
(1) any unaudited financial statements included in
the Registration Statement and the Prospectuses do not comply
in form in all material respects with applicable accounting
requirements of the Act and with the published rules and
regulations of the Commission with respect to registration
statements on Form S-1; and said unaudited financial
statements are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with that of the audited financial statements
included in the Registration Statement and the Prospectuses;
or
(2) with respect to the period subsequent to June 30,
1996, there were any changes, at a specified date not more
than five business days prior to the date of the letter, in
the long-term liabilities of the Company and its Subsidiaries
or capital stock of the Company and its Subsidiaries or
decreases in the total stockholders' equity of the Company as
compared with the amounts shown on the June 30, 1996
consolidated balance sheet included in the Registration
Statement and the Prospectuses; or for the period from July 1,
1996 to such specified date there were any decreases, as
compared with the corresponding period in the preceding year,
in telecommunications revenue or increases in net losses or in
total or per share amounts of net losses of the Company and
its Subsidiaries or in total operating expenses, except in all
instances for changes or decreases set forth in such letter,
in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof
unless said explanation is not deemed necessary by the
International Representatives; or
(3) the information included in the Registration
Statement and the Prospectuses in response to Regulation S-K,
Item 301 (Selected Financial Data), Item 302 (Supplementary
Financial Information) and Item 402 (Executive Compensation)
<PAGE> 31
31
is not in conformity with the applicable disclosure
requirements of Regulation S-K; and
(iii) they have performed certain other specified procedures
as a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its Subsidiaries) set
forth in the Registration Statement and the Prospectuses, including
the information set forth under the captions "Prospectus Summary",
"Risk Factors", "Use of Proceeds", "Capitalization", "Selected
Consolidated Financial and Other Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations",
"Business", "Management", and "Certain Transactions" in the
Prospectuses, agrees with the accounting records of the Company and
its Subsidiaries, excluding any questions of legal interpretation.
References to the Prospectuses in this paragraph (h) include
any supplement thereto at the date of the letter.
The International Representatives shall have also received
from KPMG Peat Marwick LLP a letter stating that the Company's system of
internal accounting controls taken as a whole is sufficient to meet the broad
objectives of internal accounting control insofar as those objectives pertain
to the prevention or detection of errors or irregularities in amounts that
would be material in relation to the financial statements of the Company and
its Subsidiaries.
(i) Subsequent to the Execution Time or, if earlier, the
dates as of which information is given in the Registration Statement (exclusive
of any amendment thereof) and the Prospectuses (exclusive of any supplement
thereto), there shall not have been (i) any change or decrease specified in the
letter or letters referred to in paragraph (h) of this Section 6 or (ii) any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company and its Subsidiaries the effect of which,
in any case referred to in clause (i) or (ii) above, is, in the judgment of the
International Representatives, so material and adverse as to make it
impractical or inadvisable to proceed with the
<PAGE> 32
32
offering or delivery of the Securities as contemplated by the Registration
Statement (exclusive of any amendment thereof) and the Prospectuses (exclusive
of any supplement thereto).
(j) At the Execution Time, the Company shall have furnished
to the International Representatives a letter substantially in the form of
Exhibit A hereto from each officer and director of the Company and each holder
of one percent (1%) or more of outstanding shares of Common Stock of the
Company addressed to the International Representatives, in which each such
person agrees not to offer, sell or contract to sell, or otherwise dispose of,
directly or indirectly, or announce an offering of, any shares of Common Stock
beneficially owned by such person or any securities convertible into, or
exchangeable for, shares of Common Stock for a period of 180 days following the
Execution Time without the prior written consent of Salomon Brothers Inc, other
than shares of Common Stock disposed of as bona fide gifts.
(k) Prior to the Closing Date, the Company shall have
furnished to the International Representatives such further information,
certificates and documents as the International Representatives may reasonably
request.
(l) The closing of the purchase of the U.S. Underwritten
Securities to be issued and sold by the Company pursuant to the U.S.
Underwriting Agreement shall occur concurrently with the closing described
herein.
(m) The Securities shall be duly authorized for listing,
subject to official notice of issuance, on the Nasdaq National Market
("Nasdaq").
(n) At the Execution Time and at the Closing Date, Edward
Isaacs & Company LLP shall have furnished to the International Representatives
a letter or letters, dated respectively as of the Execution Time and as of the
Closing Date, in form and substance satisfactory to the International
Representatives, confirming that they are independent accountants within the
meaning of the Act and the applicable published rules and regulations
thereunder and that they have performed specified procedures as a result of
which they determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or statistical
information derived from the general accounting records of the Company
<PAGE> 33
33
and its Subsidiaries) set forth in the Registration Statement and the
Prospectuses under the caption "Selected Consolidated Financial and Other Data"
agrees with the accounting records of the Company and its Subsidiaries,
excluding any questions of legal interpretation.
If any of the conditions specified in this Section 6 shall not
have been fulfilled in all material respects when and as provided in this
Agreement, or if any of the opinions and certificates mentioned above or
elsewhere in this Agreement shall not be in all material respects reasonably
satisfactory in form and substance to the International Representatives and
counsel for the International Underwriters, this Agreement and all obligations
of the International Underwriters hereunder may be canceled at, or at any time
prior to, the Closing Date by the International Representatives. Notice of
such cancellation shall be given to the Company in writing, by facsimile or by
telephone confirmed in writing.
The documents required to be delivered by this Section 6 shall
be delivered at the office of Cravath, Swaine & Moore at Worldwide Plaza, 825
Eighth Avenue, New York, New York, on the Closing Date or such other place as
the International Representatives and the Company shall mutually agree.
7. Reimbursement of International Underwriters' Expenses. If
the sale of the Securities provided for herein is not consummated because any
condition to the obligations of the International Underwriters set forth in
Section 6 hereof is not satisfied, because of any termination pursuant to
Section 10 hereof or because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or comply with any provision
hereof other than by reason of a default by any of the International
Underwriters, the Company will reimburse the International Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company agrees
to indemnify and hold harmless each International Underwriter, the directors,
officers, employees and agents of each International Underwriter and each
person who controls any International Underwriter within the meaning of either
the Act or the Securities
<PAGE> 34
34
Exchange Act of 1934 (the "Exchange Act") against any and all losses, claims,
damages or liabilities, joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement for the registration of
the Securities as originally filed or in any amendment thereof, or in any U.S.
or International Preliminary Prospectus or in either of the Prospectuses, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and agrees to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that (i) the Company will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any International
Underwriter through the International Representatives specifically for
inclusion therein and (ii) with respect to any untrue statement or omission of
a material fact made in any International Preliminary Prospectus, the indemnity
agreement contained in this Section 8(a) shall not inure to the benefit of any
International Underwriter (or any of the directors, officers, employees and
agents of such International Underwriter or any controlling person of such
International Underwriter) from whom the person asserting any such loss, claim,
damage or liability purchased the Securities concerned, to the extent that any
such loss, claim, damage or liability of such International Underwriter occurs
under the circumstances where it shall have been determined by a court of
competent jurisdiction by final and nonappealable judgment that (w) the Company
had previously furnished copies of the International Prospectus to the
International Underwriters, (x) delivery of the International Prospectus was
required by the Act to be made to such person, (y) the untrue statement or
omission of a material fact contained in the International Preliminary
Prospectus was corrected in the International Prospectus and (z) there was not
sent or
<PAGE> 35
35
given to such person, at or prior to the written confirmation of the sale of
such Securities to such person, a copy of the International Prospectus. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have.
(b) Each International Underwriter severally agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who signs the Registration Statement, and each person who controls the
Company within the meaning of either the Act or the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each International
Underwriter, but only with reference to written information relating to such
International Underwriter furnished to the Company by or on behalf of such
International Underwriter through the International Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any International Underwriter may otherwise have. The Company acknowledges
that the statements set forth in the last paragraph of the cover page and under
the heading "Underwriting" in any U.S. or International Preliminary Prospectus
and the Prospectuses constitute the only information furnished in writing by or
on behalf of the several International Underwriters for inclusion in any U.S.
or International Preliminary Prospectus or the Prospectuses, and you, as the
International Representatives, confirm that such statements are correct.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying party from
any obligations to any indemnified party other than the indemnification
obligation provided in paragraph (a) or (b) above. The indemnifying party
shall be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the
<PAGE> 36
36
indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
satisfactory to the indemnified party. Notwithstanding the indemnifying
party's election to appoint counsel to represent the indemnified party in an
action, the indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear the reasonable
fees, costs and expenses of such separate counsel if (i) the use of counsel
chosen by the indemnifying party to represent the indemnified party would
present such counsel with a conflict of interest, (ii) the actual or potential
defendants in, or targets of, any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, (iii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the International
Underwriters agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the Company and one or more of the International Underwriters may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company and by the International Underwriters from the offering
of the International
<PAGE> 37
37
Securities; provided, however, that in no case shall any International
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the International Securities) be responsible for
any amount in excess of the underwriting discount or commission applicable to
the Securities purchased by such International Underwriter hereunder. If the
allocation provided by the immediately preceding sentence is unavailable for
any reason, the Company and the International Underwriters shall contribute in
such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and of the International
Underwriters in connection with the statements or omissions which resulted in
such Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
International Underwriters shall be deemed to be equal to the total
underwriting discounts and commissions, in each case as set forth on the cover
page of the International Prospectus. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or the International Underwriters. The
Company and the International Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person who controls an International Underwriter within
the meaning of either the Act or the Exchange Act and each director, officer,
employee and agent of an International Underwriter shall have the same rights
to contribution as such International Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
9. Default by an International Underwriter. If any one or
more International Underwriters shall fail to purchase and pay for any of the
International Securities
<PAGE> 38
38
agreed to be purchased by such International Underwriter or International
Underwriters hereunder and such failure to purchase shall constitute a default
in the performance of its or their obligations under this Agreement, the
remaining International Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of International
Securities set forth opposite their names in Schedule I hereto bears to the
aggregate amount of International Securities set forth opposite the names of
all the remaining International Underwriters) the International Securities
which the defaulting International Underwriter or International Underwriters
agreed but failed to purchase; provided, however, that in the event that the
aggregate amount of International Securities which the defaulting International
Underwriter or International Underwriters agreed but failed to purchase shall
exceed 10% of the aggregate amount of International Securities set forth in
Schedule I hereto, the remaining International Underwriters shall have the
right to purchase all, but shall not be under any obligation to purchase any,
of the International Securities, and if such nondefaulting International
Underwriters do not purchase all the International Securities, this Agreement
will terminate without liability to any nondefaulting International Underwriter
or the Company. In the event of a default by any International Underwriter as
set forth in this Section 9, the Closing Date shall be postponed for such
period, not exceeding seven days, as the International Representatives shall
determine in order that the required changes in the Registration Statement and
the Prospectuses or in any other documents or arrangements may be effected.
Nothing contained in this Agreement shall relieve any defaulting International
Underwriter of its liability, if any, to the Company and any nondefaulting
International Underwriter for damages occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to
termination in the absolute discretion of the International Representatives, by
notice given to the Company prior to delivery of and payment for the
International Securities, if prior to such time (i) trading in the Company's
Common Stock shall have been suspended by the Commission or the Nasdaq or
trading in securities generally on the New York Stock Exchange or the Nasdaq
shall have been suspended or limited or minimum prices shall have been
established on the New York Stock Exchange or the Nasdaq, (ii) a banking
moratorium shall have been declared either by Federal or New York State
authorities or
<PAGE> 39
39
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of the International Representatives, impracticable or
inadvisable to proceed with the offering or delivery of the Securities as
contemplated by the International Prospectus (exclusive of any supplement
thereto).
11. Representations and Indemnities to Survive. The
respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers and of the International Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any
International Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Section 8 hereof, and will survive delivery
of and payment for the International Securities. The provisions of Sections 7
and 8 hereof shall survive the termination or cancellation of this Agreement.
12. Notices. All communications hereunder will be in writing
and effective only on receipt, and, if sent to the International
Representatives, will be mailed, delivered or telecopied and confirmed to them
care of Salomon Brothers International Limited, at Victoria Plaza, 111
Buckingham Palace Road, London SW1W OSB England, attention: Legal Department;
or, if sent to the Company, will be mailed, delivered or telecopied and
confirmed to it at 800 Third Avenue, New York, New York 10022, attention of
Sheldon M. Goldman, Esq.
13. Successors. This Agreement will inure to the benefit of
and be binding upon the parties hereto and their respective successors and the
officers and directors and controlling persons referred to in Section 8 hereof,
and no other person will have any right or obligation hereunder.
14. Applicable Law. This Agreement will be governed by and
construed in accordance with the laws of the State of New York.
<PAGE> 40
40
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicate hereof,
whereupon this letter and your acceptance shall represent a binding agreement
among the Company and the several International Underwriters.
Very truly yours,
Viatel, Inc.
By: .........................
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers International Limited
CS First Boston Limited
Lazard Capital Markets
By: Salomon Brothers International Limited
By:
............................
Name:
Title:
For themselves and the other
several International Underwriters named
in Schedule I to the foregoing
Agreement.
<PAGE> 41
SCHEDULE I
to the International Underwriting Agreement
<TABLE>
<CAPTION>
Number of Shares of International
Underwritten Securities
International Underwriters To Be Purchased
- -------------------------- -----------------------
<S> <C>
Salomon Brothers International Limited . . .
CS First Boston Limited . . . . . . . . . . .
Lazard Capital Markets . . . . . . . . . . .
---------
Total . . . . . . . . . . .
=========
</TABLE>
<PAGE> 42
SCHEDULE II
to the International Underwriting Agreement
SUBSIDIARIES
1. Viatel U.K. Limited (U.K.)
2. Viaphone S.R.L. (Italy)
3. Viatel S.R.L. (Italy)
4. VPN, S.A. (France)
5. Viatel S.A. (France)
6. YYC Communications, Inc. (Delaware)
7. Viafon Dat Iberica, S.A. (Spain)
8. Viatel Global Communication Espana S.A. (Spain)
9. Viatel SA/NV (Belgium)
10. Viatel BV (branch) of Viatel Belgium (Belgium)
11. Viatel Gmbh (Germany)
12. In Liquidation Datex S.R.L.
<PAGE> 43
EXHIBIT A
[Letterhead of executive officer, director or 1% stockholder of Viatel, Inc.]
Viatel, Inc.
Public Offering of Common Stock
, 1996
Salomon Brothers Inc
CS First Boston Corporation
Lazard Freres & Co. LLC
Salomon Brothers International Limited
CS First Boston Limited
Lazard Capital Markets
As U.S. and International Representatives
of the several U.S. and International
Underwriters,
c/o Salomon Brothers Inc
Seven World Trade Center
New York, NY 10048
Dear Sirs:
This letter is being delivered to you in connection with the
proposed U.S. and International Underwriting Agreements (the "Underwriting
Agreements"), between Viatel, Inc., a Delaware corporation (the "Company"), and
you as representatives of a group of U.S. and International Underwriters named
in the Underwriting Agreements, relating to an underwritten public offering of
common stock, $.01 par value (the "Common Stock"), of the Company.
In order to induce you and the other U.S. and International
Underwriters to enter into the Underwriting Agreements, the undersigned agrees
not to offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce an offering of, any shares of Common Stock beneficially
owned by the undersigned or any securities convertible into, or exchangeable
for, shares of Common Stock for a period of 180 days following the day on which
the Underwriting Agreements are executed without the prior written consent of
Salomon Brothers Inc, other than shares of Common Stock disposed of as bona
fide gifts.
<PAGE> 44
2
If for any reason the Underwriting Agreements shall be
terminated prior to the Closing Date (as defined in the Underwriting
Agreements), the agreement set forth above shall likewise be terminated.
Yours very truly,
[Signature of executive officer,
director or 1% stockholder]
[Name and address of
executive officer, director or 1%
stockholder]
<PAGE> 1
EXHIBIT 3(i)(b)
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIATEL, INC.
VIATEL, INC., a Delaware corporation (the "Corporation") organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"), does hereby certify that:
(1) The original Certificate of Incorporation of the Corporation was
filed with the Office of the Secretary of State of the State of Delaware on
September 16, 1994. A Certificate of Amendment of Certificate of Incorporation
was filed with the Office of the Secretary of State of the State of Delaware on
December 16, 1994 (together, with the original Certificate of Incorporation, the
"Amended Certificate").
(2) The Amended and Restated Certificate of Incorporation of the
Corporation was duly adopted in accordance with Sections 242 and 245 of the
General Corporation Law by the Corporation's Board of Directors on October 11,
1996 and its stockholders on October 11, 1996.
(3) The Amended Certificate is hereby further amended as follows: (i)
to provide for a 3-for-2 reverse stock split of the Corporation's Common Stock,
$.01 par value per share; (ii) to eliminate the Corporation's authorized shares
of Series A Common Stock, $.01 par value per share, (iii) to authorize a total
of 1,000,000 shares of preferred stock, $.01 par value per share (the "Preferred
Stock"); and (iv) to provide for the division of the Corporation's Board of
Directors into three classes.
(4) Except for (i) the inclusion of the foregoing amendments; (ii) the
omission of matters of historical interest only; and (iii) the renumbering of
the Amended Certificate to effect the omission of such matters, there are no
discrepancies between the provisions of the Amended Certificate and the
provisions of this Amended and Restated Certificate of Incorporation.
The text of the Amended Certificate is restated with the amendments
described above, effective as of 9:00 a.m. on October 18, 1996, to read as
follows:
ARTICLE I
The name of the corporation (the "Corporation") is: VIATEL, INC.
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is located at 1013 Centre Road, City of Wilmington, County of New
Castle. The name of the registered agent at such address is the Corporation
Service Company.
ARTICLE III
<PAGE> 2
The nature of the business and purpose of the Corporation shall be to
conduct any lawful business, to promote any lawful purpose and to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law.
ARTICLE IV
The total authorized capital stock of the Corporation shall be
Fifty-One Million (51,000,000) shares consisting of Fifty Million (50,000,000)
shares of Common Stock, par value $.01 per share (the "Common Stock"), and One
Million (1,000,000) shares of Preferred Stock.
Upon the filing of this Amended and Restated Certificate of
Incorporation, the Corporation's shares of Common Stock, par value $.01 per
share, issued and outstanding immediately prior to the filing of this Amended
and Restated Certificate of Incorporation (the "Old Common Stock") shall be
changed so that every three (3) shares of Old Common Stock will automatically,
and without any action on the part of the holder thereof, be converted into two
(2) shares of Common Stock; PROVIDED, HOWEVER, that no fractional shares shall
be issued pursuant to such conversion and no payment shall be made for any
fractional shares.
The following is a statement fixing certain of the designations and
the powers, voting rights, preferences and relative, participating, optional and
other rights of the Preferred Stock and the Common Stock of the Corporation, and
the qualifications, limitations or restrictions thereof, and of the authority
with respect thereto expressly granted to the Board of Directors of the
Corporation to fix any such provisions not fixed by this Amended and Restated
Certificate of Incorporation:
A. Preferred Stock.
---------------
The Board of Directors is hereby expressly vested with the
authority to adopt a resolution or resolutions providing for the issue of
authorized but unissued shares of Preferred Stock, which shares may be issued
from time to time, in one or more series and in such amounts as may be
determined by the Board of Directors in such resolution or resolutions. The
powers, voting rights, designations, preferences and relative, participating,
optional or other special rights, if any, of each series of Preferred Stock and
the qualifications, limitations or restrictions, if any, of such preferences
and/or rights (collectively, the "Series Terms"), shall be such as are stated
and expressed in the resolution or resolutions providing for the issue of such
series of Preferred Stock (the "Series Terms Resolution") adopted by the Board
of Directors. The powers of the Board of Directors with respect to the Series
Terms of a particular series (any of which powers may by resolution of the Board
of Directors be specifically delegated to one or more of its committees, except
as prohibited by law) shall include, but not be limited to, determination of the
following:
(1) The number of shares constituting that series and the
distinctive designation of that series;
(2) The dividend rate on the shares of that series, whether such
dividends, if any, shall be cumulative, and, if so, the date or dates
from which dividends payable on such shares shall accumulate, and the
relative rights of priority, if any, of payment
<PAGE> 3
of dividends on shares of that series;
(3) Whether that series shall have voting rights, in addition to
any voting rights provided by law, and, if so, the terms of such
voting rights;
(4) Whether that series shall have conversion privileges with
respect to shares of any other class or classes of stock or of any
other series of any class of stock, and, if so, the terms and
conditions of such conversion upon the occurrence of such events as
the Board of Directors shall determine;
(5) Whether the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including their
relative rights of priority, if any, of redemption, the date or dates
upon or after which they shall be redeemable, provisions regarding
redemption notices, and the amount per share payable in case of
redemption, which amount may vary under different conditions and at
different redemption dates;
(6) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(7) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series;
(8) The conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith,
or prior thereto, with respect to dividends or distribution of assets
upon liquidation;
(9) The conditions or restrictions with respect to the issuance
of, payment of dividends upon, or the making of other distributions
to, or the acquisition or redemption of, shares ranking junior to the
Preferred Stock or to any series thereof with respect to dividends or
distribution of assets upon liquidation; and
(10) Any other designation, preference, power and right and any
qualification, limitation or restriction thereon as may be fixed by
resolution or resolutions of the Board of Directors under the General
Corporation Law.
Any of the Series Terms, including voting rights, of any series may be
made dependent upon facts ascertainable outside this Amended and Restated
Certificate of Incorporation and the Series Terms Resolution, provided that the
manner in which such facts shall operate upon such Series Terms is clearly and
expressly set forth in this Amended and Restated
<PAGE> 4
Certificate of Incorporation or in the Series Terms Resolution.
B. Common Stock.
------------
(1) Subject to the rights of the holders of shares of any series
of Preferred Stock set forth in any Series Terms Resolution, the Board of
Directors may, in its discretion, out of funds legally available for the payment
of dividends and at such times and in such manner as determined by the Board of
Directors, declare and pay dividends on the Common Stock of the Corporation.
(2) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after payment or provision
for the payment of the debts and other liabilities of the Corporation and the
payment or setting aside for payment of any preferential amount due to the
holders of shares of any series of Preferred Stock, the holders of Common Stock,
subject to the rights of the holders of any share of any class of stock or
series ranking on a parity with the Common Stock as to the payment or
distribution in such event, shall be entitled to receive ratably any and all
assets of the Corporation remaining to be paid or distributed.
C. Voting.
------
Subject to the rights of the holders of shares of any series of
Preferred Stock set forth in any Series Terms Resolution or provided by law, the
holders of the Common Stock of the Corporation shall be entitled at all meetings
of stockholders to one vote for each share of such stock held by them.
D. Retirement of Shares.
--------------------
Unless otherwise provided in a Series Terms Resolution with respect to
a particular series of Preferred Stock, all shares of Preferred Stock and all
shares of Common Stock redeemed or acquired by the Corporation (as a result of
conversion or otherwise) shall be retired and restored to the status of
authorized but unissued shares.
E. No Preemptive Rights.
--------------------
Unless otherwise provided with respect to a particular series of
Preferred Stock in a Series Terms Resolution, no holder of shares of capital
stock of the Corporation shall have any preemptive or other similar right,
except as such rights are expressly provided by contract, to purchase or
subscribe for or receive any shares of any class, or series thereof, of capital
stock of the Corporation, whether now or hereafter authorized, or any warrant,
option, bond, debenture or other security convertible into, exchangeable for or
carrying any right to purchase any shares of any class, or series thereof, of
capital stock of the Corporation.
ARTICLE V
The Corporation shall exist perpetually unless dissolved according to
law.
<PAGE> 5
ARTICLE VI
In furtherance and not in limitation of the powers conferred by
statute, the Bylaws of the Corporation may be made, altered, amended or repealed
by the Board of Directors.
ARTICLE VII
A. General Power of Board of Directors.
-----------------------------------
The powers of the Corporation shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be managed
under the direction of, a Board of Directors. The number of directors may be
increased or decreased by the Board of Directors from time to time as provided
in the Bylaws of the Corporation.
B. Classified Board of Directors.
-----------------------------
The Board of Directors of the Corporation shall be divided into
three classes designated as Class A, Class B and Class C, each initially
composed of two persons. Upon any change in the size of the Board of Directors,
each class shall consist, as nearly as may be possible, of one-third (1/3) of
the total number of directors constituting the entire Board of Directors.
The initial term of office of Class A directors shall expire at the
next annual meeting of stockholders of the Corporation following the filing of
this Amended and Restated Certificate of Incorporation; the initial term of
office of Class B directors shall expire at the second annual meeting of
stockholders of the Corporation following the filing of this Amended and
Restated Certificate of Incorporation; and the initial term of office of Class C
directors shall expire at the third annual meeting of stockholders of the
Corporation following the filing of this Amended and Restated Certificate of
Incorporation. The initial designation of directors among Class A, Class B and
Class C shall be made by the Board of Directors. At each annual meeting of
stockholders, the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting of stockholders. Each director shall hold office for
the term for which he or she was elected and until his or her successor is
elected and qualified or until his or her resignation or removal. Any vacancy on
the Board of Directors for any reason shall be filled in accordance with the
Bylaws of the Corporation.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the
<PAGE> 6
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE IX
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for any act or
omission not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of Title 8 of the General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. The foregoing sentence notwithstanding, if the General
Corporation Law is hereafter amended to authorize further limitations of the
liability of a director of a corporation, then a director of the Corporation, in
addition to the circumstances in which a director is not personally liable set
forth in the preceding sentence, shall not be liable to the fullest extent
permitted by the General Corporation Law as so amended. Any repeal or
modification of the foregoing provisions of this Article IX by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE X
The Corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify under
Section 145 from and against any and all expense, liability, or other matter
referred to in or covered by said section, and the indemnification provided for
herein shall not be deemed exclusive of any other right to which those
indemnified may be entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in any manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
[Remainder of Page Intentionally Left Blank]
<PAGE> 7
IN WITNESS WHEREOF, VIATEL, INC. has caused this Amended and
Restated Certificate of Incorporation to be signed by its duly authorized
officer this 11th day of October, 1996.
/s/ Michael J. Mahoney
------------------------------------------
Michael J. Mahoney,
President and Chief Operating Officer
<PAGE> 1
EXHIBIT 3(ii)(b)
AMENDED AND RESTATED BYLAWS
OF
VIATEL, INC.
(A DELAWARE CORPORATION)
ARTICLE I
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of the stockholders of
Viatel, Inc. (hereinafter, the "Corporation") for the election of directors and
for the transaction of such other proper business shall be held on such date and
at such time as may be fixed by the Board of Directors or, if no date and time
are so fixed, on the second Tuesday in July of each year at the office of the
Corporation or at such other place and at such hour as shall be designated by
the Board of Directors or, if no such time be fixed, then at 10:00 am.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders, unless
otherwise prescribed by statute or the Corporation's Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), may be called at any
time by the Board of Directors or by the holder or holders of more than 50% of
the outstanding shares of Common Stock entitled to vote with respect to the
matter to be considered at the proposed special meeting.
SECTION 3. NOTICE OF MEETINGS. Written notice of each meeting of the
stockholders, which shall state the place, date and hour of the meeting and, in
case of a special meeting, the purpose or purposes for which it is called, shall
be given, not less than ten (10) nor more than sixty (60) days before the date
of such meeting, either personally or by mail, to each stockholder entitled to
vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, directed to the
stockholder at the address of such stockholder as it appears on the records of
the Corporation. Whenever notice is required to be given, a written waiver
thereof signed by the stockholder entitled thereto, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
stockholder at a meeting shall constitute a waiver of notice of such meeting,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. When a meeting is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. If, at any meeting of stockholders, action is
proposed to be taken which would, if taken, entitle stockholders to perfect
appraisal rights with respect to their shares of the Corporation's capital
stock, the notice of meeting shall include a statement to that effect and such
notice shall comply with the requirements specified in Section 262 of the
General Corporation Law of the State of Delaware.
<PAGE> 2
SECTION 4. QUORUM. Except as required by the General Corporation Law of the
State of Delaware or the Restated Certificate, at any meeting of the
stockholders, the holders of the majority of the shares, issued and outstanding
and entitled to vote, present in person or represented by proxy, shall
constitute a quorum for the transaction of any business. In the absence of a
quorum, the holders of a majority of the shares present in person or represented
by proxy and entitled to vote may adjourn the meeting from time to time. At any
such adjourned meeting at which a quorum may be present, the Corporation may
transact any business which might have been transacted at the original meeting.
Shares of its own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes; PROVIDED,
HOWEVER, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
SECTION 5. ORGANIZATION. At each meeting of the stockholders, the Chairman
and Chief Executive Officer of the Corporation or, in such officer's absence or
inability to act, the President and Chief Operating Officer of the Corporation
or, in such officer's absence or inability to act, any person chosen by the
majority of those stockholders present in person or represented by proxy shall
act as chairman of the meeting. The Secretary or Assistant Secretary of the
Corporation or, in such officers' absence or inability to act, any person
appointed by the chairman of the meeting shall act as secretary of the meeting
and keep the minutes thereof.
SECTION 6. ORDER OF BUSINESS. The order of business at all
meetings of the stockholders shall be as determined by the chairman of the
meeting.
SECTION 7. VOTING. Unless otherwise provided in the Restated Certificate
and subject to Section 213 of the General Corporation Law of the State of
Delaware regarding fixing the date for the determination of stockholders of
record, each holder of Common Stock shall be entitled to one vote for each share
of Common Stock held by such stockholder and each holder of Preferred Stock
shall be entitled to such voting rights, if any, as are provided in the Series
Term Resolution (as such term is defined in the Restated Certificate)
establishing the respective series of Preferred Stock.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy. Any such proxy
shall be delivered to the secretary of such meeting at or prior to the time
designated in the order of business for so delivering such proxies. Except as
otherwise provided by law, every proxy shall be revocable at the pleasure of the
stockholder executing it. No proxy shall be valid after the expiration of three
(3) years from the date thereof unless otherwise provided in the proxy.
Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Except as otherwise required by statute, the Restated
Certificate, or these Bylaws, a majority of the votes cast at a meeting of the
stockholders shall be necessary to authorize any other corporate action to be
taken by vote of the stockholders. Unless required by statute or determined by
the chairman of the meeting to be advisable, the vote on any question need not
be by ballot. On a vote by ballot, each
<PAGE> 3
ballot shall be signed by the stockholder voting, or by his proxy if there be
such proxy, and shall state the number of shares voted.
SECTION 8. LIST OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make or cause to be prepared and
made, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting of stockholders,
arranged in alphabetical order, and showing the address of each stockholder and
the kind, class or series and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting of stockholders, either at
a place within the city or other municipality or community where the meeting is
to be held, which place shall be specified in the notice of the meeting, or if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to who are the stockholders entitled to
examine the stock ledger, the list required by this section or the books of the
Corporation, or to vote at any meeting of stockholders.
SECTION 9. INSPECTORS. The Board of Directors, in advance of any meeting of
stockholders, shall appoint one or more inspectors to act at such meeting or any
adjournment thereof and to make a written report thereon. The Board of Directors
may designate one or more persons as alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act at the
meeting of stockholders, the chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors shall ascertain the number of shares of
each kind, class or series of stock outstanding and the voting power of each,
determine the number of shares of stock represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the chairman of the meeting or any stockholder entitled to vote thereat, the
inspectors shall make a report in writing of any challenge, question or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be stockholders.
SECTION 10. BUSINESS BROUGHT BEFORE A MEETING. At an annual meeting of
stockholders, only such business shall be conducted, and only such proposals
shall be acted upon, as shall have been properly brought before the meeting of
stockholders. To be properly brought before an annual meeting of stockholders,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder who was a
stockholder of record at the time of giving of the notice provided for in this
section, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 10. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must have given
timely
<PAGE> 4
notice thereof in writing to the Secretary of the Corporation and such business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to or mailed and received by the
Corporation's Secretary at the principal executive offices of the Corporation,
not less than one hundred and twenty (120) days prior to the first anniversary
of the preceding year's annual meeting of stockholders; PROVIDED, HOWEVER, that
in the event that the date of the annual meeting of stockholders is changed by
more than thirty (30) days from such anniversary date, notice by the stockholder
to be timely must be so received no later than the close of business on the
tenth (10) day following the day on which notice of the date of the meeting was
mailed. A stockholder's notice to the Corporation's Secretary shall set forth
(a) as to each person whom the stockholder proposes to nominate for election or
re-election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors
in an election contest, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business sought to be
brought before the meeting; (c) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such nominee or business and
any other stockholders known by such stockholder to be supporting such nominee
or proposal; (d) the class and number of shares of the Corporation which, on the
date of such stockholder's notice, are beneficially owned by such stockholder
and by any other stockholders known by such stockholder to be supporting such
nominee or proposal; and (e) any material interest of the stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at an annual meeting of stockholders except in accordance
with the procedures set forth in this Section 10. The chairman of the annual
meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
provisions of this Section 10; and if the chairman should so determine, the
chairman shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
SECTION 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action required
or permitted to be taken at any annual or special meeting of stockholders of the
Corporation may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of a Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and do
all such lawful acts and things as are not by statute, the Restated Certificate
or these Bylaws directed or required to be exercised or done by the
stockholders.
<PAGE> 5
SECTION 2. NUMBER AND QUALIFICATIONS. The Board of Directors shall consist
of at least one director. Directors need not be stockholders. The Board of
Directors, by the affirmative vote of a majority of the entire Board of
Directors, may increase the number of directors to a number not exceeding nine.
Vacancies occurring by reason of any such increase shall be filled in accordance
with Section 4 of this Article II. The Board of Directors, by the vote of a
majority of the entire Board of Directors, may decrease the number of directors
to a number not less than one but any such decrease shall not affect the term of
office of any director.
SECTION 3. CLASSES, ELECTION AND TERM OF OFFICE. The Board of Directors
shall be divided into three classes serving staggered three-year terms. Except
for directors elected to fill vacancies, all directors shall be elected at the
annual meeting of stockholders and shall be nominated in accordance with the
provisions of Section 5 of this Article. Directors elected to fill vacancies
shall be appointed and elected in accordance with the provisions of Section 4 of
this Article. At each meeting of stockholders for the election of directors at
which a quorum is present, the persons receiving the greatest number of votes,
up to the number of directors to be elected, shall be the directors. Each
director shall hold office until his successor is elected and qualified, or
until his earlier resignation by written notice to the Secretary of the
Corporation, or until his removal from office.
SECTION 4. VACANCIES. Any vacancy occurring in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the directors
then in office, though less than a quorum of the Board of Directors, or by a
sole remaining director. A director elected to fill a vacancy resulting from an
increase in the number of directors shall hold office for a term that shall
coincide with the remaining term of the class of directors to which he is
elected. A director elected to fill a vacancy not resulting from an increase in
the number of directors shall have the same remaining term as that of his or her
predecessor. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board of Directors (as constituted immediately prior to such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten (10) percent of the total number of the then
outstanding shares of the Corporation's capital stock having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office, in the manner provided by statute. When one or
more director shall resign from the Board of Directors, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective and each director so chosen shall hold office until the next election
of such class or classes for which such director or directors have been chosen
and until their successors shall be elected and qualified.
SECTION 5. NOMINATIONS.
(a) Only persons who are nominated in accordance with the procedures set
forth in these Bylaws shall be eligible to serve as directors. Nominations of
persons for election to the Board of Directors of the Corporation may be made at
a meeting of stockholders (i) by or at the direction of the Board of Directors
or (ii) by any stockholder of the
<PAGE> 6
Corporation who was a stockholder of record at the time of giving of the notice
provided for in these Bylaws, who is entitled to vote for the election of
directors at the meeting and who shall have complied with the notice procedures
set forth in Article I, Section 10. At the request of the Board of Directors,
any person nominated by the Board of Directors for election as a director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a stockholder's notice of nomination which pertains to the nominee.
(b) No person shall be eligible to serve as a director of the Corporation
unless nominated in accordance with the procedures set forth in these Bylaws.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if the chairman should so declare, the defective
nomination shall be disregarded. A stockholder seeking to nominate a person to
serve as a director must also comply with all applicable requirements of the
Exchange Act, and the rules and regulations promulgated thereunder with respect
to the nomination and election of directors matters set forth in this Section 5.
SECTION 6. PLACE OF MEETINGS. The Board of Directors shall hold its
meetings at such place, within or without the State of Delaware, as it may from
time to time determine or as shall be specified in the notice of any such
meeting.
SECTION 7. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business as soon as practicable after each annual meeting of the stockholders,
on the same day and at the same place where such annual meeting of stockholders
shall be held. Notice of such meeting need not be given. Such meeting may be
held at any other time or place, within or without the State of Delaware, which
shall be specified in a notice thereof given as hereinafter provided in Section
10 of this Article II.
SECTION 8. REGULAR MEETINGS. Regular meetings, other than the annual
meeting, of the Board of Directors shall be held at such time as the Board of
Directors may fix. If any day fixed for a regular meeting shall be a legal
holiday at the place where the meeting is to be held, then the meeting which
would otherwise be held on that day shall be held at the same hour on the next
succeeding business day. Notice of regular meetings of the Board of Directors
need not be given except as otherwise required by statute or these Bylaws.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the Chief Executive
Officer, the President or by a majority of the entire Board of Directors.
SECTION 10. NOTICE OF MEETINGS. Notice of each special meeting of the Board
of Directors (and of each annual or regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 10, in which notice shall be stated the time and place of the meeting.
Except as otherwise required by these Bylaws, such notice need not state the
purposes of such meeting. Notice of each such meeting shall be mailed, postage
prepaid, to each director, addressed to him at his residence or usual place of
business, by first-class mail, at least five (5) days before the day on which
such meeting is to be held, or shall be sent addressed to him at such place by
telegraph, telex, cable or wireless, or be delivered to him personally, by
facsimile or by telephone, at least 24 hours before the time at which such
meeting is to be held. A written waiver of notice, signed by the director
entitled to notice,
<PAGE> 7
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance by a director at a meeting shall constitute a waiver of
notice of such meeting, except when the director attends a meeting for the
express purpose of objecting at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or convened.
SECTION 11. QUORUM AND MANNER OF ACTING. Except as hereinafter provided, a
majority of the entire Board of Directors shall be present in order to
constitute a quorum for the transaction of business at such meeting; and, except
as otherwise required by the Restated Certificate or these Bylaws, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. In the absence of a quorum at any
meeting of the Board of Directors, a majority of the directors present thereat
may adjourn such meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to the directors who were not
present at the time of the adjournment and, unless such time and place were
announced at the meeting at which the adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
called. The directors shall act only as a board and the individual directors
shall have no power as such.
SECTION 12. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a meeting
if all members of the Board of Directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
SECTION 13. TELEPHONIC PARTICIPATION. Members of the Board of Directors may
participate in meetings of the Board of Directors or any committee of the Board
of Directors by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation in such a meeting shall constitute
presence in person at such meeting.
SECTION 14. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board shall act as chairman of the meeting and preside thereat.
In the absence or inability to act of the Chairman of the Board, another
director chosen by a majority of the directors present shall act as chairman of
the meeting and preside thereat. The Secretary or, in such person's absence or
inability to act, any person appointed by the chairman of the meeting shall act
as secretary of the meeting and keep the minutes thereof.
SECTION 15. RESIGNATIONS. Any director may resign at any time upon written
notice to the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 16. REMOVAL OF DIRECTORS. Any director or directors may be removed,
at any time, with or without cause, by the affirmative vote of the holders of
record of a majority of the issued and outstanding capital stock entitled to
vote for the election of directors of the Corporation given at a special meeting
of the stockholders duly called and held expressly for such purpose; and the
vacancy or vacancies on the Board of
<PAGE> 8
Directors caused by such removal may be filled as provided in these Bylaws.
SECTION 17. COMPENSATION. The Board of Directors shall have authority to
fix the compensation, including fees and reimbursement of expenses, of directors
for services to the Corporation in the capacity as a director. The payment of
such compensation shall not preclude any director from serving the Corporation
in any other capacity and receiving compensation therefor.
ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation with the exception of any authority the delegation of which is
prohibited by the General Corporation Law of the State of Delaware, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it. Each committee shall keep written minutes of its proceedings and
shall report such minutes to the Board of Directors when required.
SECTION 2. GENERAL. A majority of any committee may determine its action
and fix the time and place of its meetings unless the Board of Directors shall
otherwise provide. Notice of such meeting shall be given to each member of the
committee in the manner provided for in Article II, Section 10. The Board of
Directors shall have power at any time to fill vacancies in, to change the
membership of, or to dissolve any such committee. Nothing herein shall be deemed
to prevent the Board of Directors from appointing one or more committees
consisting in part of persons who are not directors of the Corporation.
SECTION 3. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken at any meeting by any committee may be taken without a meeting if all of
the members of the committee consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the committee.
SECTION 4. TELEPHONE PARTICIPATION. Members of a committee may participate
in a meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation in such a meeting shall constitute
presence in person at such meeting.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER, QUALIFICATIONS, ELECTION AND TERM. The officers of the
Corporation shall include a Chairman of the Board, a Chief Executive Officer, a
President, a Chief Operating Officer, a Chief
<PAGE> 9
Financial Officer, a Treasurer and a Secretary. Any number of offices may be
held by the same person. Such officers shall be elected from time to time by the
Board of Directors. Each officer shall hold office until such officer's
successor is elected and qualified or until such officer's earlier resignation
or removal. The Board of Directors may from time to time elect such other
officers (including one or more Executive Vice Presidents, Senior Vice
Presidents, or Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents as may be necessary or desirable for the
conduct of the business of the Corporation. Such other officers and agents shall
have such duties and shall hold office for such terms as may be prescribed by
the Board of Directors.
SECTION 2. RESIGNATIONS. Any officer may resign at any time upon written
notice to the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 3. REMOVAL. Any officer or agent of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof. Removal shall be without prejudice to the contract rights, if
any, of the officer or agent so removed. Election or appointment of an officer
or agent shall not of itself create contract rights.
SECTION 4. VACANCIES. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise, shall be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these Bylaws for the regular election to such office.
SECTION 5. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a
director of the Corporation and shall preside at all meetings of the Board of
Directors at which he may be present. The Chairman of the Board shall have the
general powers and duties incident to the office of the chairman of the board of
a corporation and shall have such other powers and duties as may be assigned to
or required of such office from time to time by the Board of Directors or these
Bylaws.
SECTION 6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, subject to
the control of the Board of Directors, shall have general responsibility for the
business and affairs of the Corporation and shall be the chief policy making
officer of the Corporation. The Chief Executive Officer shall preside at all
meetings of the stockholders, and in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and he shall have such
other powers and duties as may be assigned to or required of such officer from
time to time by the Board of Directors or these Bylaws.
SECTION 7. PRESIDENT. The President shall have the general powers and
duties incident to the office of the president of a corporation, shall perform
such duties and services and shall have such other powers and duties as may be
assigned to or required of such officer from time to time by the Board of
Directors or these Bylaws. In the absence of the Chairman of the Board and the
Chief Executive Officer, he shall preside at all meetings of the Board of
Directors.
SECTION 8. CHIEF OPERATING OFFICER. The Chief Operating Officer,
<PAGE> 10
subject to the powers of the Board of Directors and the Chief Executive Officer,
shall have direct responsibility for the business and affairs of the
Corporation, including supervisory responsibility for the officers, agents,
employees and properties of the Corporation and shall have such other powers and
duties as may be assigned to or required of such officer from time to time by
the Board of Directors, the Chief Executive Officer or these Bylaws.
SECTION 9. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have
responsibility for all financial and accounting matters, including supervisory
responsibilities for the Treasurer and any Assistant Treasurer of the
Corporation. The Chief Financial Officer shall have the general powers and
duties incident to the office of the chief financial officer of a corporation
and shall have such other powers and duties as may be assigned to or required of
such officer from time to time by the Board of Directors or these Bylaws.
SECTION 10. VICE PRESIDENTS. Each Vice President, including any Executive
Vice President and any Senior Vice President, shall have such powers and perform
such duties incident to the office of the vice president of a corporation, and
shall have such other powers and duties as may be assigned to or required of
such officer from time to time by the Board of Directors or these Bylaws.
SECTION 11. THE TREASURER. The Treasurer shall, in the absence or
disability of the Chief Financial Officer, act with all of the powers and have
the responsibilities assigned to the Chief Financial Officer. The Treasurer
shall also have the general powers and duties incident to the office of the
treasurer of a corporation and shall have such other powers and duties as may be
assigned to or required of such officer from time to time by the Board of
Directors or these Bylaws.
SECTION 12. THE SECRETARY. The Secretary shall (a) record the proceedings
of the meetings of the stockholders and the Board of Directors in a minute book
to be kept for that purpose; (b) cause notices to be duly given in accordance
with the provisions of these Bylaws and as required by law; (c) be the custodian
of the records and the seal of the Corporation and affix and attest the seal to
all stock certificates of the Corporation (unless the seal of the Corporation on
such certificates shall be a facsimile, as hereinafter provided) and affix and
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal; (d) cause the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed to be properly kept and filed; and (e) in general, have all the powers and
perform all the duties incident to the office of secretary of a corporation and
shall have such other powers and duties as may be assigned to or required of
such officer from time to time by the Board of Directors or these Bylaws.
SECTION 13. OFFICERS' BONDS OR OTHER SECURITY. The Corporation
may secure the fidelity of any or all of its officers or agents by bond or
otherwise, in such amount and with such surety or sureties as the
Corporation may require.
SECTION 14. COMPENSATION. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to time
by the Board of Directors or a committee thereof; PROVIDED, HOWEVER, that the
Board of Directors or a committee thereof may delegate to the Chief Executive
Officer or the Chief Operating Officer the power to fix the compensation of
other officers and agents. An officer of the Corporation shall not be prevented
from receiving compensation by reason of the fact
<PAGE> 11
that such officer is or was a director of the Corporation, but any such officer
who shall also be a director (except in the event there is only one director of
the Corporation) shall not have any vote in the determination of the
compensation to be paid to him.
ARTICLE V
SHARES, ETC.
SECTION 1. STOCK CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation,
by the Chairman of the Board, or the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the kind, class or series and number of shares of the Corporation's
capital stock owned by such holder. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if such person was such officer, transfer
agent or registrar at the date of issue.
SECTION 2. BOOKS OF ACCOUNT AND RECORD OF STOCKHOLDERS. The books and
records of the Corporation may be kept at such places, within or without the
State of Delaware, as the Board of Directors may from time to time determine.
The stock record books and the blank stock certificate books shall be kept by
the Secretary of the Corporation or by any other officer or agent designated by
the Board of Directors.
SECTION 3. TRANSFER OF STOCK; REGISTERED STOCKHOLDERS. Transfers of shares
of stock of the Corporation shall be made on the stock records of the
Corporation only upon authorization by the registered holder thereof, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary or with a transfer agent or transfer clerk, and on surrender of
the certificate or certificates for such shares properly endorsed or accompanied
by a duly executed stock transfer power and the payment of all taxes thereon.
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, and the Corporation may hold any
such stockholder of record liable for calls and assessments and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person whether or not it shall
have express or other notice thereof. Whenever any transfers of shares shall be
made for collateral security and not absolutely, and both the transferor and
transferee request the Corporation to do so, such fact shall be stated in the
entry of the transfer.
SECTION 4. REGULATIONS. The Board may make such additional rules and
regulations, not inconsistent with these Bylaws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents and one or more registrars and may
require all certificates for shares of stock to bear the signature or signatures
of any of them.
SECTION 5. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to: (i) notice of or to vote at any
<PAGE> 12
meeting of stockholders or any adjournment thereof, (ii) express consent to
corporate action in writing without a meeting, (iii) receive payment of any
dividend or other distribution or allotment of any rights, (iv) exercise any
rights in respect of any change, conversion or exchange of stock or (v) for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall (i) not be more than sixty (60) nor less than ten
(10) days before the date of such meeting, (ii) not be more than ten (10) days
after the date upon which the resolution fixing the record date for consent to
corporate action in writing is adopted by the Board of Directors, and (iii) not
be more than sixty (60) days prior to such payment, exercise of rights or such
other action.
SECTION 6. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may, in its discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal representative,
to give the Corporation a bond sufficient, as the Corporation in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate. Anything herein to
the contrary notwithstanding, the Corporation, in its absolute discretion, may
refuse to issue any such new certificate, except pursuant to judicial
proceedings under the laws of the State of Delaware.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 1. EXECUTION OF CONTRACTS. Except as otherwise required by statute,
the Restated Certificate or these Bylaws, any contract or other instrument may
be executed and delivered in the name and on behalf of the Corporation by such
officer or officers (including any assistant officer) of the Corporation as the
Board of Directors may from time to time direct. Such authority may be general
or confined to specific instances as the Board of Directors may determine.
Unless authorized by the Board of Directors or expressly permitted by these
Bylaws, no officer, agent or employee shall have any power or authority to bind
the Corporation by any contract or engagement or to pledge its credit or to
render it pecuniarily liable for any purpose or to any amount.
SECTION 2. LOANS. Unless the Board of Directors shall otherwise determine,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Controller and any Vice President may effect loans
and advances at any time for the Corporation from any bank, trust company or
other institution, or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other certificates or evidences of indebtedness of the Corporation, but no
officer or officers shall mortgage, pledge, hypothecate or transfer any
securities or other property of the Corporation other than in connection with
the purchase of chattels for use in the Corporation's operations, except when
authorized by the Board of Directors.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, bills of exchange or
other orders for the payment of money out of the funds of the Corporation, and
all notes or other evidence of indebtedness of the Corporation, shall be signed
in the name and on behalf of the Corporation by such persons and in such manner
as shall from time to time be authorized
<PAGE> 13
by the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may from
time to time designate or as may be designated by any officer or officers of the
Corporation to whom such power of designation may from time to time be delegated
by the Board of Directors. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, checks, drafts and other orders
for the payment of money which are payable to the order of the Corporation may
be endorsed, assigned and delivered by any officer or agent of the Corporation.
SECTION 5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board of Directors may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board of
Directors may designate or as may be designated by any officer or officers of
the Corporation to whom such power of designation may from time to time be
delegated by the Board of Directors. The Board of Directors may make such
special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VII
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office and
registered agent of the Corporation will be as specified in the Restated
Certificate.
SECTION 2. OTHER OFFICES. The Corporation may also have such
offices, both within or without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall end on the last day of December.
ARTICLE IX
SEAL
The seal of the Corporation shall be circular in form, shall bear the name
of the Corporation and shall include the words and numbers "Corporate Seal",
"Delaware" and the year of incorporation.
ARTICLE X
INDEMNIFICATION
SECTION 1. GENERAL. Each person who was or is a party or is threatened to
be made a party to or is involved in any manner (including, without limitation
as a witness) in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, including,
without limitation, any action or proceeding by or in right of the Corporation
to procure a judgement in its favor (a "Proceeding"), by reason of the fact that
he or she, or a person of whom he or she is or was the legal representative, is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation
<PAGE> 14
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such Proceeding is an
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement), actually and reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person; PROVIDED, HOWEVER, that, except as
set forth in Section 2 of this Article X, the Corporation shall indemnify any
such person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article X shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such Proceeding in advance of its final disposition; PROVIDED,
HOWEVER, that, if the General Corporation Law of the State of Delaware requires
the payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a Proceeding, such advancement shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Article X or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
SECTION 2. CLAIMS. If a claim under Section 1 of this Article X is not paid
in full by the Corporation within thirty (30) days after a written claim has
been received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant also shall be entitled to be paid
the expenses of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the General Corporation Law of the State of Delaware for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in
the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of
<PAGE> 15
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall not create a presumption that
the claimant has not met the applicable standard of conduct.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement of expenses incurred in defending a Proceeding in advance of its
final disposition conferred in this Article X shall not be exclusive of any
other right which any person seeking indemnification or advancement of expenses
may have or hereafter acquire under any applicable statute, provision of the
Restated Certificate, these Bylaws, agreement, vote of stockholders or
disinterested directors, or otherwise.
SECTION 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was a director, officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any such expense,
liability or loss asserted against it or such person and incurred by it or such
person, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of the State of Delaware.
ARTICLE XI
AMENDMENT
The Bylaws may be adopted, amended, or repealed by vote of the holders of a
majority of the shares of stock at the time entitled to vote in the election of
directors, except as otherwise provided in the Restated Certificate. The Bylaws
may also be adopted, amended or repealed by the vote of a majority of the Board
of Directors present at any regular meeting of said Board of Directors, or at a
special meeting of the Board of Directors called for such purpose, but any
Bylaws adopted by the Board of Directors may be amended, repealed or altered by
the stockholders entitled to vote thereon as herein provided.
ARTICLE XII
SEVERABILITY
The provisions of these Bylaws shall be separable each from any and all
other provisions of these Bylaws, and if any such provision shall be adjudged to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, or the powers granted to this Corporation by
the Restated Certificate or these Bylaws.
<PAGE> 1
EXHIBIT 4.5
AMENDMENT NO. 1 TO INDENTURE
AMENDMENT NO. 1, dated as of October 11, 1996 ("Amendment No. 1"), to
INDENTURE, dated as of December 15, 1994 (the "Original Indenture"), between
VIATEL, INC., a Delaware corporation, as Issuer (the "Company"), and UNITED
STATES TRUST COMPANY OF NEW YORK, a New York corporation, as Trustee (the
"Trustee").
RECITALS
The Company and the Trustee hereby desire to amend the Original
Indenture pursuant to Section 9.01 thereof. Section 9.01 authorizes the Company
and the Trustee to amend the Original Indenture without notice to or the consent
of the Holders to cure any ambiguity, defect or inconsistency therein.
AND THIS AMENDMENT NO. 1 FURTHER WITNESSETH
For and in consideration of the premises and for the mutual benefit of
the parties, it is mutually covenanted and agreed as follows:
1. Capitalized terms not defined herein shall have the meanings
given to them in the Original Indenture.
2. Section 4.11 of the Original Indenture is hereby amended by
deleting the phrase "principal amount" in the first sentence thereof and by
substituting, in lieu thereof, the phrase "Accreted Value."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to be duly executed, all as of the date first written above.
VIATEL, INC., as Issuer
By: /s/ Sheldon M. Goldman
-------------------------------------
Name: Sheldon M. Goldman
Title: Assistant Secretary
UNITED STATES TRUST COMPANY
OF NEW YORK, as Trustee
By: /s/ Louis P. Young
-------------------------------------
Name: Louis P. Young
Title: Vice President
<PAGE> 1
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
September 23, 1996 by and between VIATEL, INC., a Delaware corporation with an
office at 800 Third Avenue, New York, New York 10022 (the "Company"), and MARTIN
VARSAVSKY, an individual currently residing at Vda. de Los Chopos No. 12, 28109
La Moraleja, Madrid, Spain (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is contemplating a Public Offering (as defined
below) of certain of its equity securities;
WHEREAS, the Board of Directors (the "Board") desires to provide
incentives to retain the Executive in the Company's employ for a three-year
period after the Public Offering; and
WHEREAS, the Board and the Executive desire that the Company employ
the Executive as the Chairman and Chief Executive Officer.
NOW THEREFORE, each of the Company and Executive, intending to be
legally bound, hereby mutually covenant and agree as follows:
ARTICLE I
DEFINITIONS
The following terms used in this Agreement shall have the meanings set
forth below.
1.1 "Accrued Obligations" shall mean, as of the date of Termination,
the sum of Executive's aggregate accrued but unpaid (A) Base Salary, (B) Bonus
Award, (C) other cash compensation and (D) vacation pay, expense reimbursements
and other cash entitlements, all determined through the date of Termination.
1.2 "Base Salary" shall mean the amount set forth in Section 3.1
hereof.
1.3 "Bonus Agreement" shall mean the Bonus Agreement entered into by
the parties in the form attached hereto as EXHIBIT A.
1.4 "Bonus Award" shall have the meaning specified in the Bonus
Agreement.
1.5 "Cause" shall mean Executive's (i) material violation of Section
2.3 hereof, which violation has not been cured within 15 days of the date that
written notice thereof is received by Executive from the Board; (ii) material
violation of Section 4.1 or 4.2 hereof; (iii) violation of Section 4.3 hereof;
(iv) gross negligence or dishonesty in performancing his duties hereunder or
habitual neglect in managing the Company; PROVIDED, HOWEVER, that the Board
undertakes a comprehensive review and determines that such conduct is materially
injurious or materially damaging to the Company or its reputation; or (vi)
conviction of any felony or a misdemeanor involving fraud, misrepresentation or
dishonesty.
<PAGE> 2
1.6 "Change of Control" is defined to mean such time as (i) a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act), becomes the ultimate "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 50% of the total voting power of the
then outstanding Voting Stock of the Company on a fully diluted basis or (ii)
individuals who at the beginning of any period of two consecutive calendar years
constituted the Board (together with any new directors whose election by the
Board or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board then still
in office who either were members of the Board at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the members of the Board then in
office.
1.7 "Common Stock" shall mean the common stock, par value $.01 a
share, of the Company.
1.8 "Competitive Activities" shall have the meaning set forth in
Section 4.3 hereof.
1.9 "Confidential Material" shall have the meaning set forth in
Section 4.2 hereof.
1.10 "Control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through ownership of voting securities, by contract or
otherwise.
1.11 "Disability" shall mean Executive's death or inability to perform
his material duties to the Company by reason of a physical or mental disability
which has existed for an aggregate of nine months during any twelve month
period).
1.12 "Disability Payment" shall mean, for purposes of Section 5.3(d)
hereof, an amount equal to 60% of the Base Salary in effect for the calendar
year in which such Disability occurred (or the average Base Salary if such
Disability occurred over more than one calendar year.
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.14 "Good Reason" shall mean any (i) reduction in Executive's Base
Salary, (ii) material diminution in Executive's authority, duty, responsibility,
function or position with the Company, if such diminution continues after 15
days of the date that written notice thereof is given to the Board by Executive,
(iii) failure by the Company to continue any material benefit or compensation
plan, life insurance plan, health and accident plan, disability plan (or plan
providing Executive with substantially similar benefits) in which Executive is
participating or the material reduction by the Company of Executive's benefits
under any such plan, (iv) failure by the Company to obtain an assumption of this
Agreement by any successor of the Company (as contemplated in Section 6.2
hereof) or (v) after a Change in Control, any breach of this Agreement or of the
Bonus
<PAGE> 3
Agreement; PROVIDED, HOWEVER, that the Executive has provided written notice to
the Company of such breach and the Company has not cured such breach (if capable
of being cured) within 15 days of receipt of such notice.
1.15 "Intellectual Property" shall mean any idea, process, trademark,
service mark, trade or business secret, invention, technology, computer program
or hardware, original work of authorship, design, formula, discovery, patent or
copyright, application, record, design, plan or specification and any
improvement, right or claim related to the foregoing.
1.16 "Participation" shall mean the direct or indirect participation
in any Competitive Activity, whether as an operator, manager, consultant, and
whether individually or jointly.
1.17 "Performance Year" shall mean each calendar year beginning on
January 1 and ending on December 31.
1.18 "Person" shall mean any individual or entity, whether a
governmental or other agency or political subdivision thereof or otherwise.
1.19 "Public Offering" shall mean the first date after which at least
20% of the outstanding Common Stock is publicly held and such Common Stock is
listed or admitted to trading on a national securities exchange or quoted on the
National Association of Securities Dealers, Inc.'s National Market System.
1.20 "Severance Amount" shall mean, for purposes of Section 5.3(b)
hereof, an amount equal to (i) the sum of (A) the Base Salary for the calendar
year in the Term in which the date of Termination occurs plus (B) one-half of
the prior year's Bonus Award (not to be less than $50,000) MULTIPLIED BY (ii)
the Severance Period Multiple.
1.21 "Severance Period" shall mean the number of full calendar months
remaining in the Term on the date of any Termination.
1.22 "Severance Period Multiple" shall mean, the quotient obtained by
DIVIDING (i) the Severance Period by (ii) 12; PROVIDED, HOWEVER, that the
Severance Period Multiple shall not be less than one, except that in the case of
a Change in Control, the Severance Period Multiple shall not be less than two.
1.23 "Term" shall have the meaning set forth in Section 2.2 hereof.
1.24 "Termination" shall mean termination of Executive's employment
with the Company for any reason, including (i) for Disability, (ii) with or
without Cause, (iii) resignation by Executive with or without Good Reason or
(iv) upon the expiration of the Term.
1.25 "Voting Stock" shall mean with respect to any share, interest,
participation or other equivalent (however designated, whether voting or
non-voting) in equity of the Company, whether now outstanding or issued after
the date hereof, including, without limitation, any Common Stock, any preferred
stock and any class or kind ordinarily having the power to vote for the election
of directors, managers or other voting members of the Board.
<PAGE> 4
ARTICLE II
EMPLOYMENT AND TERM
2.1 EMPLOYMENT. The Executive shall be employed as the Chairman and
Chief Executive of the Company, and Executive hereby accepts such employment and
agrees to serve in any similar capacity for any of the Company's subsidiaries.
2.2 TERM. The Term shall commence on the date of the Public Offering;
PROVIDED, HOWEVER, that if the Public Offering does not occur before December 1,
1996 this Agreement shall not commence and the parties hereto shall be under no
obligation or entitlement hereunder. Once commenced, this Agreement shall end on
the earlier of (i) the third anniversary of the Public Offering and (ii) the
date of any Termination. Notwithstanding the foregoing, and subject to Section
5.2 hereof, if six months' advance written notice terminating this Agreement is
not received by Executive before the third anniversary (or any subsequent
anniversary) of the Public Offering, then this Agreement shall be automatically
renewed for successive one-year periods.
2.3 DUTIES. The Executive shall be directly responsible for the
Company's strategic affairs and shall have all powers, duties and
responsibilities commensurate with his position as set forth in Section 2.1
hereof or as may be assigned by the Board from time to time; PROVIDED, HOWEVER,
that any such powers, duties and responsibilities assigned by the Board are
commensurate with such position. The Executive shall use his best efforts and
devote all of his business time, attention and energy in performing his duties
hereunder. Notwithstanding the foregoing, nothing in this Agreement shall
restrict Executive from managing his personal investments, personal business
affairs and other personal matters, or serving on civic or charitable boards or
committees, if such activities do not interfere with the performance of his
duties hereunder or conflict with the Company's interests.
ARTICLE III
COMPENSATION AND BENEFITS
3.1 BASE SALARY. For services performed by Executive for the Company
and its subsidiaries hereunder, the Company shall pay Executive an annual Base
Salary of $350,000 in accordance with the Company's regular payroll practices.
On each anniversary date of the Public Offering, the Executive shall be subject
to an annual review; PROVIDED, HOWEVER, that the Executive's Base Salary shall
be increased (but not decreased) to an amount equal to the product of the Base
Salary MULTIPLIED BY the sum of (i) one PLUS (ii) the percentage increase, if
any, in the Consumer Price Index for all Urban Consumers, All Items, for the
most recent twelve-month period for which such figures are then available as
promulgated by the Department of Labor Bureau of Statistics.
3.2 BONUSES. Executive shall be eligible to receive an annual cash
bonus in accordance with the Bonus Agreement. Any compensation which may be
otherwise authorized from time to time by the Board (or an appropriate committee
thereof) shall be in addition to the Base Salary and any Bonus Award.
<PAGE> 5
3.3 STOCK OPTIONS. Executive shall be entitled to receive annual
grants of stock options or restricted stock in amounts determined by the Board
in its sole and absolute discretion.
3.4 OTHER BENEFITS. In addition to the Base Salary and participation
in the Bonus Plan, Executive shall also be entitled to the following:
(a) PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled
to participate in and receive benefits under all present and future life,
accident, disability, medical, pension, and savings plan and all similar
benefits made available to senior executive officers of the Company. Executive
shall also be entitled to participate in all other welfare and benefit plans
maintained by the Company and/or its subsidiaries, as the case may be, for their
respective employees generally.
(b) VACATION. Executive shall be entitled to vacation and paid
holidays consistent with the Company's practices as adopted from time to time;
PROVIDED, HOWEVER, that such vacation shall not be less than 20 days each year.
(c) EXPENSES. The Company shall reimburse Executive for
reasonable travel, out of pocket business expenses incurred by Executive in the
performance of his duties hereunder, provided appropriate documentation
supporting such expenses is submitted in accordance with the Company's governing
policies.
ARTICLE IV
COVENANTS
4.1 NON-INTERFERENCE. During the Term and a period of two years
thereafter, Executive agrees not to solicit or encourage (i) any employee of the
Company who is employed in an executive, managerial, administrative or
professional capacity or who possesses Confidential Material to leave the
employment of the Company or (ii) any customer of the Company on behalf of any
Competitor or any other business, directly, indirectly on behalf of himself or
any other Person (collectively,"Solicitation").
4.2 NONDISCLOSURE OF CONFIDENTIAL MATERIAL. (a) In the performance of
his duties hereunder, Executive shall have access to confidential records and
information, including, but not limited to, information relating to (i) any
Intellectual Property or (ii) the Company's business practices, finances,
developments, customers, affairs, marketing or purchasing strategy or other
secret information (collectively, clauses (i) and (ii) of this Section 4.2(a)
are referred to as the "Confidential Material").
(b) All Confidential Material shall be disclosed to Executive in
confidence. Except in performing his duties hereunder, Executive shall not,
during the Term and at all times thereafter, disclose or use any Confidential
Material.
(c) All records, files, drawings, documents, equipment and other
tangible items containing Confidential Material shall be the Company's exclusive
property, and, upon termination of this Agreement, or
<PAGE> 6
whenever requested by the Company, Executive shall promptly deliver to the
Company all of the Confidential Material (and copies thereof) that may be in
Executive's possession or control. The Company hereby represents and warrants
that it shall give custody of such Confidential Material to a escrow agent, with
terms acceptable to both the Company and the Executive, for a three-year period
at an annual cost not to exceed $500.
(d) The foregoing restrictions shall not apply if (i) such
Confidential Material has been publicly disclosed (not due to a breach by
Executive of his obligations hereunder or by breach of any other person of a
fiduciary or confidential obligation to the Company) or (ii) Executive is
required to disclose Confidential Material by or to any court of competent
jurisdiction or any governmental or quasi-governmental agency, authority or
instrumentality of competent jurisdiction; PROVIDED, HOWEVER, that Executive
shall, prior to any such disclosure, immediately notify the Company of such
requirement; PROVIDED, FURTHER, that the Company shall have the right, at its
expense, to object to such disclosures and to seek confidential treatment of any
Confidential Material to be so disclosed on such terms as it shall determine.
4.3 NON-COMPETITION. (a) The Executive shall not, during the
Term, Control any Person which is engaged, directly or indirectly, or
Participate in any business that is competitive with the Company's business of
developing, operating or expanding a facilities-based telecommunications voice
or voice band data network within any country in any European Union member
state, Switzerland or any country within South America in which the Company
currently has a switch or point of presence for either origination or
termination of voice or voice band data transmissions or in which the Company is
so engaged in business or proposes to be so engaged in business in accordance
with its strategic business plan current at the time of the Termination
(collectively, "Competitive Activities"); PROVIDED, HOWEVER, that nothing in
this Agreement shall preclude Executive from owning less than 5% of any class of
publicly traded equity of any Person engaged in any Competitive Activity.
Notwithstanding the immediately preceding sentence, if the Company has ceased to
so provide such services within any such country at the time of Executive's
Termination (or any time thereafter), the covenant set forth in the immediately
preceding sentence shall no longer be applicable to such any such business in
such country.
(b) Upon any Termination for any reason other than for (i) Executive's
Disability, (ii) for Cause or (iii) resignation without Good Reason, then the
Executive shall not, for himself or any third party, directly or indirectly for
a period of one year following the date of such Termination engage in
Competitive Activities.
(c) Upon any Termination without Cause or resignation for Good Reason,
then the Executive shall not, for himself or any third party, directly or
indirectly, engage in Competitive Activities for a period equal to the greater
of (i) the Severance Period and (ii) one year following the date of Termination.
4.4 EXECUTIVE INVENTIONS AND IDEAS.
(a) Executive hereby agrees to assign to the Company, without
further consideration, his entire right, title and interest (within the United
States and all foreign jurisdictions), to any Intellectual
<PAGE> 7
Property created, conceived, developed or reduced to practice by Executive
(alone or with others), free and clear of any lien or encumbrance. If any
Intellectual Property shall be deemed patentable or otherwise registrable,
Executive shall assist the Company (at its expense) in obtaining letters patent
or other applicable registration therein and shall execute all documents and do
all things (including testifying at the Company's expense) necessary or
appropriate to obtain letters patent or other applicable registration therein
and to vest in the Company, or any affiliate specified by the Board.
(b) Should Company be unable to secure Executive's signature on
any document necessary to apply for, prosecute, obtain or enforce any patent,
copyright or other right or protection relating to any Intellectual Property,
whether due to Executive's Disability or other cause, Executive hereby
irrevocably designates and appoints the Company and each of its duly authorized
officers and agents as Executive's agent and attorney-in-fact to act for and on
Executive's behalf and stead and to execute and file any such document and to do
all other lawfully permitted acts to further the prosecution, issuance and other
enforcement of patents, copyrights or other rights or protections with the same
effect as if executed and delivered by Executive.
4.5 ENFORCEMENT.
(a) Executive acknowledges that violation of any covenant or
agreement set forth in this Article IV would cause the Company irreparable
damage for which the Company cannot be reasonably compensated in damages in an
action at law, and, therefore, upon any breach by Executive of this Article IV,
the Company shall be entitled to make application to a court of competent
jurisdiction for equitable relief by way of injunction or otherwise (without
being required to post a bond). This provision shall not, however, be construed
as a waiver of any of the rights which the Company may have for damages, and all
of the Company's rights and remedies shall be unrestricted.
(b) If any provision of this Agreement, or application thereof to
any person, place or circumstance, shall be held by a court of competent
jurisdiction or be found in an arbitration proceeding to be invalid,
unenforceable or void, the remainder of this Agreement and such provisions as
applied to any other person, place and circumstance shall remain in full force
and effect. It is the intention of the parties hereto that the covenants
contained herein shall be enforced to the maximum extent (but no greater extent)
in time, area, and degree of participation as is permitted by the law of the
jurisdiction whose law is found to be applicable to the acts allegedly in breach
of this agreement, and the parties hereby agree that the court making any such
determination shall have the power to so reform the Agreement.
(c) The Executive understands that the provisions of this Article
IV may limit his ability to earn a livelihood in a business similar to the
business of the Company but nevertheless agrees and hereby acknowledges that (i)
such provisions do not impose a greater restraint than is necessary to protect
the goodwill or other business interests of the Company; (ii) such provisions
contain reasonable limitations as to time and the scope of activity to be
restrained; and (iii) the consideration provided under this Agreement,
including, without limitation, any amounts or benefits provided under Article V
hereof, is sufficient to compensate
<PAGE> 8
Executive for the restrictions contained in this Article IV. In consideration of
the foregoing and in light of Executive's education, skills and abilities,
Executive agrees that he will not assert, and it should not be considered, that
any provisions of this Article IV prevented him from earning a living or
otherwise are void, voidable or unenforceable or should be voided or held
unenforceable.
(d) Each of the covenants of this Article IV is given by
Executive as part of the consideration for this Agreement and as an inducement
to the Company to enter into this Agreement and accept the obligations
hereunder.
ARTICLE V
TERMINATION
5.1 TERMINATION OF AGREEMENT. Except for those provisions of this
Agreement that survive Termination, this Agreement shall terminate upon any
Termination.
5.2 PROCEDURES APPLICABLE TO TERMINATION.
(a) TERMINATION FOR CAUSE. The Executive may be terminated for
Cause, upon at least 30 days' prior written notice from the Board to Executive
for termination for Cause provided that Executive, with his counsel, shall have
had the opportunity during such period to be heard at a meeting of the Board
concerning such determination.
(b) RESIGNATION FOR GOOD REASON. The Executive may resign for
Good Reason, upon at least 30 days' prior written notice from Executive to the
Board of his intent to resign for Good Reason provided that Executive, with his
counsel, shall have met with the Board, if requested by the Board, during such
period with respect to his intent to resign.
(c) TERMINATION WITHOUT CAUSE OR FOR DISABILITY. The Executive
may be terminated without Cause or for Disability, upon at least 30 days' prior
written notice from the Board to Executive, by a vote of the Board, provided
that Executive, with his counsel, shall have had the opportunity during such
period to be heard at a meeting of the Board with respect to such
determination).
(d) NO EFFECT ON RIGHTS. The Executive's right or obligation to
be heard in connection with a Termination shall not otherwise effect the rights
and obligations of the Executive and the Company hereunder.
5.3 OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) ACCRUED OBLIGATIONS AND OTHER BENEFITS. Upon any Termination,
the Company shall pay to Executive, or, upon Executive's Disability, to his
heirs, estate or legal representatives, as the case may be, the following:
(i) all Accrued Obligations in a lump sum within 10 days
after the date of Termination; and
<PAGE> 9
(ii) all benefits accrued by Executive as of the date of
Termination under all qualified and nonqualified retirement, pension, profit
sharing and similar plans of the Company to such extent, in such manner and at
such time as are provided under the terms of such plans and arrangements.
(b) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If
the Board terminates Executive's employment without Cause (excluding Termination
because of Disability), or if Executive resigns for Good Reason, in addition to
the amounts payable under Section 5.3(a) hereof:
(i) The Company shall pay Executive (A) one-half (1/2) of
the Severance Amount in a lump sum within 10 days after the date of Termination
and (B) one-half (1/2) of the Severance Amount over the unexpired portion of the
Term in accordance with the Company's regular payroll practices then in
existence; and
(ii) The Company shall continue all benefits coverage of
Executive and any dependents then provided under its benefit plans or policies
for the unexpired portion of the Term.
(c) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If
the Board terminates Executive's employment for Cause, or if Executive resigns
without Good Reason, Executive shall only be entitled to the amounts payable
under Section 5.3(a) hereof:
(d) TERMINATION FOR DISABILITY. Upon Termination of Executive
because of a Disability, in addition to the amounts payable under Section 5.3(a)
hereof, the Company shall pay the aggregate Disability Payment for three years
in accordance with the Company's regular payroll practices then in existence.
(e) EXCLUSIVITY. Any amount payable to Executive pursuant to this
Article V shall be Executive's sole remedy upon a Termination, and Executive
waives any and all rights to pursue any other remedy at law or in equity;
PROVIDED, HOWEVER, that Executive does not hereby waive any right provided under
any federal, state or local law or regulation relating to employment
discrimination.
ARTICLE VI
MISCELLANEOUS
6.1 EXECUTIVE ACKNOWLEDGMENT. The Executive acknowledges that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement and has been advised to do so by the
Company, and that he has read and understands the Agreement, is fully aware of
its legal effect, and has entered into it freely based on his own judgment.
6.2 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of Executive's heirs and representatives and the Company's
successors and assigns. The Company shall require any successor (whether direct
or indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation, or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, to
<PAGE> 10
assume performance of this Agreement in the same manner that the Company would
have been required to perform this Agreement if no such succession had taken
place. Regardless of whether such agreement is executed, this Agreement shall be
binding upon any successor of the Company in accordance with the operation of
law.
6.3 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as follows:
(a) if to the Board or the b) if to Executive, to:
Company, to:
Viatel, Inc. Martin Varsavsky
800 Third Avenue, 18th Floor Vda. de Los Chopos No. 12
New York NY 10022 28109 La Moraleja
Attention: General Counsel Madrid, Spain
Any such address may be changed by written notice sent to the other party at the
last recorded address of that party.
6.4 TAX WITHHOLDING. The Company shall provide for the withholding of
any taxes required to be withheld under federal, state and local law (other than
the employer's portion of such taxes) with respect to any payment in cash and/or
other property made by or on behalf of the Company to or for the benefit of
Executive under this Agreement or otherwise. The Company may, at its option: (i)
withhold such taxes from any cash payments owing from the Company to Executive,
(ii) require Executive to pay to the Company in cash such amount as may be
required to satisfy such withholding obligations and/or (iii) make other
satisfactory arrangements with Executive to satisfy such withholding
obligations.
6.5 NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. Except as otherwise
expressly provided in Section 6.2 hereof, this Agreement is not assignable by
any party, and no payment to be made hereunder shall be subject to alienation,
sale, transfer, assignment, pledge, encumbrance or other charge. Except for the
Company and its existing and future subsidiaries, no Person shall be, or deemed
to be, a third party beneficiary of this Agreement.
6.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
6.7 JURISDICTION AND GOVERNING LAW. Jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of New
York, and this Agreement shall be construed and interpreted in accordance with
and governed by the laws of the State of New York as applied to contracts
capable of being wholly performed in such State.
<PAGE> 11
6.8 ENTIRE AGREEMENT; AMENDMENT. Except as otherwise provided in
Section 3.3 hereof, this Agreement and the Exhibits attached hereto embody the
entire understanding of the parties hereto, and supersede all prior agreements
regarding the subject matter hereof. No change, alteration or modification
hereof may be made except in a writing, signed by both of the parties hereto.
6.9 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not be construed as part of this Agreement or to limit
or otherwise affect the meaning hereof.
6.10 SURVIVAL. Notwithstanding anything to the contrary herein,
Section Article IV, Section 5.3 and Article VI of this Agreement shall survive
termination of this Agreement or Termination for any reason whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day first written above.
VIATEL, INC.
By: /s/ Michael J. Mahoney
----------------------------------
Michael J. Mahoney, President
EXECUTIVE
/s/ Martin Varsavsky
----------------------------------
<PAGE> 12
BONUS AGREEMENT
THIS BONUS AGREEMENT ("Agreement") is entered into on September 23, 1996 by
and between VIATEL, INC., a Delaware corporation with an office at 800 Third
Avenue, New York, New York 10022 (the "Company"), and MARTIN VARSAVSKY, an
individual currently residing at Vda. de Los Chopos No. 12, 28109 La Moraleja,
Madrid, Spain (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is contemplating a Public Offering (as defined
below) of certain of its equity securities;
WHEREAS, the Board of Directors (the "Board") desires to provide
incentives to Executive to remain in the Company's employ for a three-year
period after the Public Offering; and
WHEREAS, the Board and the Executive desire that Company employ the
Executive as the Chairman and Chief Executive Officer.
NOW THEREFORE, each of the Company and Executive, intending to be
legally bound, hereby covenants and agrees as follows:
1. DEFINITIONS. All capitalized terms used in this Agreement that are not
defined herein shall have the definitions ascribed thereto in the Executive's
Employment Agreement, dated September 23, 1996, between the Executive and the
Company.
2. PURPOSE. The Company has entered into this Agreement to provide
appropriate incentives to the Executive to achieve and exceed specified
performance objectives to enhance the Company's value for the benefit of its
stockholders.
3. PERFORMANCE YEAR. Each calendar year beginning with January 1, 1997
shall be a "Performance Year." During the Term, if the Executive is employed by
the Company for a part of a Performance Year, he shall receive a Bonus Award (as
hereinafter defined) equal to the Bonus Award he would have received had he been
employed for the entire Performance Year, MULTIPLIED BY a fraction, of which (i)
the numerator is the number of days he was employed by the Company during such
Performance Year and (ii) the denominator is 365; PROVIDED, HOWEVER, that if
Executive's employment is terminated before the end of the Performance Year
either (x) by the Board for Cause or (y) by the Executive without Good Reason,
no Bonus Award shall be made for the related Performance Year (or part thereof).
4. REVENUE. Revenue shall mean, with respect to the Company on a
consolidated basis for any Performance Year, the Company's consolidated Net
Revenue for such Performance Year as determined in accordance with generally
accepted accounting principles consistently applied, including revenue earned
during such Performance Year and less credits and discounts issued and accrued
during such Performance Year.
5. EBITDA. EBITDA shall mean, with respect to the Company on a
consolidated basis for any Performance Year, the Company's consolidated pre-tax
income for such Performance Year as determined in accordance with generally
accepted accounting principles consistently applied, PLUS, to the extent
deducted in computing such consolidated pre-tax income, without
<PAGE> 13
duplication, (A) the sum of (a) interest expense, (b) depreciation expense and
amortization expense, (c) extraordinary losses, (d) realized and unrealized
foreign currency losses, performance losses relating to any foreign currency
transactions or hedging activities, (e) all bonuses paid to employees in such
year, whether for any prior or current year, MINUS, to the extent included in
computing such consolidated pre-tax income, without duplication, (B) the sum of
(i) interest income, (ii) extraordinary gains and (iii) non-cash exchange,
translation or performance gains relating to any foreign currency transactions
or currency fluctuations.
6. BONUS AWARDS. (a) For each Performance Year set forth below, the
Executive shall receive a cash bonus (the "Bonus Award") equal to the
Executive's Base Salary multiplied by the Bonus Multiple for such Performance
Year as specified below. For purposes of this Agreement, the term "Bonus
Multiple" shall mean the multiple, if any, selected from the charts below by
computing (i) actual REVENUE for the Performance Year as a percentage of
Projected REVENUE for such Year, assuming that the Projected REVENUE is
$84,000,000, $131,000,000 and $212,000,000 for 1997, 1998 and 1999,
respectively, and (ii) the variance in actual EBITA as compared to Projected
EBITDA, assuming that the Projected EBITDA, having been adjusted so that the
total projected bonus payment for such year is zero, is $(19,000,000),
$(19,000,000) and $(7,200,000) for 1997, 1998 and 1999, respectively.
1997
Variance in Actual EBITDA from Projected EBITDA
<TABLE>
-10% 0% 5% 10% 15% 20% 25%
or or or or or or or
better better better better better better better
<S> <C> <C> <C> <C> <C> <C> <C>
Actual 100%
or 0.6 1.0 1.1 1.2 1.2 1.2 1.2
above
Revenue 110%
or 0.7 1.1 1.2 1.2 1.2 1.2 1.2
above
as a 120%
or 0.8 1.2 1.2 1.2 1.2 1.2 1.2
above
Percent 130%
of or 0.9 1.2 1.2 1.2 1.2 1.2 1.2
above
Projected 140%
or 0.9 1.2 1.2 1.2 1.2 1.2 1.2
above
Revenue
</TABLE>
1988
<PAGE> 14
Variance in Actual EBITDA from Projected EBITDA
<TABLE>
<CAPTION>
-10% 0% 5% 10% 15% 20% 25%
or or or or or or or
better better better better better better better
<S> <C> <C> <C> <C> <C> <C> <C>
Actual 100%
or 0.8 1.0 1.1 1.2 1.3 1.4 1.5
above
Revenue 110%
or 0.9 1.1 1.2 1.3 1.4 1.5 1.5
above
as a 120%
or 1.0 1.2 1.3 1.4 1.5 1.5 1.5
above
Percent 130%
of or 1.1 1.3 1.4 1.5 1.5 1.5 1.5
above
Projected 140%
or 1.2 1.4 1.5 1.5 1.5 1.5 1.5
above
Revenue
</TABLE>
1999
Variance in Actual EBITDA from Projected EBITDA
<TABLE>
<CAPTION>
-10% 0% 5% 10% 15% 20% 25%
or or or or or or or
better better better better better better better
<S> <C> <C> <C> <C> <C> <C> <C>
Actual 100%
or 0.8 1.0 1.1 1.2 1.3 1.4 1.5
above
Revenue 110%
or 1.0 1.1 1.2 1.3 1.4 1.5 1.6
above
as a 120%
or 1.1 1.2 1.3 1.4 1.5 1.6 1.7
above
Percent 130%
of or 1.2 1.3 1.4 1.5 1.6 1.7 1.8
above
Projected 140%
or 1.3 1.4 1.5 1.6 1.7 1.8 1.9
above
Revenue
</TABLE>
<PAGE> 15
(b) The final determination of EBITDA with respect to any Performance
Year shall be subject to the affirmative approval (the "Approval") of a majority
of Compensation Committee members then in office. If the Approval is not
obtained within 15 days after completion of the Company's audited financial
statements for the related Performance Year, the Compensation Committee shall
appoint a nationally recognized accounting firm (which may be the Company's
auditors) to determine EBITDA in respect of such Performance Year.
(c) If the Company issues additional securities, whether debt or
equity, for the purpose of raising funds after the initial Public Offering, then
the Compensation Committee (excluding the Executive if the Executive is a member
of the Compensation Committee) shall be empowered to amend this Agreement in any
manner it deems appropriate taking into account all of the facts and
circumstances, including (i) the Company's desire to provide long-term incentive
to the Executive and (ii) the reasons such additional capital was raised.
7. TIME OF PAYMENT. Each Award shall be paid no later than the fourteenth
(14th) day (assuming Approval is obtained or, assuming Approval is not obtained,
as to the undisputed amount), or the thirtieth (30th) day (assuming Approval is
not obtained, as to the disputed amount), after completion of the Company's
audited financial statements for such Performance Year.
8. NO ASSIGNMENTS. A Executive may not assign an Bonus Award without the
prior written consent of the Board. Any attempted assignment without such
consent shall be void. For purposes of this Agreement, any designation of, or
payment to, an administrator, representative or beneficiary in the event of the
Executive's Disability shall not be deemed an assignment.
9. UNFUNDED INCENTIVE COMPENSATION ARRANGEMENT. The Bonus Agreement is
intended to constitute an unfunded incentive compensation arrangement covering
the Executive. Nothing contained hereunder shall create or be construed to
create a trust of any kind. Any Bonus Award shall be paid from the general funds
of the Company, and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such awards.
10. NO RIGHT TO SPECIFIC ASSETS. There shall not vest in any participant
any right, title, or interest in and to any specific assets of the Company.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of Executive's heirs and representatives and the Company's successors
and assigns.
12. NOTICES. All notices hereunder shall be in writing and shall be sent to
the address (as amended from time to time) and in the manner specified in the
Employment Agreement.
13. TAX WITHHOLDING. The Company shall provide for the withholding of any
taxes required to be withheld under federal, state and local law
<PAGE> 16
(other than the employer's portion of such taxes) with respect to any payment in
cash and/or other property made by or on behalf of the Company to or for the
benefit of Executive under this Agreement or otherwise.
14. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
15. JURISDICTION AND GOVERNING LAW. Jurisdiction over disputes with regard
to this Agreement shall be exclusively in the courts of the State of New York,
and this Agreement shall be construed and interpreted in accordance with and
governed by the laws of the State of New York as applied to contracts capable of
being wholly performed in such State.
16. ENTIRE AGREEMENT; AMENDMENT. This Agreement embodies the entire
understanding of the parties hereto, and supersedes all prior agreements
regarding the subject matter hereof. No change, alteration or modification
hereof may be made except in a writing, signed by both of the parties hereto.
17. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not be construed as part of this Agreement or to limit
or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day first written above.
VIATEL, INC.
By: /s/ Michael J. Mahoney
----------------------------------
Michael J. Mahoney, President
EXECUTIVE
/s/ Martin Varsavsky
----------------------------------
<PAGE> 17
EXHIBIT D
VIATEL, INC.
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made as of January 1,
1996 (the "Grant Date") between Viatel, Inc. (the "Company") and _____________
("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Viatel, Inc. 1993 Flexible Stock Incentive
Plan (the "Plan"), which Plan is incorporated in this Agreement by reference and
made a part hereof; and
WHEREAS, the Company regards Optionee as a valuable employee of the Company and
has determined that it would be to the advantage and interest of the Company and
its stockholders to grant the options provided for in this Agreement to Optionee
as an inducement to remain in the service of the Company and its Affiliates (as
defined in the Plan) and as an incentive for increased efforts during such
service.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth,
the parties hereto agree as follows:
1. OPTION GRANT. The Company hereby grants to Optionee the right and option
to purchase from the Company on the terms and conditions hereinafter set forth,
all or any part of an aggregate of _________ shares of the common stock, $.01
par value per share, of the Company (the "Stock"). Except as set forth in
paragraph 4(e) hereof, this option is intended to satisfy the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. OPTION PRICE. The purchase price of the Stock subject to this option
shall be $3.90 per share, which price is not less than the per share fair market
value of such Stock as of the Grant Date as determined by the Board of Directors
of the Company (the "Board"), or, if Optionee possesses more than ten (10)
percent of the combined voting power of the Company or any of its Affiliates,
not less than one hundred ten (110) percent of the per share fair market value
of the Stock as of the Grant Date as determined by the Board. The term "Option
Price" as used in this Agreement refers to the purchase price of the Stock
subject to this option.
3. OPTION PERIOD. This option shall be exercisable only during the Option
Period, and during such Option Period, the execisability of this option shall be
subject to the limitations of paragraph 4 and the vesting provisions of
paragraph 5 hereof. The Option Period shall commence on the Grant Date and
except as provided in paragraph 4 hereof, shall terminate ten (10) years from
the Grant Date (the "Termination Date").
4. LIMITS ON OPTION PERIOD. The Option Period may end before the
Termination Date, as follows:
<PAGE> 18
(a) If Optionee ceases to be a bona fide employee of the Company or
any of its Affiliates for any reason other than death, disability (within the
meaning of subparagraph (c)) or termination for cause (within the meaning of
subparagraph (d)) during the Option Period, the Option Period shall terminate
three months after the earlier of (i) the date of cessation of employment or
(ii) the Termination Date, and the option shall be exercisable only to the
extent exercisable under paragraph 5 hereof on the date of Optionee's cessation
of employment.
(b) If Optionee dies while in the employ of the Company or any of its
Affiliates, the Option Period shall end one year after the date of death or on
the Termination Date, whichever shall first occur, and Optionee's executor or
administrator or the person or persons to whom Optionee's rights under this
option shall pass by will or by the applicable laws of descent and distribution
may exercise this option only to the extent exercisable under paragraph 5 hereof
on the date of Optionee's death.
(c) If Optionee's employment with the Company or any of its Affiliates
is terminated by reason of disability, the Option Period shall end one year
after the date of Optionee's termination of employment or on the Termination
Date, whichever shall first occur, and this option shall be exercisable only to
the extent exercisable under paragraph 5 hereof on the date of Optionee's
termination of employment.
(d) If Optionee's employment with the Company or any of its Affiliates
is terminated for cause, the Option Period shall end immediately upon such
termination. For purposes of this subparagraph (d), "Cause" shall mean (i)
Optionee acts or fails to act, in bad faith, and the Board determines, after
comprehensive review, that such action or failure to act by Optionee was to the
material detriment of the Company; (ii) Optionee exhibits misconduct, dishonesty
or habitual neglect in the management of the affairs of the Company which the
Board determines, after comprehensive review, has a material adverse effect on
the Company; (iii) Optionee is convicted of a felony or misdemeanor involving
moral turpitude; or (iv) Optionee materially breaches any terms of his or her
non-compete or confidential obligations.
(e) Optionee acknowledges that the extension of the time periods
provided for in subparagraphs (a), (b) and (c) at the time of Optionee's
cessation of employment, death or Disability, as the case may be, will cause
this option to fail to qualify for incentive stock option treatment under
Section 422 of the Code.
5. VESTING OF RIGHT TO EXERCISE OPTIONS.
(a) Subject to the other limitations contained herein, on each
anniversary of the Grant Date, the Optionee shall have the right to exercise
this option for the number of shares equal to the lesser of: (i) 1/3 of the
aggregate number of shares covered by this option and (ii) the number of shares
specified, in the sole discretion of the Compensation Committee of the Board, in
a certificate (the "Certificate") executed and delivered by such Compensation
Committee before the anniversary of such Grant Date; provided, however, that to
the extent the Compensation Committee limits the number of shares otherwise
becoming exercisable during the three-year period commencing the Grant Date by
issuing Certificate(s), the Compensation Committee
<PAGE> 19
may specify through the issuance of additional Certificate(s) delivered before
the expiration of the Option Period, that all or some of these shares shall
become exercisable before the expiration of such Period.
(b) This option shall cease vesting upon the date employment is
terminated, regardless of the reason for such termination.
(c) This option may be exercised for the number of shares that have
become exercisable in accordance with section 5(a) hereof at any time during the
Option Period before the Termination Date. No partial exercise of this option
may be for less than five (5) percent of the total number of shares then
available under this option. In no event shall the Company be required to issue
fractional shares.
(d) If the aggregate fair market value of the Stock concerning which
options are exercisable for the first time in any calendar year (under the Plan
and any other incentive stock option plans of the Company or its Affiliates)
exceeds $100,000 (determined as of the time such options are granted), then
options shall be treated as incentive stock options to the extent that the
underlying Stock has a fair market value of $100,000 (determined as of the date
the options were granted) and options shall be treated as non-qualified stock
options to the extent that the underlying Stock has a fair market value in
excess of $100,000 (determined as of the date the options were granted).
6. METHOD OF EXERCISE. Optionee may exercise this option with
respect to all or any part of the shares of the Stock then subject to such
exercise as follows:
(a) By giving the Company written notice of such exercise, specifying
the number of such shares as to which this option is exercised. Such notice
shall be accompanied by an amount equal to the Option Price of such shares, in
the form of any one or combination of the following: (i) cash; a certified
check, bank draft, postal or express money order payable to the order of the
Company in lawful money of the Untied States; (ii) shares of Stock valued at
fair market value on the date of such exercise; (iii) notes or (iv) delivery on
a form prescribed by the Committee (as such term is defined in the Plan) of any
irrevocable direction to a securities broker approved by the Committee to sell
shares and deliver all or a portion of the proceeds to the Company in payment
for the Stock. Any note used to exercise this option shall be a full recourse,
interest-bearing obligation containing such terms as the Committee shall
determine. If a note is used, Optionee agrees to execute such further documents
as the Company may deem necessary or appropriate in connection with issuing the
note, perfecting a security interest in the Stock purchased with the note, and
any related terms or conditions that the Company may propose. Such further
documents may include, not by way of limitation, a security agreement, an escrow
agreement, a voting trust agreement and an assignment separate from certificate.
(b) Optionee shall be required, as a condition precedent to acquiring
the Stock through exercise of this option, to execute one or more agreements
relating to obligations in connection with ownership of the Stock or
restrictions on transfer of the Stock no less restrictive than the obligations
and restrictions to which the other stockholders of the Company are subject at
the time of such exercise.
<PAGE> 20
(c) If required by the Company, Optionee shall give the Company
satisfactory assurance in writing, signed by Optionee or his or her legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the distribution thereof, provided that such
assurance shall be deemed inapplicable to (1) any sale of such shares by such
Optionee made in accordance with the terms of a registration statement covering
such sale, which may hereafter be filed and become effective under the
Securities Act of 1933, as amended (the "Securities Act") and with respect to
which no stop order suspending the effectiveness thereof has been issued, and
(2) any other sale of such shares with respect to which in the opinion of
counsel for the Company, such assurance is not required to be given in order to
comply with the provisions of the Securities Act.
(d) As soon as practicable after receipt of the notice required in
paragraph 6(a) hereof and satisfaction of the conditions set forth in paragraphs
6(b) and 6(c) hereof, the Company shall, without transfer or issue tax and
without other incidental expense to Optionee, deliver to Optionee at the office
of the Company, at 800 Third Avenue, New York, New York 10022, attention of the
Secretary, or such other place as may be mutually acceptable to the Company and
Optionee, a certificate or certificates for such shares of Stock; provided,
however, that the time of such delivery may be postponed by the Company for such
period as may be required for it with reasonable diligence to comply with
applicable registration requirements under the Securities Act, the Securities
Exchange Act of 1934, as amended, any applicable listing requirements of any
national securities exchange, and requirements under any other law or regulation
applicable to the issuance or transfer of such shares.
7. CORPORATE TRANSACTIONS.
(a) If there should be any change in the Stock subject to this option,
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend or other change in the capital
structure of the Company, the Company shall make appropriate adjustments in
order to preserve, but not to increase, the benefits to Optionee, including
adjustments in the number of shares of such Stock subject to this option, kind
of shares and in the price per share. Any adjustment made pursuant to this
paragraph 7 hereof as a consequence of a change in the capital structure of the
Company shall not entitle Optionee to acquire a number of shares of such Stock
or shares of stock of any successor company greater than the number of shares
Optionee would receive if, prior to such change, Optionee had actually held a
number of shares of such Stock equal to the number of shares subject to this
option.
(b) For purposes of this paragraph 7 hereof, a "Corporate Transaction"
shall include any of the following stockholder-approved transactions to which
the Company is a party:
(i) a merger or consolidation in which the Company is not the
surviving entity, except (1) for a transaction the principal purpose of which is
to change the state of the Company's incorporation, or (2) a transaction in
which the Company's stockholders immediately prior to such merger or
consolidation hold (by virtue of securities received in exchange for their
shares in the Company) securities of the surviving entity representing more than
fifty percent (50%) of the total voting power of such entity immediately after
such
<PAGE> 21
transaction;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company unless the Company's stockholders immediately
prior to such sale, transfer or other disposition hold (by virtue of securities
received in exchange for their shares in the Company) securities of the
purchaser or other transferee representing more than fifty percent (50%) of the
total voting power of the Company immediately after such transaction; or
(iii) any reverse merger in which the Company is the surviving entity
but in which the Company's stockholders immediately prior to such merger do not
hold (by virtue of their shares in the Company held immediately prior to such
transaction) securities of the Company representing more than fifty percent
(50%) of the total voting power of the Company immediately after such
transaction.
(c) In the event of any Corporate Transaction, this option shall
become exercisable in its entirety immediately prior to the specified effective
date of the Corporate Transaction unless assumed by the successor corporation or
its parent company, pursuant to options providing substantially equal value and
having substantially equivalent provisions as the options granted pursuant to
this Agreement.
8. LIMITATIONS ON TRANSFER. This option shall, during Optionee's lifetime,
be exercisable only by Optionee, and neither this option nor any right hereunder
shall be transferable by Optionee by operation of law or otherwise other than by
will or the laws of descent and distribution. In the event of any attempt by
Optionee to alienate, assign, pledge, hypothecate, or otherwise dispose of this
option or of any right hereunder, except as provided for in this Agreement, or
in the event of the levy of any attachment, execution, or similar process upon
the rights or interest hereby conferred, the Company at its election may
terminate this option by notice to Optionee and this option shall thereupon
become null and void.
9. NO STOCKHOLDER RIGHTS. Neither Optionee nor any person entitled to
exercise Optionee's rights in the event of his death shall have any of the
rights of a stockholder with respect to the shares of the Stock subject to this
option except to the extent the certificates for such shares shall have been
issued upon the exercise of this option.
10. NO EFFECT ON TERMS OF EMPLOYMENT. Subject to the terms of any written
employment contract to the contrary, the Company (or its Affiliates which
employs Optionee) shall have the right to terminate or change the terms of
employment of Optionee at any time and for any reason whatsoever, with or
without cause.
11. NOTICE. Any notice required to be given under the terms of this
Agreement shall be addressed to the Company in care of the its Secretary at the
Office of the Company at 800 Third Avenue, New York, New York 10022 and any
notice to be given to Optionee shall be addressed to him or her at the address
given by him or her beneath his or her signature to this Agreement, or such
other address as either party to this Agreement may hereafter designate in
writing to the other. Any such notice shall be deemed to have been duly given
when
<PAGE> 22
enclosed in a properly sealed envelope or wrapper addressed as aforesaid,
registered or certified and deposited (postage or registration or certification
fee prepaid) in post office or branch post office regularly maintained by the
United States or, if Optionee is located outside of the United States, an
applicable foreign governmental body.
12. COMMITTEE DECISIONS CONCLUSIVE. All decisions of the Committee
upon any question arising under the Plan or under this Agreement shall be
conclusive.
13. SUCCESSORS. This Agreement shall be binding upon an inure to the
benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
14. EARLY DISPOSITIONS. Optionee agrees, as partial consideration for the
designation of this option as an incentive stock option under Section 422 of the
Code, to notify the Company in writing within thirty (30) days of any
disposition of any shares acquired by exercise of this option if such
disposition occurs within two (2) years from the Grant Date or within one (1)
year from the date Optionee purchased such shares by exercise of this option.
15. NEW YORK LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of New York
(without regard to the choice of law principles thereof).
<PAGE> 23
IN WITNESS WHEREOF, the Company has caused these presents to be executed on
its behalf, and Optionee has hereunto set his or her hand as of the day and year
first above written.
_____________, 1996 By: _________________________
Its:_________________________
Agreed to by:_______________________
<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
September 23, 1996 by and between VIATEL, INC. a Delaware corporation with an
office at 800 Third Avenue, New York, New York 10022 (the "Company"), and
MICHAEL J. MAHONEY, an individual currently residing at 245 East 58th Street,
Apartment 17B, New York, New York (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is contemplating a Public Offering (as defined
below) of certain of its equity securities;
WHEREAS, the Board of Directors (the "Board") desires to provide
incentives to retain the Executive in the Company's employ for a three-year
period after the Public Offering; and
WHEREAS, the Board and the Executive desire that the Company employ
the Executive as the President and Chief Operating Officer.
NOW THEREFORE, each of the Company and the Executive, intending to be
legally bound, hereby mutually covenant and agree as follows:
ARTICLE I
DEFINITIONS
The following terms used in this Agreement shall have the meanings set
forth below.
1.1 "Accrued Obligations" shall mean, as of the date of Termination,
the sum of Executive's aggregate accrued but unpaid (A) Base Salary, (B) Bonus
Award, (C) other cash compensation and (D) vacation pay, expense reimbursements
and other cash entitlements, all determined through the date of Termination.
1.2 "Base Salary" shall mean the amount set forth in Section 3.1
hereof.
1.3 "Bonus Agreement" shall mean the Bonus Agreement entered into by
the parties in the form attached hereto as EXHIBIT A.
1.4 "Bonus Award" shall have the meaning specified in the Bonus
Agreement.
1.5 "Cause" shall mean Executive's (i) material violation of Section
2.3 hereof, which violation has not been cured within 15 days of the date that
written notice thereof is received by Executive from the Board; (ii) material
violation of Section 4.1 or 4.2 hereof; (iii) violation of Section 4.3 hereof;
(iv) gross negligence or dishonesty in the performance of his duties hereunder
or habitual neglect in managing the Company; PROVIDED, HOWEVER, that the Board
undertakes a comprehensive review and determines that such conduct is materially
injurious or materially damaging to
<PAGE> 2
the Company or its reputation; or (vi) conviction of any felony or a misdemeanor
involving fraud, misrepresentation or dishonesty.
1.6 "Change of Control" is defined to mean such time as (1) a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act), becomes the ultimate "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of more than 50% of the total voting power of the
then outstanding Voting Stock of the Company on a fully diluted basis or
(ii)individuals who at the beginning of any period of two consecutive calendar
years constituted the Board (together with any new directors whose election by
the Board or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board then still
in office who either were members of the Board at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the members of the Board then in
office.
1.7 "Common Stock" shall mean the common stock, par value $.01 a
share, of the Company.
1.8 "Competitive Activities" shall have the meaning set forth in
Section 4.3 hereof.
1.9 "Confidential Material" shall have the meaning set forth in
Section 4.2 hereof.
1.10 "Control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through ownership of voting securities, by contract or
otherwise.
1.11 "Disability" shall mean Executive's death or inability to perform
his material duties to the Company by reason of a physical or mental disability
which has existed for an aggregate of nine months during any twelve month
period.
1.12 "Disability Payment" shall mean, for purposes of Section 5.3(d)
hereof, an amount equal to 60% of the Base Salary in effect for the calendar
year in which such Disability occurred (or the average Base Salary if such
Disability occurred over more than one calendar year).
1.13 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.14 "Good Reason" shall mean any (i) reduction in Executive's Base
Salary, (ii) failure by the Company to continue any material benefit or
compensation plan, life insurance plan, health and accident plan, disability
plan (or plan providing Executive with substantially similar benefits) in which
Executive is participating or the material reduction by the Company of
Executive's benefits under any such plan, (iii) failure by the Company to obtain
an assumption of this Agreement by any successor of the Company (as contemplated
in Section 6.2 hereof) or (iv) transaction resulting in a Change of Control, if
Executive has
<PAGE> 3
provided written notice to the Company within 60 days of such Change of Control
of his intentions to cease employment hereunder.
1.15 "Intellectual Property" shall mean any idea, process, trademark,
service mark, trade or business secret, invention, technology, computer program
or hardware, original work of authorship, design, formula, discovery, patent or
copyright, application, record, design, plan or specification and any
improvement, right or claim related to the foregoing.
1.16 "Participation" shall mean the direct or indirect participation
in any Competitive Activity, whether as an operator, manager, consultant, and
whether individually or jointly.
1.17 "Performance Year" shall mean each calendar year beginning on
January 1 and ending on December 31.
1.18 "Person" shall mean any individual or entity, whether a
governmental or other agency or political subdivision thereof or otherwise.
1.19 "Public Offering" shall mean the first date after which at least
20% of the outstanding Common Stock is publicly held and such Common Stock is
listed or admitted to trading on a national securities exchange or quoted on the
National Association of Securities Dealers, Inc.'s National Market System.
1.20 "Severance Amount" shall mean, for purposes of Section 5.3(b)
hereof, an amount equal to (i) the sum of (A) the Base Salary for the calendar
year in the Term in which the date of Termination occurs plus (B) the prior
year's Bonus Award (not to be less than $50,000) MULTIPLIED BY (ii) the
Severance Period Multiple.
1.21 "Severance Period Multiple" shall mean, the quotient obtained by
DIVIDING (i) the Severance Period by (ii) 12; PROVIDED, HOWEVER, that the
Severance Period Multiple shall not be less than one, except that in the case of
a Change of Control, the Severance Period Multiple shall not be less than two.
1.22 "Severance Period" shall mean the number of full calendar months
remaining in the Term on the date of any Termination.
1.23 "Term" shall have the meaning set forth in Section 2.2 hereof and
shall include any renewal or extension as set forth therein.
1.24 "Termination" shall mean termination of Executive's employment
with the Company for any reason, including (i) for Disability, (ii) with or
without Cause, (iii) resignation by Executive with or without Good Reason
(including a Voluntary Resignation) or (iv) upon the expiration of the Term.
1.25 "Voluntary Resignation" shall have the meaning set forth in
Section 2.2(b) hereof.
1.26 "Voting Stock" shall mean with respect to any share, interest,
participation or other equivalent (however designated, whether voting or
non-voting) in equity of the Company, whether now outstanding or issued after
the date hereof, including, without
<PAGE> 4
limitation, any Common Stock, any preferred stock and any class or kind
ordinarily having the power to vote for the election of directors, managers or
other voting members of the Board.
ARTICLE II
EMPLOYMENT AND TERM
2.1 EMPLOYMENT. The Executive shall be employed as the President and
Chief Operating Officer of the Company, and Executive hereby accepts such
employment. In addition, Executive agrees that he will serve in any similar
capacity on behalf of any existing or future subsidiary of the Company as
reasonably requested by the Board.
2.2 TERM. (a) The Term shall commence on the date of the Public
Offering; PROVIDED, HOWEVER, that if the Public Offering does not occur before
December 1, 1996 this Agreement shall not commence, and the parties hereto shall
be under no obligation or entitlement hereunder. Once commenced, this Agreement
shall end on the earlier of (i) one week after the third anniversary of the
Public Offering and (ii) the date of any Termination.
(b) Notwithstanding Section 2.2(a) hereof, if (i) Executive's
principal place of business is moved without the Executive's consent to a
location which is more than 50 miles from its current location or (ii) there is
a material diminution in Executive's authority, duty, responsibility, function
or position with the Company and such diminution continues after 15 days of the
date that written notice thereof is given to the Board by Executive, then
Executive may terminate this Agreement by sending written notice of the
Executive's election of such option, and such Termination shall be effective 30
days after the receipt by the Company of such written notice unless the
effectiveness is accelerated by the Company (the "Voluntary Resignation").
(c) Subject to Section 5.2 hereof, if six months' advance written
notice terminating this Agreement is not received by either party from the other
party before any anniversary after the second anniversary of the Public
Offering, then this Agreement shall be automatically renewed for successive one
year-periods.
2.3 DUTIES. The Executive shall be directly responsible for the
Company's daily operations and shall have all powers, duties and
responsibilities commensurate with his position as set forth in Section 2.1
hereof or as may be assigned by the Board from time to time; PROVIDED, HOWEVER,
that any such powers, duties and responsibilities assigned by the Board are
commensurate with such position. The Executive shall use his best efforts and
devote all of his business time, attention and energy in performing his duties
hereunder. Notwithstanding the foregoing, nothing in this Agreement shall
restrict Executive from managing his personal investments, personal business
affairs and other personal matters, or serving on civic or charitable boards or
committees, if such activities do not interfere with the performance of his
duties hereunder or conflict with the Company's interests.
<PAGE> 5
ARTICLE III
COMPENSATION AND BENEFITS
3.1 BASE SALARY For services performed by Executive for the Company
and its subsidiaries hereunder, the Company shall pay Executive an annual Base
Salary of $200,000 in accordance with the Company's regular payroll practices.
On each anniversary date of the Public Offering, the Executive shall be subject
to an annual review; PROVIDED, HOWEVER, that the Executive's Base Salary shall
be increased (but not decreased) to an amount equal to the product of the Base
Salary MULTIPLIED BY the sum of (i) one PLUS (ii) the percentage increase, if
any, in the Consumer Price Index for all Urban Consumers, All Items, for the
most recent twelve-month period for which such figures are then available as
promulgated by the Department of Labor Bureau of Statistics.
3.2 BONUSES. Executive shall be eligible to receive an annual cash
bonus in accordance with the Bonus Agreement. Any compensation which may be
otherwise authorized from time to time by the Board (or an appropriate committee
thereof) shall be in addition to the Base Salary and any Bonus Award.
3.3 STOCK OPTIONS. Executive shall be entitled to receive annual
grants of stock options or restricted stock in amounts determined by the Board
(or any committee thereof) in its sole and absolute discretion. Upon execution
of this Agreement, Executive shall be entitled to receive a stock option award
for 120,000 shares of Common Stock, vesting over 4 years with an exercise price
equal to the "price to the public" as set forth in any registration statement
declared effective for any Public Offering, pursuant to the form of stock option
agreement attached hereto as EXHIBIT B.
3.4 OTHER BENEFITS. In addition to the Base Salary and the Bonus
Award, Executive shall also be entitled to the following:
(a) PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled
to participate in and receive benefits under all present and future life,
accident, disability, medical, pension, and savings plan and all similar
benefits made available to senior executive officers of the Company. Executive
shall also be entitled to participate in all other welfare and benefit plans
maintained by the Company and/or its subsidiaries, as the case may be, for their
respective employees generally.
(b) VACATION. Executive shall be entitled to vacation and paid
holidays consistent with the Company's practices as adopted from time to time;
PROVIDED, HOWEVER, that such vacation shall not be less than 20 days each year.
(c) EXPENSES. The Company shall reimburse Executive for
reasonable travel, out of pocket business expenses incurred by Executive in the
performance of his duties hereunder, provided appropriate documentation
supporting such expenses is submitted in accordance with the Company's governing
policies.
<PAGE> 6
ARTICLE IV
COVENANTS
4.1 NON-INTERFERENCE. During the Term and a period of two years
thereafter, Executive agrees not to solicit or encourage any employee of the
Company who is employed in an executive, managerial, administrative or
professional capacity or who possesses Confidential Material to leave the
employment of the Company. Notwithstanding anything to the contrary contained in
this Agreement, upon a Voluntary Resignation Executive shall not be subject to
the restrictions contained in this Section 4.1.
4.2 NONDISCLOSURE OF CONFIDENTIAL MATERIAL. (a) In the performance of
his duties hereunder, Executive shall have access to confidential records and
information, including, but not limited to, information relating to (i) any
Intellectual Property or (ii) the Company's business practices, finances,
developments, customers, affairs, marketing or purchasing strategy or other
secret information (collectively, clauses (i) and (ii) of this Section 4.2(a)
are referred to as the "Confidential Material").
(b) All Confidential Material shall be disclosed to Executive in
confidence. Except in performing his duties hereunder, Executive shall not,
during the Term and at all times thereafter, disclose or use any Confidential
Material.
(c) All records, files, drawings, documents, equipment and other
tangible items containing Confidential Material shall be the Company's exclusive
property, and, upon termination of this Agreement, or whenever requested by the
Company, Executive shall promptly deliver to the Company all of the Confidential
Material (and copies thereof) that may be in Executive's possession or control.
The Company hereby represents and warrants that it shall give custody of such
Confidential Material to a escrow agent, with terms acceptable to both the
Company and the Executive, for a three-year period at an annual cost not to
exceed $500.
(d) The foregoing restrictions shall not apply if (i) such
Confidential Material has been publicly disclosed (not due to a breach by
Executive of his obligations hereunder or by breach of any other person of a
fiduciary or confidential obligation to the Company) or (ii) Executive is
required to disclose Confidential Material by or to any court of competent
jurisdiction or any governmental or quasi- governmental agency, authority or
instrumentality of competent jurisdiction; PROVIDED, HOWEVER, that Executive
shall, prior to any such disclosure, immediately notify the Company of such
requirement; PROVIDED, FURTHER, that the Company shall have the right, at its
expense, to object to such disclosures and to seek confidential treatment of any
Confidential Material to be so disclosed on such terms as it shall determine.
4.3 NON-COMPETITION. (a) The Executive shall not, during the Term,
Control any Person which is engaged, directly or indirectly, or Participate in
any business that is competitive with the Company's business of developing,
operating or expanding a facilities-based telecommunications voice or voice
<PAGE> 7
band data network within any country in any European Union member state,
Switzerland or any country (excluding the Americas) in which the Company
currently has a switch or point of presence for either origination or
termination of voice or voice band data transmissions or in which the Company is
so engaged in business or proposes to be so engaged in business in accordance
with its strategic business plan current at the time of the Termination
(including the solicitation of any customer of the Company on behalf of any
Competitor or any other business, directly, indirectly on behalf of himself or
any other Person) (collectively, "Competitive Activities"); PROVIDED, HOWEVER,
that nothing in this Agreement shall preclude Executive from owning less than 5
percent of any class of publicly traded equity of any Person engaged in any
Competitive Activity. Notwithstanding the immediately preceding sentence, if the
Company has ceased to so provide such services within any such country at the
time of Executive's Termination (or any time thereafter), the covenant set forth
in the immediately preceding sentence shall no longer be applicable to such any
such business in such country.
(b) Upon Termination for Disability or Cause or without Good
Reason (other than a Voluntary Resignation) the Executive shall not, for
himself or any third party, directly or indirectly, for a period of one year
following the date of such Termination engage in Competitive Activities.
Notwithstanding anything to the contrary contained in this Agreement, upon a
Voluntary Resignation Executive shall not be subject to the restrictions
contained in this Section 4.3.
(c) Upon Termination either without Cause or for Good Reason the
Executive shall not, for himself or any third party, directly or indirectly,
engage in Competitive Activities for a period equal to the greater of (i) the
Severance Period and (ii) one year following the date of Termination.
4.4 EXECUTIVE INVENTIONS AND IDEAS.
(a) Executive hereby agrees to assign to the Company, without
further consideration, his entire right, title and interest (within the United
States and all foreign jurisdictions), to any Intellectual Property created,
conceived, developed or reduced to practice by Executive (alone or with others),
free and clear of any lien or encumbrance. If any Intellectual Property shall be
deemed patentable or otherwise registrable, Executive shall assist the Company
(at its expense) in obtaining letters patent or other applicable registration
therein and shall execute all documents and do all things (including testifying
at the Company's expense) necessary or appropriate to obtain letters patent or
other applicable registration therein and to vest in the Company, or any
affiliate specified by the Board.
(b) Should Company be unable to secure Executive's signature on
any document necessary to apply for, prosecute, obtain or enforce any patent,
copyright or other right or protection relating to any Intellectual Property,
whether due to Executive's Disability or other cause, Executive hereby
irrevocably designates and appoints the Company and each of its duly authorized
officers and agents as Executive's agent and attorney-in-fact to act for and on
Executive's behalf and stead and to execute and file any such document and to do
all other lawfully permitted acts to further the prosecution, issuance and other
enforcement of patents, copyrights or other rights or protections with the same
effect as if executed and delivered by Executive.
4.5 ENFORCEMENT.
(a) Executive acknowledges that violation of any covenant or
agreement set forth in this Article IV would cause the Company irreparable
damage for which the Company cannot be reasonably compensated in damages in an
action at law, and, therefore, upon any
<PAGE> 8
breach by Executive of this Article IV, the Company shall be entitled to make
application to a court of competent jurisdiction for equitable relief by way of
injunction or otherwise (without being required to post a bond). This provision
shall not, however, be construed as a waiver of any of the rights which the
Company may have for damages, and all of the Company's rights and remedies shall
be unrestricted.
(b) If any provision of this Agreement, or application thereof to
any person, place or circumstance, shall be held by a court of competent
jurisdiction or be found in an arbitration proceeding to be invalid,
unenforceable or void, the remainder of this Agreement and such provisions as
applied to any other person, place and circumstance shall remain in full force
and effect. It is the intention of the parties hereto that the covenants
contained herein shall be enforced to the maximum extent (but no greater extent)
in time, area, and degree of participation as is permitted by the law of the
jurisdiction whose law is found to be applicable to the acts allegedly in breach
of this agreement, and the parties hereby agree that the court making any such
determination shall have the power to so reform the Agreement.
(c) The Executive understands that the provisions of this Article
IV may limit his ability to earn a livelihood in a business similar to the
business of the Company but nevertheless agrees and hereby acknowledges that (i)
such provisions do not impose a greater restraint than is necessary to protect
the goodwill or other business interests of the Company; (ii) such provisions
contain reasonable limitations as to time and the scope of activity to be
restrained; and (iii) the consideration provided under this Agreement,
including, without limitation, any amounts or benefits provided under Article V
hereof, is sufficient to compensate Executive for the restrictions contained in
this Article IV. In consideration of the foregoing and in light of Executive's
education, skills and abilities, Executive agrees that he will not assert, and
it should not be considered, that any provisions of this Article IV prevented
him from earning a living or otherwise are void, voidable or unenforceable or
should be voided or held unenforceable.
(d) Each of the covenants of this Article IV is given by
Executive as part of the consideration for this Agreement and as an inducement
to the Company to enter into this Agreement and accept the obligations
hereunder.
ARTICLE V
TERMINATION
5.1 TERMINATION OF AGREEMENT. Except for those provisions of this
Agreement that survive Termination, this Agreement shall terminate upon any
Termination.
5.2 PROCEDURES APPLICABLE TO TERMINATION.
(a) TERMINATION FOR CAUSE. The Executive may be terminated for
Cause, upon at least 30 days' prior written notice from the Board to Executive
for termination for Cause provided that Executive, with his counsel, shall have
had the opportunity during such period to be heard at a meeting of the Board
concerning such determination.
<PAGE> 9
(b) RESIGNATION FOR GOOD REASON. The Executive may terminate his
employment for Good Reason or by a Voluntary Resignation, upon at least 30 days'
prior written notice from Executive to the Board of his intent to resign for
Good Reason provided that Executive, with his counsel, shall have met with the
Board, if requested by the Board, during such period with respect to his intent
to resign.
(c) TERMINATION WITHOUT CAUSE OR FOR DISABILITY. The Executive
may be terminated without Cause or for Disability, upon at least 30 days' prior
written notice from the Board to Executive, by a vote of the Board, provided
that Executive, with his counsel, shall have had the opportunity during such
period to be heard at a meeting of the Board with respect to such determination.
(d) NO EFFECT ON RIGHTS. The Executive's right or obligation to
be heard in connection with a Termination shall not otherwise effect the rights
and obligations of the Executive and the Company hereunder.
5.3 OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) ACCRUED OBLIGATIONS AND OTHER BENEFITS. Upon any Termination,
the Company shall pay to Executive, or, upon Executive's Disability, to his
heirs, estate or legal representatives, as the case may be, the following:
(i) all Accrued Obligations in a lump sum within 10 days
after the date of Termination; and
(ii) all benefits accrued by Executive as of the date of
Termination under all qualified and nonqualified retirement, pension, profit
sharing and similar plans of the Company to such extent, in such manner and at
such time as are provided under the terms of such plans and arrangements.
(b) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If
the Board terminates Executive's employment without Cause (excluding Termination
because of Disability), or if Executive resigns for Good Reason, in addition to
the amounts payable under Section 5.3(a) hereof:
(i) The Company shall pay Executive (A) one-half (1/2) of the
Severance Amount in a lump sum within 10 days after the date of Termination and
(b) one-half (1/2) of the Severance Amount over the unexpired portion of the
Term in accordance with the Company's regular payroll practices then in
existence; and
(ii) The Company shall continue all benefits coverage of
Executive and any dependents then provided under its benefit plans or policies
for the unexpired portion of the Term.
(c) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If
the Board terminates Executive's employment for Cause, or if Executive resigns
without Good Reason (including a Voluntary Resignation), Executive shall only be
entitled to the amounts payable under Section 5.3(a) hereof:
<PAGE> 10
(d) TERMINATION FOR DISABILITY. Upon Termination of Executive
because of a Disability, in addition to the amounts payable under Section 5.3(a)
hereof, the Company shall pay the aggregate Disability Payment for three years
in accordance with the Company's regular payroll practices then in existence.
(e) EXCLUSIVITY. Any amount payable to Executive pursuant to this
Article V shall be Executive's sole remedy upon a Termination, and Executive
waives any and all rights to pursue any other remedy at law or in equity;
PROVIDED, HOWEVER, that Executive does not hereby waive any right provided under
any federal, state or local law or regulation relating to employment
discrimination.
ARTICLE VI
MISCELLANEOUS
6.1 EXECUTIVE ACKNOWLEDGMENT. The Executive acknowledges that he has
consulted with or has had the opportunity to consult with independent counsel of
his own choice concerning this Agreement and has been advised to do so by the
Company, and that he has read and understands the Agreement, is fully aware of
its legal effect, and has entered into it freely based on his own judgment.
6.2 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of Executive's heirs and representatives and the Company's
successors and assigns. The Company shall require any successor (whether direct
or indirect, by purchase, merger, reorganization, consolidation, acquisition of
assets or stock, liquidation, or otherwise), by agreement in form and substance
reasonably satisfactory to Executive, to assume performance of this Agreement in
the same manner that the Company would have been required to perform this
Agreement if no such succession had taken place. Regardless of whether such
agreement is executed, this Agreement shall be binding upon any successor of the
Company in accordance with the operation of law.
6.3 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed within the continental United States by first class
certified mail, return receipt requested, postage prepaid, addressed as follows:
(a) if to the Board or the Company, to:
Viatel, Inc.
800 Third Avenue, 18th Floor
New York NY 10022
Attention: General Counsel
(b) if to Executive, to:
245 East 58th Street, Apartment 17B
New York, New York
with a copy to:
<PAGE> 11
Lanny A. Oppenheim, Esq.
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Any such address may be changed by written notice sent to the other party at the
last recorded address of that party.
6.4 TAX WITHHOLDING. The Company shall provide for the withholding of
any taxes required to be withheld under federal, state and local law (other than
the employer's portion of such taxes) with respect to any payment in cash and/or
other property made by or on behalf of the Company to or for the benefit of
Executive under this Agreement or otherwise. The Company may, at its option: (i)
withhold such taxes from any cash payments owing from the Company to Executive,
(ii) require Executive to pay to the Company in cash such amount as may be
required to satisfy such withholding obligations and/or (iii) make other
satisfactory arrangements with Executive to satisfy such withholding
obligations.
6.5 NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. Except as otherwise
expressly provided in Section 6.2 hereof, this Agreement is not assignable by
any party, and no payment to be made hereunder shall be subject to alienation,
sale, transfer, assignment, pledge, encumbrance or other charge. Except for the
Company and its existing and future subsidiaries, no Person shall be, or deemed
to be, a third party beneficiary of this Agreement.
6.6 EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
6.7 JURISDICTION AND GOVERNING LAW. Jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of New
York, and this Agreement shall be construed and interpreted in accordance with
and governed by the laws of the State of New York as applied to contracts
capable of being wholly performed in such State.
6.8 ENTIRE AGREEMENT; AMENDMENT. Except as otherwise provided in
Section 3.3 hereof, this Agreement and the Exhibits attached hereto embody the
entire understanding of the parties hereto, and supersede all prior agreements
regarding the subject matter hereof. No change, alteration or modification
hereof may be made except in a writing, signed by both of the parties hereto.
6.9 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not be construed as part of this Agreement or to limit
or otherwise affect the meaning hereof.
6.10 SURVIVAL. Notwithstanding anything to the contrary herein,
Section Article IV, Section 5.3 and Article VI of this Agreement shall survive
termination of this Agreement or Termination for any reason whatsoever.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the day first written above.
VIATEL, INC.
By: /s/ Martin Varsavsky
--------------------
EXECUTIVE
/s/ Michael J. Mahoney
----------------------
<PAGE> 13
BONUS AGREEMENT
THIS BONUS AGREEMENT ("AGREEMENT") is entered into on September 23, 1996
by and between VIATEL, INC., a Delaware corporation with an office at 800 Third
Avenue, New York, New York 10022 (the "Company"), and MICHAEL J. MAHONEY, an
individual currently residing at 245 East 58th Street, Apartment 17B, New York,
New York (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company is contemplating a Public Offering (as
defined below) of certain of its equity securities;
WHEREAS, the Board of Directors (the "Board") desires to provide
incentives to Executive to remain in the Company's employ for a three-year
period after the Public Offering; and
WHEREAS, the Board and the Executive desire that Company employ the
Executive as the President and Chief Operating Officer.
NOW THEREFORE, each of the Company and Executive, intending to be
legally bound, hereby covenants and agrees as follows:
1. DEFINITIONS. All capitalized terms used in this Agreement that
are not defined herein shall have the definitions ascribed thereto in the
Executive's Employment Agreement, dated September 23, 1996, between the
Executive and the Company.
2. PURPOSE. The Company has entered into this Agreement to provide
appropriate incentives to the Executive to achieve and exceed specified
performance objectives to enhance the Company's value for the benefit of
its stockholders.
3. PERFORMANCE YEAR. Each calendar year beginning with January 1, 1997
shall be a "Performance Year." During the Term, if the Executive is employed by
the Company for a part of a Performance Year, he shall receive a Bonus Award (as
hereinafter defined) equal to the Bonus Award he would have received had he been
employed for the entire Performance Year, MULTIPLIED BY a fraction, of which (i)
the numerator is the number of days he was employed by the Company during such
Performance Year and (ii) the denominator is 365; PROVIDED, HOWEVER, that if
Executive's employment is terminated before the end of the Performance Year
either (x) by the Board for Cause or (y) by the Executive without Good Reason,
no Bonus Award shall be made for the related Performance Year (or part thereof).
4. REVENUE. Revenue shall mean, with respect to the Company on a
consolidated basis for any Performance Year, the Company's consolidated Net
Revenue for such Performance Year as determined in accordance with generally
accepted accounting principles consistently applied, including revenue earned
during such Performance Year and less credits and discounts issued and accrued
during such Performance Year.
5. EBITDA. EBITDA shall mean, with respect to the Company on a consolidated
basis for any Performance Year, the Company's consolidated pre-tax income for
such Performance Year as determined in accordance with generally accepted
accounting principles consistently applied, PLUS, to the
<PAGE> 14
extent deducted in computing such consolidated pre-tax income, without
duplication, (A) the sum of (a) interest expense, (b) depreciation expense and
amortization expense, (c) extraordinary losses, (d) realized and unrealized
foreign currency losses, performance losses relating to any foreign currency
transactions or hedging activities, (e) all bonuses paid to employees in such
year, whether for any prior or current year, MINUS, to the extent included in
computing such consolidated pre-tax income, without duplication, (B) the sum of
(i) interest income, (ii) extraordinary gains and (iii) non-cash exchange,
translation or performance gains relating to any foreign currency transactions
or currency fluctuations.
6. BONUS AWARDS. (a) For each Performance Year set forth below, the
Executive shall receive a cash bonus (the "Bonus Award") equal to the
Executive's Base Salary multiplied by the Bonus Multiple for such Performance
Year as specified below. For purposes of this Agreement, the term "Bonus
Multiple" shall mean the multiple, if any, selected from the charts below by
computing (i) actual REVENUE for the Performance Year as a percentage of
Projected REVENUE for such Year, assuming that the Projected REVENUE is
$84,000,000, $131,000,000 and $212,000,000 for 1997, 1998 and 1999,
respectively, and (ii) the variance in actual EBITA as compared to Projected
EBITDA, assuming that the Projected EBITDA, having been adjusted so that the
total projected bonus payment for such year is zero, is $(19,000,000),
$(19,000,000) and $(7,200,000) for 1997, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
1997
Variance in Actual EBITDA from Projected EBITDA
-10% 0% 5% 10% 15% 20% 25%
or or or or or or or
better better better better better better better
<S> <C> <C> <C> <C> <C> <C> <C>
Actual 100%
or 0.6 1.0 1.1 1.2 1.2 1.2 1.2
above
Revenue 110%
or 0.7 1.1 1.2 1.2 1.2 1.2 1.2
above
as a 120%
or 0.8 1.2 1.2 1.2 1.2 1.2 1.2
above
Percent 130%
of or 0.9 1.2 1.2 1.2 1.2 1.2 1.2
above
Projected 140%
or 0.9 1.2 1.2 1.2 1.2 1.2 1.2
above
Revenue
</TABLE>
1998
<PAGE> 15
<TABLE>
<CAPTION>
Variance in Actual EBITDA from Projected EBITDA
-10% 0% 5% 10% 15% 20% 25%
or or or or or or or
better better better better better better better
<S> <C> <C> <C> <C> <C> <C> <C>
Actual 100%
or 0.8 1.0 1.1 1.2 1.3 1.4 1.5
above
Revenue 110%
or 0.9 1.1 1.2 1.3 1.4 1.5 1.5
above
as a 120%
or 1.0 1.2 1.3 1.4 1.5 1.5 1.5
above
Percent 130%
of or 1.1 1.3 1.4 1.5 1.5 1.5 1.5
above
Projected 140%
or 1.2 1.4 1.5 1.5 1.5 1.5 1.5
above
Revenue
</TABLE>
<TABLE>
<CAPTION>
1999
Variance in Actual EBITDA from Projected EBITDA
-10% 0% 5% 10% 15% 20% 25%
or or or or or or or
better better better better better better better
<S> <C> <C> <C> <C> <C> <C> <C>
Actual 100%
or 0.8 1.0 1.1 1.2 1.3 1.4 1.5
above
Revenue 110%
or 1.0 1.1 1.2 1.3 1.4 1.5 1.6
above
as a 120%
or 1.1 1.2 1.3 1.4 1.5 1.6 1.7
above
Percent 130%
of or 1.2 1.3 1.4 1.5 1.6 1.7 1.8
above
Projected 140%
or 1.3 1.4 1.5 1.6 1.7 1.8 1.9
above
Revenue
</TABLE>
<PAGE> 16
(b) The final determination of EBITDA with respect to any Performance
Year shall be subject to the affirmative approval (the "Approval") of a majority
of Compensation Committee members then in office. If the Approval is not
obtained within 15 days after completion of the Company's audited financial
statements for the related Performance Year, the Compensation Committee shall
appoint a nationally recognized accounting firm (which may be the Company's
auditors) to determine EBITDA in respect of such Performance Year.
(c) If the Company issues additional securities, whether debt or
equity, for the purpose of raising funds after the initial Public Offering, then
the Compensation Committee (excluding the Executive if the Executive is a member
of the Compensation Committee) shall be empowered to amend this Agreement in any
manner it deems appropriate taking into account all of the facts and
circumstances, including (i) the Company's desire to provide long-term incentive
to the Executive and (ii) the reasons such additional capital was raised.
7. TIME OF PAYMENT. Each Award shall be paid no later than the fourteenth
(14th) day (assuming Approval is obtained or, assuming Approval is not obtained,
as to the undisputed amount), or the thirtieth (30th) day (assuming Approval is
not obtained, as to the disputed amount), after completion of the Company's
audited financial statements for such Performance Year.
8. NO ASSIGNMENTS. A Executive may not assign an Bonus Award without the
prior written consent of the Board. Any attempted assignment without such
consent shall be void. For purposes of this Agreement, any designation of, or
payment to, an administrator, representative or beneficiary in the event of the
Executive's Disability shall not be deemed an assignment.
9. UNFUNDED INCENTIVE COMPENSATION ARRANGEMENT. The Bonus Agreement is
intended to constitute an unfunded incentive compensation arrangement covering
the Executive. Nothing contained hereunder shall create or be construed to
create a trust of any kind. Any Bonus Award shall be paid from the general funds
of the Company, and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such awards.
10. NO RIGHT TO SPECIFIC ASSETS. There shall not vest in any
participant any right, title, or interest in and to any specific assets of
the Company.
11. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of Executive's heirs and representatives and the Company's
successors and assigns.
12. NOTICES. All notices hereunder shall be in writing and shall be
sent to the address (as amended from time to time) and in the manner
specified in the Employment Agreement.
13. TAX WITHHOLDING. The Company shall provide for the withholding of any
taxes required to be withheld under federal, state and local law (other than the
employer's portion of such taxes) with respect to any payment in cash and/or
other property made by or on behalf of the Company
<PAGE> 17
to or for the benefit of Executive under this Agreement or otherwise.
14. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties hereto in one or more counterparts, each of which shall be deemed
to be an original, but all such counterparts shall constitute one and the
same instrument, and all signatures need not appear on any one counterpart.
15. JURISDICTION AND GOVERNING LAW. Jurisdiction over disputes with
regard to this Agreement shall be exclusively in the courts of the State of
New York, and this Agreement shall be construed and interpreted in
accordance with and governed by the laws of the State of New York as applied to
contracts capable of being wholly performed in such State.
16. ENTIRE AGREEMENT; AMENDMENT. This Agreement embodies the entire
understanding of the parties hereto, and supersedes all prior agreements
regarding the subject matter hereof. No change, alteration or modification
hereof may be made except in a writing, signed by both of the parties
hereto.
17. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not be construed as part of this Agreement or to
limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day first written above.
VIATEL, INC.
By:/s/ Martin Varsavsky
--------------------------
Martin Varsavsky, Chairman
EXECUTIVE
/s/ Michael J. Mahoney
--------------------------
<PAGE> 18
VIATEL, INC.
THIS INCENTIVE STOCK OPTION AGREEMENT (the "Agreement") is made as of
September 23, 1996 between Viatel, Inc. (the "Company") and Michael J. Mahoney
("Optionee").
WITNESSETH:
WHEREAS, the Company has adopted the Viatel, Inc. 1993 Flexible Stock Incentive
Plan (the "Plan"), which Plan is incorporated in this Agreement by reference and
made a part hereof; and
WHEREAS, the Board of Directors of the Company (the "Board") believes it to be
in the Company's best interest to grant the options provided for in this
Agreement to Optionee as an inducement to remain in the Company's service.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth,
the parties hereto agree as follows:
1. OPTION GRANT. The Company hereby grants to Optionee the option to
purchase from the Company on the terms and conditions hereinafter set forth, all
or any part of an aggregate of 120,000 shares of the common stock, $.01 par
value per share, of the Company (the "Stock"), without adjustment for the 3-2
reverse stock split contemplated in the Company's registration statement
numbered 333-09699 (the "Registration Statement"). Except as set forth in
paragraph 4(b) hereof, this option is intended to satisfy the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. OPTION PRICE. The purchase price for each share of Stock subject to this
option shall be the "price to the public" for each share of Stock as set forth
on the cover page of each prospectus contained in Registration Statement when
declared effective by the Securities and Exchange Commission. The term "Option
Price" as used in this Agreement refers to the purchase price of the Stock
subject to this option.
3. OPTION PERIOD. This option shall be exercisable only during the Option
Period, the exercisability of this option shall be subject to the limitations
on the Option Period and vesting as set forth in paragraphs 4 and 5 hereof,
respectively. The Option Period shall commence on the date that the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Grant Date") and, except as provided in paragraph 4 hereof,
shall terminate five (5) years from such Date (the "Termination Date").
4. LIMITS ON OPTION PERIOD. (a) The Option Period shall end on the date
that Optionee's employment with the Company (or any of its Affiliates) is
terminated either (i) for Cause or (ii) because the Optionee resigns without
Good Reason (including a Voluntary Resignation). For purposes of this Agreement,
"Cause," "Good Reason" and "Voluntary Resignation" have such meanings ascribed
to them as provided in the Employment Agreement, dated as of September 23, 1996
(the "Employment Agreement").
(b) Optionee acknowledges that the extension of the time periods
provided for herein may cause this option to fail to qualify for incentive stock
option treatment under Section 422 of the Code.
5. VESTING OF RIGHT TO EXERCISE OPTIONS.
(a) Subject to other limitations contained in this Agreement, on each
anniversary of the effective date of the Registration Statement until and
<PAGE> 19
including the fourth such anniversary date, the shares subject to this option
shall vest, and Optionee shall have the right
to exercise this option, for 30,000 shares; provided, however, that the shares
subject to this option also shall (i) vest for the balance of the original term
of the Employment Agreement upon any resignation for Good Reason or termination
without Cause and (ii) immediately vest upon any Disability (as defined in the
Employment Agreement). Notwithstanding anything to the contrary contained
herein, the option shall cease to vest if employment is terminated (x) for
Cause or (y) because the Optionee resigns without Good Reason (including a
Voluntary Resignation).
<PAGE> 20
(b) Any portion of this option that is not exercised shall accumulate
and may be exercised at any time during the Option Period prior to the
Termination Date. No partial exercise of this option may be for less than five
(5) percent of the total number of shares then available under this option. In
no event shall the Company be required to issue fractional shares.
(c) If the aggregate fair market value of the stock concerning which
options are exercisable for the first time in any calendar year (under the Plan
and any other incentive stock option plans of the Company or its Affiliates)
exceeds $100,000 (determined as of the time such options are granted), then
options shall be treated as incentive stock options to the extent that the
underlying Stock has a fair market value of $100,000 (determined as of the date
the options were granted) and options shall be treated as non-qualified stock
options to the extent that the underlying Stock has a fair market value in
excess of $100,000 (determined as of the date the options were granted).
6. METHOD OF EXERCISE. Optionee may exercise this option for any part
the shares of Stock then subject to such exercise as follows:
(a) By giving the Company written notice of such exercise, specifying
the number of such shares as to which this option is exercised. Such notice
shall be accompanied by an amount equal to the Option Price of such shares, in
the form of any one or combination of the following: (i) cash; a certified
check, bank draft, postal or express money order payable to the order of the
Company in lawful money of the United States; (ii) shares of Stock valued at
fair market value on the date of such exercise; (iii) notes or (iv) delivery on
a form prescribed by the Committee (as such term is defined in the Plan) of an
irrevocable direction to a securities broker approved by the Committee to sell
shares and deliver all or a portion of the proceeds to the Company in payment
for the Stock. Any note used to exercise this option shall be a full recourse,
interest-bearing obligation containing such terms as the Committee shall
determine. If a note is used, Optionee agrees to execute such further documents
as the Company may deem necessary or appropriate in connection with issuing the
note, perfecting a security interest in the Stock purchased with the note, and
any related term or conditions that the Company may propose. Such further
documents may include, not by way of limitation, a security agreement, an escrow
agreement, a voting trust agreement and an assignment separate from certificate.
(b) If required by the Company, Optionee shall give the Company
satisfactory assurance in writing, signed by Optionee or his or her legal
representative, as the case may be, that such shares are being purchased for
investment and not with a view to the distribution thereof, provided that such
assurance shall be deemed inapplicable to (1) any sale of such shares by such
Optionee made in accordance with the terms of a registration statement covering
such sale, which may hereafter be filed and become effective under the
Securities Act of 1933, as amended (the "Securities Act") and with respect to
which no stop order suspending the effectiveness thereof has been issued, and
(2) any other sale of such shares with respect to which in the opinion of
counsel for the Company, such assurance is not required to be given in order to
comply with the provisions of the Securities Act.
(c) As soon as practicable after receipt of the notice required in
paragraph 6(a) hereof and satisfaction of the conditions set forth in paragraphs
6(b) and 6(c) hereof, the Company shall, without transfer or issue tax and
without other incidental expense to Optionee, deliver to Optionee at the office
of the Company, at 800 Third Avenue, New York, New York 10022, attention of the
<PAGE> 21
Secretary, or such other place as may be mutually acceptable to the Company and
Optionee, a certificate or certificates for such shares of Stock; provided,
however, that the time of such delivery may be postponed by the Company for such
period, as may be required for it with reasonable diligence to comply with
applicable registration requirements under the Securities Act, the Securities
Exchange Act of 1934, as amended, any applicable listing requirements of any
<PAGE> 22
national securities exchange, and requirements under any other law or regulation
applicable to the issuance or transfer of such shares.
7. CORPORATE TRANSACTIONS.
(a) If there should be any change in the Stock subject to this option,
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock dividend or other change in the capital
structure of the Company, the Company shall make appropriate adjustments in
order to preserve, but not to increase, the benefits to Optionee, including
adjustments in the number of shares of such Stock subject to this option, kind
of shares and in the price per share. Any adjustment made pursuant to this
paragraph 7 hereof as a consequence of a change in the capital structure of the
Company shall not entitle Optionee to acquire a number of shares of such Stock
or shares of stock of any successor company greater than the number of shares
Optionee would receive if, prior to such change, Optionee had actually held a
number of shares of such Stock equal to the number of shares subject to this
option.
(b) For purposes of this paragraph 7 hereof, a "Corporate Transaction"
shall include any of the following transactions:
(i) a merger or consolidation in which the Company is not the
surviving entity, except (1) for a transaction the principal purpose
of which is to change the state of the Company's incorporation, or (2)
a transaction in which the Company's stockholders immediately prior to
such merger or consolidation hold (by virtue of securities received in
exchange for their shares in the Company) securities of the surviving
entity representing more than fifty percent (50%) of the total voting
power of such entity immediately after such transaction;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company unless the Company's
stockholders immediately prior to such sale, transfer or other
disposition hold (by virtue of securities received in exchange for
their shares in the Company) securities of the purchaser or other
transferee representing more than fifty percent (50%) of the total
voting power of such entity immediately after such transaction;
(iii) any reverse merger in which the Company is the surviving
entity but in which the Company's stockholders immediately prior to
such merger do not hold (by virtue of their shares in the Company held
immediately prior to such transaction) securities of the Company
representing more than fifty percent (50%) of the total voting power
of the Company immediately after such transaction; or
(iv) a Change in Control, as defined in the
Employment Agreement.
(c) Upon any Corporate Transaction, this option shall become
exercisable in its entirety immediately before the specified effective date of
the Corporate Transaction; provided, however, that for any Corporate
Transaction specified in paragraphs 7(b) (i) (ii) or (iii), this option shall
so vest only if such option is not assumed by any successor corporation or its
parent company, pursuant to options providing substantially equal value and
having substantial equivalent provisions as the options granted pursuant to
this Agreement.
8. LIMITATIONS ON TRANSFER. This option shall, during Optionee's
lifetime, be exercisable only by Optionee, and neither this option nor any
right
<PAGE> 23
hereunder shall be transferable by Optionee by operation of law or otherwise
other than by will or the laws of descent and distribution. Upon any attempt by
Optionee to alienate, assign, pledge, hypothecate, or otherwise dispose of this
option or of any right hereunder, except as provided for in this Agreement, or
in the event of the levy of any attachment, execution, or similar process upon
the rights or interest hereby conferred, the Company at its election may
<PAGE> 24
terminate this option by notice to Optionee and this option shall thereupon
become null and void.
9. NO STOCKHOLDER RIGHTS. Neither Optionee nor any person entitled to
exercise Optionee's rights upon his death shall have any right of a stockholder
concerning the shares of the Stock subject to this option except to the extent
certificates for such shares shall have been issued upon the exercise hereunder.
10. NOTICE. Any notice required to be given hereunder shall be addressed to
the Company in care of its Secretary at the Office of the Company at 800 Third
Avenue, New York, New York 10022 any notice to be given to Optionee shall be
addressed to him or her at the address given by him or her beneath his or her
signature to this Agreement, or such other address as either party to this
Agreement may hereafter designate in writing to the other. Any such notice shall
be deemed to have been duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, registered or certified and deposited (postage
or registration or certification fee prepaid) in a post office or branch post
office regularly maintained by the United States or, if Optionee is located
outside of the United States, an applicable foreign governmental body.
11. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of any successor or successors of the Company. Where the context
permits, "Optionee" as used in this Agreement shall include Optionee's executor,
administrator or other legal representative or the person or persons to whom
Optionee's rights pass by will or the applicable laws of descent and
distribution.
12. EARLY DISPOSITIONS. Optionee agrees, as partial consideration for the
designation of this option as an incentive stock option under Section 422 of the
Code, to notify the Company in writing within thirty (30) days of any
disposition of any shares acquired by exercise of this option if such
disposition occurs within two (2) years from the Grant Date or within one (1)
year from the date Optionee purchased such shares by exercise of this option.
13. NEW YORK LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of New York as
applied to contracts capable of being wholly performed within such State.
IN WITNESS WHEREOF, the Company has caused these presents to be executed on its
behalf, and Optionee has hereunto set his or her hand as of the day and year
first above written.
September 23, 1996 By: /s/ Martin Varsavsky
--------------------------
Martin Varsavsky, Chairman
Accepted by: /s/ Michael J. Mahoney
----------------------
<PAGE> 1
EXHIBIT 10.33
VIATEL, INC.
AMENDED STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE, AND DEFINITIONS.
(a) There is hereby adopted the 1993 Flexible Stock Incentive
Plan (the "Plan") of VIATEL, INC. (the "Company").
(b) The purpose of the Plan is to provide a means whereby
Eligible Individuals (as defined in paragraph 4, below) can acquire Common
Stock, no par value, of the Company (the "Stock"). The Plan provides employees
(including officers and directors who are employees) of the Company and of its
Affiliates (as defined in sub-paragraph (c) below) an opportunity to purchase
shares of Stock pursuant to options which may qualify as incentive stock options
(referred to as "Incentive Stock Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and employees, officers,
directors, independent contractors, and consultants of the Company and of its
Affiliates an opportunity to purchase shares of Stock pursuant to options which
are not described in Sections 422 or 423 of the Code (referred to as
"Nonqualified Stock Options"). The Plan also provides for the sale or bonus of
Stock to Eligible Individuals in connection with the performance of services for
the Company or its Affiliates. Finally, the Plan authorizes the grant of stock
appreciation rights ("SARs"), either separately or in tandem with options,
entitling holders to cash compensation measured by appreciation in the value of
the Stock.
(c) The term "Affiliates" as used in the Plan means parent or
subsidiary corporations, as defined in Sections 424(e) and (f) of the Code (but
substituting "the Company" for "employer corporation"), including parents or
subsidiaries which become such after adoption of the Plan.
2. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors
of the Company (the "Board"). The Board may delegate the responsibility for
administering the Plan to a committee, under such terms and conditions as the
Board shall determine (the "Committee"). The Committee shall consist of two or
more members of the Board or such lesser number of members of the Board as
permitted by Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended ("Rule 16b-3"). The limitations set forth in this Section 2(a) shall
automatically incorporate any additional requirements that may in the future be
necessary for the Plan to comply with Rule 16b-3. Members of the Committee shall
serve at the pleasure of the Board. The Committee shall select one of its
members as chairman, and shall hold meetings at such times and places as it may
determine. A majority of the Committee shall constitute a quorum and acts of the
Committee at which a quorum is present, or acts reduced to or approved in
writing
<PAGE> 2
by all the members of the Committee, shall be the valid acts of the Committee.
If the Board does not delegate administration of the Plan to the Committee, then
each reference in this Plan to "the Committee" shall be construed to refer to
the Board.
(b) The Committee shall determine which Eligible Individuals
shall be granted options under the Plan, the timing of such grants, the terms
thereof (including any restrictions on the Stock), and the number of shares
subject to such options.
(c) The Committee may amend the terms of any outstanding
option granted under this Plan, but any amendment which would adversely affect
the optionee's rights under an outstanding option shall not be made without the
optionee's written consent. The Committee may, with the optionee's written
consent, cancel any outstanding option or accept any outstanding option in
exchange for a new option.
(d) The Committee shall also determine which Eligible
Individuals shall be issued Stock or SARs under the Plan, the timing of such
grants, the terms thereof (including any restrictions), and the number of shares
of Stock or SARs to be granted. The Stock shall be issued for such consideration
(if any) as the Committee deems appropriate. Stock issued subject to
restrictions shall be evidenced by a written agreement (the "Restricted Stock
Purchase Agreement" or the "Restricted Stock Bonus Agreement"). The Committee
may amend any Restricted Stock Purchase Agreement or Restricted Stock Bonus
Agreement, but any amendment which would adversely affect the shareholder's
rights to the Stock shall not be made without his or her written consent.
(e) The Committee shall have the sole authority, in its
absolute discretion to adopt, amend, and rescind such rules and regulations as,
in its opinion, may be advisable for the administration of the Plan, to construe
and interpret the Plan, the rules and the regulations, and the instruments
evidencing options, SARs or Stock granted under the Plan and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
All decisions, determinations, and interpretations of the Committee shall be
binding on all participants.
3. STOCK SUBJECT TO THE PLAN.
(a) An aggregate of not more than 2,750,000 shares of Stock
shall be available for the grant of options or the issuance of Stock under the
Plan. If an option is surrendered (except surrender for shares of Stock) or for
any other reason ceases to be exercisable in whole or in part, the shares which
were subject to such option but as to which the option had not been exercised
shall continue to be available under the Plan. Any Stock which is retained by
the Company upon exercise of an option in order to satisfy the exercise price
for such option or any withholding taxes due with respect to such option
exercise shall be treated as issued to the optionee and will thereafter not be
available under the Plan.
(b) If there is any change in the Stock subject to either the
Plan, an Option Agreement (as defined below), a Restricted Stock Purchase
Agreement, a Restricted Stock Bonus Agreement or a SAR Agreement (as defined in
paragraph 8) through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock
<PAGE> 3
dividend, or other change in the capital structure of the Company, appropriate
adjustments shall be made by the Committee in order to preserve but not to
increase the benefits to the individual, including adjustments to the aggregate
number, kind of shares, and price per share subject to either the Plan, an
Option Agreement, a Restricted Stock Purchase Agreement, a Restricted Stock
Bonus Agreement, or a SAR Agreement.
4. ELIGIBLE INDIVIDUALS. Individuals who shall be eligible to
have granted to them the options, Stock or SARs provided for by the Plan shall
be such employees, officers, directors, independent contractors, and consultants
of the Company or an Affiliate as the Committee in its discretion, shall
designate from time to time ("Eligible Individuals"). Notwithstanding the
foregoing, only employees of the Company or an Affiliate (including officers and
directors who are bona fide employees) shall be eligible to receive Incentive
Stock Options.
5. THE OPTION PRICE. The exercise price of the Stock covered
by each Incentive Stock Option shall be not less than the per share fair market
value of such Stock on the date the option is granted. The exercise price of the
Stock covered by each Nonqualified Stock Option shall be as determined by the
Committee. Notwithstanding the foregoing, in the case of an Incentive Stock
Option granted to a person possessing more than ten percent of the combined
voting power of the Company or an Affiliate, the exercise price shall be not
less than 110 percent of the fair market value of the Stock on the date the
option is granted. The exercise price of an option shall be subject to
adjustment to the extent provided in paragraph 3(b), above.
6. TERMS AND CONDITIONS OF OPTIONS.
(a) Each option granted pursuant to the Plan will be evidenced
by a written agreement (the "Option Agreement") executed by the Company and the
person to whom such option is granted.
(b) The Committee shall determine the term of each option
granted under the Plan; provided, however, that the term of an Incentive Stock
Option shall not be for more than 10 years and that, in the case of an Incentive
Stock Option granted to a person possessing more than ten percent of the
combined voting power of the Company or an Affiliate, the term shall be for no
more than five years.
(c) In the case of Incentive Stock Options, the aggregate fair
market value (determined as of the time such option is granted) of the Stock
with respect to which Incentive Stock Options are exercisable for the first time
by an Eligible Individual in any calendar year (under this Plan and any other
plans of the Company or its Affiliates) shall not exceed $100,000.
(d) The Stock Option Agreement may contain such other terms,
provisions and conditions consistent with this Plan as may be determined by the
Committee. If an option, or any part thereof, is intended to qualify as an
Incentive Stock Option, the Option Agreement shall contain those terms and
conditions which are necessary to so qualify it.
7. TERMS AND CONDITIONS OF STOCK PURCHASES AND BONUSES.
<PAGE> 4
(a) Each sale or grant of Stock pursuant to the Plan will be
evidenced by a written Restricted Stock Purchase Agreement or Restricted Stock
Bonus Agreement executed by the Company and the person to whom such Stock is
sold or granted.
(b) The Restricted Stock Purchase Agreement or Restricted
Stock Bonus Agreement may contain such other terms, provisions and conditions
consistent with this Plan as may be determined by the Committee, including not
by way of limitation, restrictions on transfer, forfeiture provisions,
repurchase provisions and vesting provisions.
8. TERMS AND CONDITIONS OF SARs. The Committee may, under such
terms and conditions as it deems appropriate, authorize the issuance of SARs
evidenced by a written SAR agreement (which, in the case of tandem options, may
be part of the Option Agreement to which the SAR relates) executed by the
Company and the person to whom such SAR is granted (the "SAR Agreement"). The
SAR Agreement may contain such terms, provisions and conditions consistent with
this Plan as may be determined by the Committee.
9. USE OF PROCEEDS. Cash proceeds realized from the issuance
of Stock under the Plan shall constitute general funds of the Company.
10. AMENDMENT, SUSPENSION, OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the
Plan as it deems advisable; provided that such amendment, suspension or
termination complies with all applicable requirements of state and federal law,
including any applicable requirement that the Plan or an amendment to the Plan
be approved by the Company's shareholders, and provided further that, except as
provided in paragraph 3(b), above, the Board shall in no event amend the Plan in
the following respects without the consent of shareholders then sufficient to
approve the Plan in the first instance:
(i) To increase the maximum number of shares subject to
Incentive Stock Options issued under the Plan; or
(ii) To change the designation or class of persons eligible to
receive Incentive Stock Options under the Plan.
(b) No option may be granted nor any Stock issued under the
Plan during any suspension or after the termination of the Plan, and no
amendment, suspension, or termination of the Plan shall, without the affected
individual's consent, alter or impair any rights or obligations under any option
previously granted under the Plan. The Plan shall terminate with respect to the
grant of Incentive Stock Options on September 29, 2003, unless previously
terminated by the Board pursuant to this paragraph 10.
11. ASSIGNABILITY. Each option granted pursuant to this Plan
shall, during the optionee's lifetime, be exercisable only by him, and neither
the option nor any right hereunder shall be transferable by the optionee by
operation of law or otherwise other than by will or the laws of descent and
distribution. Stock subject to a Restricted Stock Purchase Agreement or a
Restricted Stock Bonus Agreement shall be transferable only as provided in such
Agreement.
<PAGE> 5
12. PAYMENT UPON EXERCISE OF OPTIONS.
(a) Payment of the purchase price upon exercise of any option
granted under this Plan shall be made in cash (including for purposes of this
Plan the following cash equivalents: certified check, bank draft, postal or
express money order payable to the order of the Company in lawful money of the
United States); provided, however, that the Committee, in its sole discretion,
may permit an optionee to pay the option price in whole or in part (i) with
shares of Stock owned by the optionee; (ii) by delivery on a form prescribed by
the Committee of an irrevocable direction to a securities broker approved by the
Committee to sell shares and deliver all or a portion of the proceeds to the
Company in payment for the Stock; (iii) by delivery of the optionee's promissory
note with such recourse, interest, security, and redemption provisions as the
Committee in its discretion determines appropriate; or (iv) in any combination
of the foregoing. Any Stock used to exercise options shall be valued at its fair
market value on the date of the exercise of the option. In addition, the
Committee, in its sole discretion, may authorize the surrender by an optionee of
all or part of an unexercised option and authorize a payment in consideration
thereof of an amount equal to the difference between the aggregate fair market
value of the Stock subject to such option and the aggregate option price of such
Stock. In the Committee's discretion, such payment may be made in cash, shares
of Stock with a fair market value on the date of surrender equal to the payment
amount, or some combination thereof.
(b) In the event that the exercise price is satisfied by the
Committee retaining from the shares of Stock otherwise to be issued to the
optionee shares of Stock having a value equal to the exercise price, the
Committee may issue the optionee an additional option, with terms identical to
this option agreement, entitling the optionee to purchase additional Stock in an
amount equal to the number of shares so retained.
13. WITHHOLDING TAXES.
(a) No Stock shall be granted or sold under the Plan to any
participant, and no SAR may be exercised, until the participant has made
arrangements acceptable to the Committee for the satisfaction of federal, state,
and local income and employment tax withholding obligations, including without
limitation obligations incident to the receipt of Stock under the Plan, the
lapsing of restrictions applicable to such Stock, the failure to satisfy the
conditions for treatment as Incentive Stock Options under applicable tax law, or
the receipt of cash payments. Upon exercise of a stock option or lapsing of
restrictions on Stock issued under the Plan, the Company may satisfy its
withholding obligations by withholding from the optionee or requiring the
shareholder to surrender shares of Stock sufficient to satisfy federal, state
and local income and employment tax withholding obligations.
(b) In the event that such withholding is satisfied by the
Company or the optionee's employer retaining from the shares of Stock otherwise
to be issued to the optionee shares of Stock having a value equal to such
withholding tax, the Committee may issue the optionee an additional option, with
terms identical to the Option Agreement under which the option was received,
entitling the optionee to purchase additional Stock in an amount equal to the
number of shares so
<PAGE> 6
retained.
14. RESTRICTIONS ON TRANSFER OF SHARES. The Stock acquired
pursuant to the Plan shall be subject to such restrictions and agreements
regarding sale, assignment, encumbrances or other transfer as are in effect
among the shareholders of the Company at the time such Stock is acquired, as
well as to such other restrictions as the Committee shall deem advisable.
15. CORPORATE TRANSACTION.
(a) For purposes of this paragraph 15, a "Corporate
Transaction" shall include any of the following shareholder-approved
transactions to which the Company is a party:
\
(i) a merger or consolidation in which the Company is
not the surviving entity, except (1) for a transaction the
principal purpose of which is to change the state of the
Company's incorporation, or (2) a transaction in which the
Company's shareholders immediately prior to such merger or
consolidation hold (by virtue of securities received in
exchange for their shares in the Company) securities of the
surviving entity representing more than fifty percent (50%) of
the total voting power of such entity immediately after such
transaction;
(ii) the sale, transfer or other disposition of all
or substantially all of the assets of the Company unless the
Company's shareholders immediately prior to such sale,
transfer or other disposition hold (by virtue of securities
received in exchange for their shares in the Company)
securities of the purchaser or other transferee representing
more than fifty (50%) of the total voting power of such entity
immediately after such transaction; or
(iii) any reverse merger in which the
Company is the surviving entity but in which the Company's
shareholders immediately prior to such merger do not hold (by
virtue of their shares in the Company held immediately prior
to such transaction) securities of the Company representing
more than fifty percent (50%) of the total voting power of the
Company immediately after such transaction.
(b) In the event of any Corporate Transaction, any option,
restricted Stock or SAR shall vest in its entirety and become exercisable, or
with respect to restricted Stock, be released from restrictions on transfer and
repurchase rights, immediately prior to the specified effective date of the
Corporate Transaction unless assumed by the successor corporation or its parent
company, pursuant to options, restricted stock agreements or stock appreciation
rights providing substantially equal value and having substantially equivalent
provisions as the options, restricted Stock or SARs granted pursuant to this
Plan.
16. SHAREHOLDER APPROVAL. This Plan shall only become
effective with regard to Incentive Stock Options upon its approval by a majority
of the shareholders voting (in person or by proxy) at a shareholders' meeting
held within 12 months of the Board's adoption of the Plan. The Committee may
grant Incentive Stock Options under the Plan prior to the shareholders' meeting,
but until shareholder
<PAGE> 7
approval of the Plan is obtained, no Incentive Stock Option shall be
exercisable.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF VIATEL, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY: JURISDICTION OF INCORPORATION OR ORGANIZATION:
<S> <C>
Viatel U.K. Limited United Kingdom
Viaphone S.R.L. Italy
Viatel S.R.L. Italy
VPN, S.A. France
Viatel S.A. France
YYC Communications, Inc. Delaware
Viafon Dat Iberica, S.A. Spain
Viatel Global Communication Espana S.A. Spain
Viatel SA/NV Belgium
Viatel BV (branch) of Viatel Belgium Belgium
Viatel Gmbh Germany
In Liquidation Datex S.R.L.
</TABLE>
<PAGE> 1
EXHIBIT 23.2
ACCOUNTANTS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Stockholders
Viatel, Inc. and Subsidiaries:
The audits referred to in our report dated March 8, 1996, included the
related financial statement schedule as of December 31, 1995 and 1994, and for
each of the years in the three-year period ended December 31, 1995, included in
the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Summary Consolidated Financial and Other Data,"
"Selected Consolidated Financial and Other Data" and "Experts" in the
prospectus.
/s/ KPMG PEAT MARWICK LLP
New York, New York
October 14, 1996
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
The Boards of Directors and Stockholders
Viatel, Inc. and Subsidiaries:
We consent to the reference to our firm under the heading "Selected
Consolidated Financial and Other Data" in the prospectus.
/s/ Edward Isaacs & Company LLP
----------------------------------
EDWARD ISAACS & COMPANY LLP
New York, New York
October 11, 1996
