SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number: 000-21261
VIATEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3787366
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
800 Third Avenue
New York, New York
(Address of principal executive offices)
10022
(Zip Code)
(212) 350-9200
(Registrant's telephone number, including area code)
--------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. / X / Yes / / No
As of November 13, 1997, 22,635,143 shares of the registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VIATEL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,
1997 December 31,
ASSETS (Unaudited) 1996
--------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,736,392 $ 75,796,102
Marketable securities, current 13,856,976 8,181,332
Trade accounts receivable, less allowance for doubtful accounts of
$1,050,000 and $602,000, respectively 11,835,220 8,542,305
Other receivables 4,799,885 4,402,944
Prepaid expenses 1,227,139 789,307
--------------- ----------------
Total current assets 35,455,612 97,711,990
--------------- ----------------
Marketable securities, non-current 30,702,102 9,004,075
Property and equipment, less accumulated depreciation of $10,456,000 and
$6,724,000, respectively 40,680,813 21,074,417
Deferred financing and registration fees, less accumulated amortization of
$1,026,000 and $742,000, respectively 2,763,120 3,046,897
Intangible assets, less accumulated amortization of $2,362,000 and
$1,639,000, respectively 1,687,972 1,973,910
Other assets 2,382,980 1,853,161
--------------- ----------------
$ 113,672,599 134,664,450
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued telecommunications costs $ 13,479,364 $ 11,915,671
Accounts payable and other accrued expenses 8,421,818 5,916,223
Commissions payable 332,261 349,646
Current installments of obligations under capital leases 273,469 96,064
--------------- ----------------
Total current liabilities 22,506,912 18,277,604
--------------- ----------------
Long-term liabilities:
Senior discount notes, less discount of $33,998,676 and $42,945,967,
respectively 86,701,324 77,754,033
Obligations under capital leases, excluding current installments 638,025 149,983
--------------- ----------------
Total long-term liabilities 87,339,349 77,904,016
--------------- ----------------
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value. Authorized 50,000,000 shares, issued and
outstanding 22,635,143 and 22,513,226 shares, respectively 226,351 225,132
Additional paid-in capital 125,661,231 125,236,410
Unearned compensation (81,300) (130,080)
Cumulative translation adjustment (5,170,330) (862,458)
Accumulated deficit (116,809,614) (85,986,174)
--------------- ----------------
Total stockholders' equity 3,826,338 38,482,830
--------------- ----------------
$ 113,672,599 $ 134,664,450
=============== ================
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------------- ------------------------------------
1997 1996 1997 1996
---------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Telecommunications revenue $ 19,148,941 $ 13,107,477 $ 52,149,570 $ 35,389,706
---------------- --------------- ------------------ ---------------
Operating Expenses:
Cost of telecommunications services 17,176,851 11,212,010 44,946,680 29,789,776
Selling, general and administrative
expenses 8,702,015 7,356,845 27,069,575 25,017,526
Depreciation and amortization 2,062,311 1,156,946 4,782,913 3,388,769
---------------- --------------- ------------------ ---------------
Total operating expenses 27,941,177 19,725,801 76,799,168 58,196,071
---------------- --------------- ------------------ ---------------
Other income (expense):
Interest income 884,449 120,629 3,055,896 860,081
Interest expense (3,242,260) (2,843,982) (9,229,738) (8,014,734)
Share in loss of affiliate - (1,938) - (6,879)
---------------- --------------- ------------------ ---------------
Net loss $ (11,150,047) $ (9,343,615) $ (30,823,440) $ (29,967,897)
================ =============== ================== ===============
Net loss per common share $ (0.49) $ (0.68) $ (1.36) $ (2.19)
================ =============== ================== ===============
Weighted average common
shares outstanding 22,634,081 13,707,648 22,615,028 13,707,648
================ =============== ================== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-----------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (30,823,440) $ (29,967,897)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 4,782,913 3,388,769
Interest expense on senior discount notes 9,231,068 7,960,414
Accrued interest income on marketable securities (1,490,404) (279,111)
Provision for losses on accounts receivable 1,685,547 1,388,149
Earned compensation 48,780 321,661
Changes in assets and liabilities:
Increase in accounts receivable (4,928,760) (4,679,584)
(Increase) decrease in prepaid expenses and other receivables (1,262,726) 466,375
Increase in other assets and intangible assets (731,682) (532,923)
Increase in accrued telecommunication costs, accounts payable,
other accrued expenses and commissions payable 2,794,235 15,343
--------------- ----------------
Net cash used in operating activities (20,694,469) (21,918,804)
--------------- ----------------
Cash flows from investing activities:
Purchase of property, equipment and software (24,080,901) (5,372,006)
Purchase of marketable securities (47,096,017) (14,794,332)
Proceeds from maturity of marketable securities 19,881,351 36,821,827
Issuance of notes receivable - (323,227)
Investment in affiliate - (96,952)
--------------- ----------------
Net cash (used in) provided by investing activities (51,295,567) 16,235,310
--------------- ----------------
Cash flows from financing activities:
Payments under capital leases (456,553) (41,801)
Proceeds from issuance of Common Stock 426,040 -
--------------- ----------------
Net cash provided by financing activities (30,513) (41,801)
--------------- ----------------
Effects of exchange rates on cash (39,161) (18,528)
--------------- ----------------
Net decrease in cash and cash equivalents (72,059,710) (5,743,823)
Cash and cash equivalents at beginning of period 75,796,102 8,934,914
--------------- ----------------
Cash and cash equivalents at end of period $ 3,736,392 $ 3,191,091
=============== ================
Supplemental disclosures of cash flow information:
Interest paid $ 86,670 $ 44,553
=============== ================
Equipment acquired under capital lease obligations $ 1,122,000 $ 356,033
=============== ================
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as of September 30, 1997 and for the periods
ended September 30, 1997 and 1996 is unaudited)
(1) INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of September 30, 1997 and for the
three and nine month periods ended September 30, 1997 and 1996 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 adjustments) 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 the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the Company's annual consolidated financial statements.
Operating results for the three and nine months ended September 30, 1997
may not be indicative of the results that may be expected for the full
year. Certain reclassifications have been made to the previous year's
financial statements to conform to the current year's presentation.
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share," which supersedes APB Opinion No. 15, "Earnings Per Share," was
issued in February 1997. SFAS 128 requires dual presentation of basic and
diluted earnings per share (EPS) for complex capital structures on the
face of the statement of operations. Basic EPS is computed by dividing
income or loss by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock, such as stock
options. SFAS 128 is required to be adopted for year-end 1997; earlier
application is not permitted. The Company does not expect the basic or
diluted EPS measured under SFAS 128 to be materially different than if
measured under APB No. 15.
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," and Statement of Financial Accounting Standards No.
131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information," were issued in June 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. This statement requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income, such as foreign currency fluctuations
currently reported in stockholders' equity, be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 131 establishes standards for the way public companies
report information about operating segments in annual financial statements
and requires that those companies report selected information about
operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company is required to
adopt both new standards in the first quarter of 1998.
(2) INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and classifies them as held to
maturity or available for sale. The Company does not invest in securities
for the purpose of trading and as such does not classify any securities as
trading. 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
5
<PAGE>
and losses, net of tax, reported in a separate component of stockholders'
equity. Unrealized gains or losses on securities classified as available for
sale are not material at September 30, 1997.
The amortized cost of debt securities classified as held to maturity 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 September 30, 1997.
The following is a summary of the fair value of securities available for
sale at September 30, 1997:
U.S. Treasury obligations $ 4,859,109
Federal agencies obligations 12,091,931
Corporate debt securities 27,608,038
--------------
Total $44,559,078
==============
The fair value of debt securities available for sale at September 30, 1997
by contractual maturity are shown below:
Due within one year $13,856,976
Due after one through two years 1,833,672
Due after two years 28,868,430
--------------
Total $44,559,078
==============
Actual 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 for the nine months ended September 30, 1997 under
the Amended Stock Incentive Plan (the "Stock Incentive Plan") is shown
below:
WEIGHTED
AVERAGE
EXERCISE NUMBER OF
PRICES SHARES
--------- ----------
Outstanding at January 1, 1997 $5.42 969,836
Granted 8.61 428,194
Forfeited 6.57 (186,222)
Expired 4.77 (8,864)
Exercised 3.49 (121,917)
---- ---------
Outstanding at September 30, 1997 $6.71 1,081,027
===== =========
As of September 30, 1997, 344,403 options were exercisable under the Stock
Incentive Plan.
(4) 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 single country would not have a material adverse long-term effect on
its business.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
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 European Union ("EU") member states. 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 render effectively the services it currently
offers and intends to offer after the liberalization of regulations relating to
Voice Telephony, defined as 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. Consequently, the Company has incurred a high level of expense in
connection with its continued expansion which has resulted in substantial net
losses since its inception.
The Company operates a digital, switch-based telecommunications network with
thirty locations within Western Europe including a central switching center in
London (England), switches in Amsterdam (Netherlands), Barcelona and Madrid
(Spain), Antwerp and Brussels (Belgium), Frankfurt (Germany), Milan (Italy),
Paris (France) and Rome (Italy) and additional points of presence ("POPs") as
follows: Bilbao, Gerona, Majorca, Tarragona and Valencia (Spain); Leuven
(Belgium); Bordeaux, Lyon, Marseilles and Toulouse (France); Geneva
(Switzerland); Rotterdam (The Netherlands); Berlin, Hamburg, Stuttgart and
Wiesbaden (Germany) and Brescia, Florence, Genoa and Vicenza (Italy) connected
by leased, digital fiber optic transmission facilities (the "European Network").
In addition, the Company operates switching centers in New York City and Omaha,
Nebraska, which are connected to the central switching center in London by
Company-owned digital fiber optic transmission facilities (together with the
European Network, the "Viatel Network"). The Company believes that the European
Network allows the Company effectively to render its services currently and will
offer it a competitive advantage after the EU's liberalization of voice
telephony, now scheduled in most EU member states for January 1, 1998.
During 1997, the Company has invested heavily in upgrading its network, adding
international gateway switches in New York City and London and 21 new network
locations. As a result, the Company's network reach has increased by
approximately 233% since December 31, 1996. As part of the Company's concerted
effort to convert leased capacity to owned capacity for the purpose of improving
operating margins, the Company has continued to purchase interests in digital
fiber optic cable systems, including interests in (i) CANTAT-3 (8.196 Mb/s), a
transatlantic cable originating in the United States and the United Kingdom,
(ii) TAT-12/13 (8.196 Mb/s), a transatlantic cable originating in the United
States, the United Kingdom and France, (iii) FLAG (20.48 Mb/s), a cable
originating in, among other places, the United Kingdom, Italy and Spain and (iv)
Atlantic Crossing 1 (155.0 Mb/s), a transatlantic cable originating in the
United States and the United Kingdom. The Company also intends to acquire
additional interests in cross-channel digital fiber optic cable originating in
the United Kingdom and connected to other EU member states in which the Company
has a physical presence. These cables will be used for transmission of traffic
between the United States and Europe and within Europe resulting in improved
service quality at lower cost. By combining the Company's international gateways
in New York and London with its transatlantic fiber optic cable capacity, the
Company believes that it will be able to provide customers with improved
quality.
During the first nine months of 1997, the Company also (i) received an
international facilities license for the United Kingdom and an Article 23
license for the Netherlands to offer telecommunications services, including
unrestricted switched-voice calling, in these countries and (ii) signed
interconnection agreements with Mercury Communications Limited and British
Telecommunications PLC in the United Kingdom, PTT Telecom B.V. in the
Netherlands, Infostrada (with 32 POPs) in Italy and ECN (with 28 POPs) in
Germany. These agreements significantly extend the Company's network reach in
the respective countries, allowing Viatel's customers to originate and terminate
calls across the Viatel Network in all cities served by those companies.
7
<PAGE>
During the nine month period ended September 30, 1997, the Company experienced
growth of approximately 47.4% in telecommunications revenue as compared to the
corresponding period in 1996. The growth in telecommunications revenue is the
result of ongoing investment in operating infrastructure related to expanding
the Company's presence in its targeted geographic markets in Western Europe and
expanding its ability to offer its services. The Company continued to increase
its use of the European Network to terminate traffic. As a result, approximately
48.2% of revenue and 48.9% of billable minutes were attributed to the European
Network during the three months ended September 30, 1997.
The Company experienced an EBITDA loss of approximately $19.9 million during the
first nine months of 1997 as compared to an EBITDA loss of approximately $19.4
million during the first nine months of 1996. As a percentage of revenue, EBITDA
loss decreased by 38.1% from 54.9% (or a decrease of approximately 30.6%).
Absent an $.8 million settlement with the Company's former independent sales
representative in Madrid (the "Spanish Representative Settlement"), the EBITDA
loss would have been $19.1 million and, as a percentage of revenue, 36.5%. The
Company is committed to converting its international submarine cable circuits
from leased to owned capacity as regulatory and market conditions permit.
Contingent, in part, on the Company's ability to acquire such ownership, the
Company currently expects to become EBITDA positive in the first half of 1999 --
one full year ahead of the Company's original estimate.
During the third quarter of 1997, as compared to the second quarter of 1997,
certain trends were evident including (i) a 3.8% increase in telecommunications
revenue to $19.1 million from $18.4 million, (ii) a 14.1% increase in billable
minutes to 40.4 million billable minutes from 35.4 million billable minutes,
(iii) a decrease in gross margins to 10.3% from 14.9%, (iv) a decrease in
selling, general and administrative expenses, as a percentage of revenue, to
45.4% from 52.3% (47.8% absent an expense associated with the Spanish
Representative Settlement), (v) a decrease in EBITDA loss, as a percentage of
revenue, to 35.1% from 37.3% and (vi) a decrease in average revenue per minute
and average cost per minute. SEE "-- RESULTS OF OPERATIONS."
RESULTS OF OPERATIONS
The following table summarizes the breakdown of the Company's results of
operations as a percentage of revenue:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Telecommunications revenue 100.0% 100.0% 100.0% 100.0%
Cost of telecommunications services 89.7% 85.5% 86.2% 84.2%
Selling, general and administrative expenses 45.4% 56.1% 51.9% 70.7%
Depreciation and amortization 10.8% 8.8% 9.2% 9.6%
EBITDA loss (1) 35.1% 41.7% 38.1% 54.9%
- -------------------------
(1) 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 or as an alternative to cash flow as a
measure of liquidity.
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996.
TELECOMMUNICATIONS REVENUE. Telecommunications revenue increased by 46.1% to
$19.1 million for the three months ended September 30, 1997 from $13.1 million
for the three months ended September 30, 1996. Telecommunications revenue growth
for the three month period ended September 30, 1997 was generated primarily
8
<PAGE>
from increased traffic volume on the European Network, growth in the Company's
carrier business and, to a lesser extent, increased traffic volume in Latin
America and the Pacific Rim.
Billable minutes increased by 142.4% during the three months ended September 30,
1997 to 40.4 million billable minutes from 16.7 million billable minutes during
the third quarter of 1996. This increase was partially offset by declining
revenue per billable minute, as average revenue per billable minute declined by
39.7% to $.47 in the three-month period ended September 30, 1997 from $.78 in
the three-month period ended September 30, 1996, primarily because of (i) a
higher percentage of lower-priced intra-European and national long distance
traffic from the European Network as compared to intercontinental traffic, (ii)
a higher percentage of lower-priced carrier traffic as compared to retail
traffic, (iii) reductions in certain rates charged to retail customers in
response to pricing reductions enacted by certain incumbent telecommunications
operators ("ITOs") and other carriers in Western Europe, Latin America and the
Pacific Rim, (iv) changes in customer access methods and (v) foreign currency
fluctuations. SEE "-- COST OF TELECOMMUNICATIONS SERVICES."
Telecommunications revenue per billable minute from the sale of services to
retail customers, which represented 69.1% of total revenue, decreased to $.64 in
the three months ended September 30, 1997 from $1.02 in the corresponding period
in 1996. Telecommunications revenue per billable minute from the sale of
services to carriers and other resellers decreased to $.29 in the three months
ended September 30, 1997 from $.36 in the corresponding period in 1996. The
number of customers billed rose 40.6% to 22,940 at September 30, 1997 from
16,319 at September 30, 1996.
Western Europe continues to be an important market for the Company. During the
three months ended September 30, 1997, approximately 43.2% of the Company's
telecommunications revenue was generated in Western Europe as compared to
approximately 41.5% of the Company's telecommunications revenue during the
corresponding period in 1996. Despite an increase of approximately 7.1% over the
corresponding period in 1996, telecommunications revenue from Latin America
represented approximately 21.1% of the Company's telecommunications revenue
during the three months ended September 30, 1997 as compared to approximately
28.9% of the Company's telecommunications revenue during the three months ended
September 30, 1996. Telecommunications revenue from the Pacific-Rim represented
approximately 11.9% of the Company's telecommunications revenue during the three
months ended September 30, 1997 as compared to approximately 13.0% of the
Company's telecommunications revenue during the three months ended September 30,
1996.
The Company has significantly increased its carrier business through which it
sells switched minutes to carriers and other resellers at discounted rates. The
carrier business has enabled the Company to recover partially the costs
associated with increased capacity in advance of demand within retail markets.
Such economy of scale has allowed the Company to use its network more profitably
for network originations and terminations within Europe. The carrier business
represented approximately 30.9% of total telecommunications revenue and
approximately 49.8% of billable minutes for the three months ended September 30,
1997 as compared to approximately 16.6% of total telecommunications revenue and
approximately 36.0% of billable minutes for the three months ended September 30,
1996. This increase in telecommunications revenue represents an increase of
approximately 167.8% over the corresponding period in 1996.
COST OF TELECOMMUNICATIONS SERVICES. Cost of telecommunications services
increased to $17.2 million for the three months ended September 30, 1997 from
$11.2 million for the three months ended September 30, 1996 and, as a percentage
of revenue, increased to approximately 89.7% from approximately 85.5% for the
three months ended September 30, 1997 and 1996, respectively. The corresponding
gross margin increased by approximately 4.0% to $2.0 million for the three
months ended September 30, 1997 from $1.9 million for the comparable period in
1996. This increase was primarily due to the increase in revenue, changes in
overall service mix and increased utilization of the European Network, partially
offset by increased fixed costs related to the European Network. The Company's
average cost per billable minute decreased to $.42 during the three months ended
September 30, 1997 from $.67 during the three months ended September 30, 1996, a
37.3% decrease. This decrease, which partially offset the effect of the decline
in average revenue per billable minute, was attributable primarily to (i)
increased originating and terminating traffic being routed through the European
Network, (ii) increased switched minutes generated by the Company's carrier
business and (iii) changes in customer access methods. Increased European
9
<PAGE>
Network utilization helped reduce costs on a per minute basis with respect to
European long distance telecommunications services.
Gross margins for the three months ended September 30, 1997 were negatively
impacted by increases in certain costs related to the expansion of the Company's
transmission capacity and the accelerated rollout of European POPs. These costs
are expected to decrease as a percentage of telecommunications revenue as
traffic volume over the European Network continues to increase and as the
Company converts leased lines to owned facilities. The Company increased its
private line circuit ("PLC") capacity by 380%, and as a result the fixed costs
associated with the European Network increased to approximately $2.0 million for
the three months ended September 30, 1997 (approximately 10.6% of
telecommunications revenue) from approximately $1.0 million for the three months
ended September 30, 1996 (approximately 7.5% of telecommunications revenue).
PLCs, which represent a significant portion of the Company's fixed costs, were
not fully utilized in the three months ended September 30, 1997 due, in part, to
seasonality. The Company believes that its use of PLCs for routing of minutes
over the European Network will continue to increase, and such increase should
positively impact the Company's overall gross margins, as a percentage of
telecommunications revenue, as more minutes are routed through the European
Network. This benefit, however, is primarily limited to calls originating or
terminating in a city where the Company has a switch or a POP because otherwise
the Company transports the call over the public switched telephone network at
higher transmission costs and reduced margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $8.7 million in the three months ended
September 30, 1997 from $7.4 million in the three months ended September 30,
1996 and, as a percentage of revenue, decreased to approximately 45.4% in the
third quarter of 1997 from approximately 56.1% in the third quarter of 1996.
Much of these expenses are attributable to overhead costs associated with the
Company's headquarters, back office and network operations as well as
maintaining a physical presence in seventeen different jurisdictions. Salaries
and commissions, as a percentage of total selling, general and administrative
expenses, were approximately 54.4% and 48.4% for the three months ended
September 30, 1997 and 1996, respectively.
EBITDA LOSS. EBITDA loss increased to $6.7 million for the three months ended
September 30, 1997 from $5.5 million for the three months ended September 30,
1996. As a percentage of revenue, EBITDA loss decreased to approximately 35.1%
in the third quarter of 1997 from approximately 41.7% in the third quarter of
1996. The EBITDA loss is generally attributable to the ongoing investment in
network and operating infrastructure for the purpose of expanding the Company's
geographic presence and its ability to offer its services.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of the Viatel Network, increased to approximately $2.1
million for the third quarter of 1997 from approximately $1.2 million for the
third quarter of 1996. The increase was due primarily to the depreciation of
equipment related to network expansion and fiber optic cable systems placed in
service during the first nine months of 1997.
INTEREST. Interest expense increased to approximately $3.2 million in the three
months ended September 30, 1997 from approximately $2.8 million in the three
months ended September 30, 1996 due to the accretion of non-cash interest on the
Company's 15% Senior Discount Notes due January 15, 2005 (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.
Interest income increased to approximately $.9 million for the three months
ended September 30, 1997 from approximately $.1 million for the three months
ended September 30, 1996, primarily as a result of the investment of the net
proceeds from the Company's initial public offering which occurred in October
1996 (the "IPO").
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996.
TELECOMMUNICATIONS REVENUE. Telecommunications revenue increased by 47.4% to
$52.1 million for the nine months ended September 30, 1997 from $35.4 million
for the nine months ended September 30, 1996. Telecommunications revenue growth
for the nine month period ended September 30, 1997 was generated primarily from
increased traffic volume on the European Network, growth in the Company's
carrier business and, to a lesser
10
<PAGE>
extent, increased traffic volume in Latin America and the Pacific Rim.
Billable minutes increased by 137.8% during the nine months ended September 30,
1997 to 99.4 million billable minutes from 41.8 million billable minutes during
the nine months ended September 30, 1996. This increase was partially offset by
declining revenue per billable minute, as average revenue per billable minute
declined by 38.1% to $.52 in the nine-month period ended September 30, 1997 from
$.84 in the nine-month period ended September 30, 1996, primarily because of (i)
a higher percentage of lower-priced intra-European and national long distance
traffic from the European Network as compared to intercontinental traffic, (ii)
a higher percentage of lower-priced carrier traffic as compared to retail
traffic, (iii) reductions in certain rates charged to retail customers in
response to pricing reductions enacted by certain ITOs and other carriers in
Western Europe, Latin America and the Pacific Rim, (iv) changes in customer
access methods and (v) foreign currency fluctuations. SEE "-- COST OF
TELECOMMUNICATIONS SERVICES."
Telecommunications revenue per billable minute from the sale of services to
retail customers, which represented 74.0% of total revenue, decreased to $.72 in
the nine months ended September 30, 1997 from $1.08 in the corresponding period
in 1996. Telecommunications revenue per billable minute from the sale of
services to carriers and other resellers decreased to $.28 in the nine months
ended September 30, 1997 from $.39 in the corresponding period in 1996.
During the nine months ended September 30, 1997, approximately 40.4% of the
Company's telecommunications revenue was generated in Western Europe as compared
to approximately 42.1% of the Company's telecommunications revenue during the
corresponding period in 1996. This fluctuation was primarily attributable to the
current strength of the U.S. Dollar in respect to Western European currencies.
Despite an increase of approximately 18.4% over the corresponding period in
1996, telecommunications revenue from Latin America represented approximately
23.4% of the Company's telecommunications revenue during the nine months ended
September 30, 1997 as compared to approximately 29.0% of the Company's
telecommunications revenue during the nine months ended September 30, 1996.
Telecommunications revenue from the Pacific-Rim represented approximately 12.8%
of the Company's telecommunications revenue during the nine months ended
September 30, 1997 as compared to approximately 12.9% of the Company's
telecommunications revenue during the nine months ended September 30, 1996.
The carrier business represented approximately 26.0% of total telecommunications
revenue and approximately 46.4% of billable minutes for the nine months ended
September 30, 1997 as compared to approximately 16.1% of total
telecommunications revenue and approximately 34.4% of billable minutes for the
nine months ended September 30, 1996. This increase in telecommunications
revenue represents an increase of approximately 131.2% over the corresponding
period in 1996.
COST OF TELECOMMUNICATIONS SERVICES. Cost of telecommunications services
increased to $44.9 million for the nine months ended September 30, 1997 from
$29.8 million for the nine months ended September 30, 1996 and, as a percentage
of revenue, increased to approximately 86.2% from approximately 84.2% for the
nine months ended September 30, 1997 and 1996, respectively. The corresponding
gross margin increased by approximately 28.6% to $7.2 million for the nine
months ended September 30, 1997 from $5.6 million for the comparable period in
1996. This increase was primarily due to the increase in revenue, changes in
overall service mix and increased utilization of the European Network, partially
offset by increased fixed costs related to the European Network. The Company's
average cost per billable minute decreased to $.45 during the nine months ended
September 30, 1997 from $.70 during the nine months ended September 30, 1996, a
35.7% decrease. This decrease, which partially offset the effect of the decline
in average revenue per billable minute, was attributable primarily to (i)
increased originating and terminating traffic being routed through the European
Network, (ii) increased switched minutes generated by the Company's carrier
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 nine months ended September 30, 1997 were negatively
impacted by increases in certain costs related to the expansion of the Company's
transmission capacity and the accelerated rollout of European POPs. These costs
are expected to decrease as a percentage of telecommunications revenue as
traffic volume over
11
<PAGE>
the European Network continues to increase and as the Company converts leased
lines to owned facilities. The Company increased its PLC capacity by 380%, and
as a result the fixed costs associated with the European Network increased to
approximately $5.4 million for the nine months ended September 30, 1997
(approximately 10.4% of telecommunications revenue) from approximately $2.8
million for the nine months ended September 30, 1996 (approximately 7.8% of
telecommunications revenue). PLCs were not fully utilized in the nine months
ended September 30, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $27.1 million in the nine months ended
September 30, 1997 from $25.0 million in the nine months ended September 30,
1996 and, as a percentage of revenue, decreased to approximately 51.9% (50.3%
absent an expense associated with the Spanish Representative Settlement) in the
nine months ended September 30, 1997 from approximately 70.7% in the nine months
ended September 30, 1996 (64.7% absent period charges associated with a
corporate restructuring and a French arbitration award). Much of these expenses
are attributable to overhead costs associated with the Company's headquarters,
back office and network operations as well as maintaining a physical presence in
seventeen different jurisdictions. Salaries and commissions, as a percentage of
total selling, general and administrative expenses, were approximately 52.7% and
48.6% for the nine months ended September 30, 1997 and 1996, respectively.
EBITDA LOSS. EBITDA loss decreased to $19.9 million for the nine months ended
September 30, 1997 from $19.4 million for the nine months ended September 30,
1996. As a percentage of revenue, EBITDA loss decreased to approximately 38.1%
in the nine months ended September 30, 1997 from approximately 54.9% in the nine
months ended September 30, 1996. Absent the Spanish Representative Settlement of
$.8 million, the EBITDA loss would have been $19.1 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased
to approximately $4.8 million in the nine months ended September 30, 1997 from
approximately $3.4 million in the nine months ended September 30, 1996. The
increase was due primarily to the depreciation of equipment related to network
expansion and fiber optic cable systems placed in service during the first nine
months of 1997.
INTEREST. Interest expense increased to approximately $9.2 million in the nine
months ended September 30, 1997 from approximately $8.0 million in the nine
months ended September 30, 1996 due to the accretion of non-cash interest on the
Notes. Interest income increased to approximately $3.1 million in the nine
months ended September 30, 1997 from approximately $.9 million for the nine
months ended September 30, 1996, primarily as a result of the investment of the
net proceeds from the IPO.
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 and
net losses for the next several years. Through September 30, 1997, the Company
had incurred $116.8 million in aggregate losses from operating activities. As of
September 30, 1997, the Company had $48.3 million of cash, cash equivalents and
other liquid investments. The Company believes that, based on its current
forecasts, it should be able to fund its capital requirements at least until the
year 1999.
CAPITAL EXPENDITURES AND WORKING CAPITAL. The development of the Company's
business has required substantial capital expenditures and working capital. The
Company has incurred 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 nine months ended September 30, 1997, the Company had
capital expenditures of approximately $24.1 million. Historically, the Company
has funded its capital expenditures through equity and debt issuances and vendor
financings. As of September 30, 1997, the Company had entered into purchase
commitments for network upgrades and other items aggregating approximately $8.7
million.
AVERAGE MONTHLY CASH REQUIREMENTS. During the nine months ended September 30,
1997, the Company's average current monthly cash requirements were approximately
$2.0 million, including approximately $1.0 million relating
12
<PAGE>
to minimum commitments under carrier contracts. This average excludes
approximately (i) $24.1 million for capital expenditures for the purchase of
equipment, software and corporate overhead expense associated with the continued
development of the European Network and (ii) $2.8 million for other
non-recurring items including costs associated with the IPO, long term
maintenance contracts, deferred bonus payments and the Spanish Representative
Settlement.
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 such 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 pursuant to which the Notes were issued
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 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 nine months ended September 30, 1997,
approximately 39.6% 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 the 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 September 30, 1997 and its results of
operations for the three and nine months ended September 30, 1997 were not
significantly impacted by fluctuations in the U.S. Dollar in relationship to
foreign currencies.
FORWARD LOOKING STATEMENTS
Certain statements contained herein which express "belief," "anticipation,"
"expectation," or "intention" or any other projection, including statements
concerning the design, configuration, feature and performance of the Company's
network and related services, the development and expansion of the Company's
business, the markets in which the Company's services are or will be offered,
capital expenditures and regulatory reform, insofar as they may apply
prospectively and are not historical facts, are "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. 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 "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Certain Factors Which May Affect the Company's
Future Results," of the Company's Annual Report on Form 10-K for fiscal 1996.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not currently applicable to the Company.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) The Company has filed with the Securities and Exchange
Commission a Form SR, for the period ending January 17,
1997, and an Amendment No. 1 to such Form SR, for the period
ending July 26, 1997, reporting use of proceeds from its
initial public offering of common stock which was completed
on October 23, 1996 (the "Offering"). As of September 30,
1997, the Company had used the $93,617,620 net proceeds from
the Offering as follows: $26,741,830 for purchase and
installation of machinery and equipment; and $33,978,711 for
working capital. At September 30, 1997, the Company also had
$13,856,976 invested in short-term marketable securities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company held its Annual Meeting of Stockholders on August 13,
1997. Proposals presented for a stockholder vote were (i) the election of two
Class A Directors, (ii) the ratification of the appointment of KPMG Peat Marwick
LLP as independent auditors for the Company for the fiscal year 1997 and (iii)
the approval of amendments to the Company's Amended Stock Incentive Plan.
Each of the incumbent Class A directors nominated by the Company
were elected with the following voting results:
VOTES VOTES
FOR WITHHELD
----- --------
Allan L. Shaw 18,803,131 4,100
Antonio Carro 18,789,881 17,350
14
<PAGE>
The appointment of KPMG Peat Marwick LLP as the Company's
independent auditor's for the fiscal year 1997 was approved with the following
voting results:
VOTES VOTES
CAST CAST BROKER
FOR AGAINST ABSTENTIONS NON-VOTES
----- ------- ----------- ---------
18,184,068 621,615 1,548 --
Amendments to the Company's Amended Stock Incentive Plan were
approved with the following voting results:
VOTES VOTES
CAST CAST
FOR AGAINST ABSTENTIONS
----- ------- -----------
17,031,059 1,770,095 4,500
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
3.1(ii) Second Amended and Restated By-laws
10.31 Amended Stock Incentive Plan
10.32 Employment Agreement between the Company and Allan
L. Shaw
27. Financial Data Schedule
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIATEL, INC.
By:/s/ Michael J. Mahoney
------------------------------------------
Michael J. Mahoney
President
By:/s/ Allan L. Shaw
------------------------------------------
Allan L. Shaw
Vice President, Finance; Treasurer and
Chief Financial Officer
Date: November 14, 1997
16
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- --- ----------- -------------
3.1(ii) Second Amended and Restated By-laws
10.31 Amended Stock Incentive Plan
10.32 Employment Agreement between the Company
and Allan L. Shaw
27. Financial Data Schedule
17
SECOND 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 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 to the transaction of any
<PAGE>
business because the meeting is not lawfully called or convened and such
objection occurs at the beginning of the meeting. 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.
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 or, in such officer's absence or inability to act and subject to the
provisions of Article III, the Chief Executive Officer, the President or the
Chief Operating Officer of the Corporation or, in the absence or inability of
each such officer 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
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<PAGE>
officers' absence or inability of each such officer 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 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.
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<PAGE>
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
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<PAGE>
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 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
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<PAGE>
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.
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<PAGE>
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
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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
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.
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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
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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,
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.
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SECTION 14. CHAIRMAN OF THE BOARD. The Board of Directors may designate
a Chairman of the Board. The Chairman of the Board shall preside at all meetings
of the Board. He shall perform such other duties as the Board may from time to
time assign to him.
SECTION 15. ORGANIZATION. 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 16. 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 17. 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 Directors caused by such
removal may be filled as provided in these Bylaws.
SECTION 18. 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.
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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
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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 Chief Executive Officer, a President, a Chief
Operating Officer, a Chief 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,
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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. 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 6. 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 7. CHIEF OPERATING OFFICER. The Chief Operating Officer,
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. In the
absence of the Chairman of the Board, the Chief Executive Officer and the
President, he shall preside at all meetings of the Board of Directors.
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SECTION 8. 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 9. 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 10. 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 11. 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
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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. 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 13. 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 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.
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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 meeting
of stockholders or any adjournment thereof, (ii) express consent to corporate
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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,
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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 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
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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.
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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 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
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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 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
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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.
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Certification:
The undersigned officer of Viatel, Inc.
(the "Company"), hereby certifies that
the foregoing Second Amended and Restated
Bylaws were adopted in accordance with
the resolutions adopted by the Board of
Directors of the Company by Unanimous
Written Consent dated September 22, 1997.
/s/ MICHAEL J.MAHONEY
- ---------------------------------------
Michael J. Mahoney
Chief Executive Officer and President
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VIATEL, INC.
AMENDED STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE, AND DEFINITIONS.
(a) There is hereby adopted the Amended 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 subparagraph (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, unless otherwise determined by the Board of
Directors, be administered by the Compensation Committee of the Board (the
"Committee"). The Committee shall consist of not less than two non-employee
director members within the meaning of the rules promulgated under Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 by all the members of the Committee, shall be the
valid acts of the Committee. If the Board does
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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 stockholder'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 2,333,000 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
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Agreement or a SAR Agreement (as defined in paragraph 8) through merger,
consolidation, reorganization, recapitalization, reincorporation, stock split,
stock 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
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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.
(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 stockholders, 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 stockholders 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
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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.
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
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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
stockholder 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
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
stockholders 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 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 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; 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.
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(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. STOCKHOLDER APPROVAL. This Plan shall only become effective with
regard to Incentive Stock Options upon its approval by a majority of the
stockholders voting (in person or by proxy) at a stockholders' 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 stockholders' meeting, but
until stockholder approval of the Plan is obtained, no Incentive Stock Option
shall be exercisable.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as
of November 1, 1997 by and between VIATEL, INC., a Delaware corporation with an
office at 800 Third Avenue, New York, New York 10022 (the "Company"), and ALLAN
L. SHAW, an individual currently residing at 87 Joyce Lane, Woodbury, New York,
11797 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Board of Directors (the "Board") desires to provide
certain incentive to Executive to remain in the Company's employ; and
WHEREAS, the Board and the Executive desire that Company employ the
Executive as the Vice President, Chief Financial Officer and Treasurer.
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) gross negligence in performing his
duties hereunder or dishonesty in the performance of his duties 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 (v) conviction of any
felony or a misdemeanor involving fraud, misrepresentation or dishonesty;
provided, however, that "Cause" shall be conclusively presumed not to exist
during the twelve month period commencing immediately after the date of any
Change of Control.
1.6 "Common Stock" shall mean the common stock, par value $.01 a
share, of the Company.
1.7 "Confidential Material" shall have the meaning set forth in
Section 4.2 hereof.
<PAGE>
1.8 "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.
1.9 "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), (A) 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.
1.10 "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.
1.11 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
1.12 "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) after a Change of Control, any breach of this
Agreement or of the Bonus 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.
1.13 "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.
1.14 "Performance Year" shall mean each calendar year beginning on
January 1 and ending on December 31.
1.15 "Person" shall mean any individual or entity, whether a
governmental or other agency or political subdivision thereof or otherwise.
1.16 "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.
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1.17 "Severance Period" shall mean the number of full calendar
months remaining in the Term on the date of any Termination.
1.18 "Severance Period Multiple" shall mean, the quotient obtained
by DIVIDING (i) the number of full calendar months otherwise remaining in the
Term on the date of Termination 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.
1.19 "Term" shall have the meaning set forth in Section 2.2
hereof.
1.20 "Termination" shall mean termination of Executive's employment
with the Company for any reason.
1.21 "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.
ARTICLE II
EMPLOYMENT AND TERM
2.1 EMPLOYMENT. The Executive shall be employed as the Vice
President, Chief Financial Officer and Treasurer, 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. The term (the "Term") of this Agreement shall commence on
the date hereof and shall terminate one (1) year from such date, unless
terminated earlier for Cause; PROVIDED, HOWEVER, that the Term shall
automatically renew for a one year period if a termination notice is not
provided at least four (4) months before the termination date of the Agreement.
Notwithstanding the foregoing, Executive's employment can not be terminated
durring the period commencing 6 months before and ending twelve-month period
after the date of any Change of Control.
2.3 DUTIES. The Executive 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>
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 $140,000, in accordance with the Company's regular payroll
practices. The Base Salary shall be increased in the sole and absolute
discretion of the Board.
3.2 BONUSES. Executive shall be eligible to receive an annual
Bonus Award. 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.
3.4 OTHER BENEFITS. In addition to the Base Salary and
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 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.
3.5 VESTING ON A CHANGE IN CONTROL. Notwithstanding anything to the
contrary contained in any other agreement, upon the occurrence of any Change in
Control, any outstanding option, restricted stock, stock appreciation right or
similar right, entitlement or payment shall become fully vested and shall no
longer be subject to any conditions for ownership.
<PAGE>
ARTICLE IV
COVENANTS
4.1 NON-LNTERFERENCE. During the Term and a period of one year
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.
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.
(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 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.
<PAGE>
(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
irrevocable 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.
4.4 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 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.
<PAGE>
ARTICLE V
TERMINATION
5.1 TERMINATION OF AGREEMENT. Except for those provisions of this
Agreement that survive Termination, this Agreement shall expire 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
(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.
<PAGE>
(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) 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.
<PAGE>
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:
at 87 Joyce Lane
Woodbury, New York, 11797
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 3.5, Article IV, Section 5.3 and Article VI of this Agreement shall
survive termination of this Agreement 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
-------------------------------
EXECUTIVE
/s/ ALLAN L. SHAW
-----------------------------------
<PAGE>
BONUS AGREEMENT
THIS BONUS AGREEMENT ("Agreement") is entered into on November
1, 1997 by and between VIATEL, INC., a Delaware corporation with an office at
800 Third Avenue, New York, New York 10022 (the "Company"), and ALLAN L. SHAW,
an individual currently residing at with an address at 87 Joyce Lane Woodbury,
New York 11797 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Compensation Committee of the Board of Directors
(the "Board") desires to provide incentives to Executive to remain in the
Company's employ; and
WHEREAS, the Board and the Executive desire that Company
employ the Executive as the Vice President, Finance and Chief Financial 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 August 1997, 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 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 all 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 EBITDA as compared to Projected EBITDA,
having been adjusted so that the total projected bonus payments for such year is
zero, is $(23,200,000), $(22,600,000) and $(8,600,000) for 1997, 1998 and 1999,
respectively.
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1997
VARIANCE IN EBITDA
-10% 0% 5% 10% 15% 20% 25%
OR OR OR OR BETTER OR BETTER OR BETTER OR BETTER
BETTER BETTER BETTER
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
ACTUAL 100%
OR ABOVE 0.5 0.6 0.7 0.8 0.9 1.0 1.0
---------------------------------------------------------------------------
REVENUE 110%
OR ABOVE 0.6 0.7 0.8 0.9 1.0 1.0 1.0
---------------------------------------------------------------------------
AS A 120%
OR ABOVE 0.7 0.9 0.9 1.0 1.0 1.0 1.0
---------------------------------------------------------------------------
PERCENT OF 130%
OR ABOVE 0.9 0.9 1.0 1.0 1.0 1.0 1.0
---------------------------------------------------------------------------
PROJECTED 140%
OR ABOVE 0.9 1.0 1.0 1.0 1.0 1.0 1.0
REVENUE
- ---------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1998
VARIANCE IN EBITDA
-10% 0% 5% 10% 15% 20% 25%
OR OR OR OR BETTER OR BETTER OR BETTER OR BETTER
BETTER BETTER BETTER
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
ACTUAL 100%
OR ABOVE 0.6 0.8 0.9 1.0 1.0 1.1 1.1
---------------------------------------------------------------------------
REVENUE 110%
OR ABOVE 0.8 0.9 1.0 1.0 1.1 1.1 1.1
---------------------------------------------------------------------------
AS A 120%
OR ABOVE 0.9 1.0 1.0 1.1 1.1 1.1 1.1
---------------------------------------------------------------------------
PERCENT OF 130%
OR ABOVE 1.0 1.0 1.1 1.1 1.1 1.1 1.1
---------------------------------------------------------------------------
PROJECTED 140%
OR ABOVE 1.0 1.1 1.1 1.1 1.1 1.1 1.1
REVENUE
---------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
1999
VARIANCE IN EBITDA
-10% 0% 5% 10% 15% 20% 25%
OR OR OR OR BETTER OR BETTER OR BETTER OR BETTER
BETTER BETTER BETTER
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
ACTUAL 100%
OR ABOVE 0.7 0.9 1.0 1.1 1.1 1.2 1.2
-----------------------------------------------------------------------------
REVENUE 110%
OR ABOVE 0.9 1.0 1.1 1.1 1.2 1.2 1.2
-----------------------------------------------------------------------------
AS A 120%
OR ABOVE 1.0 1.1 1.1 1.2 1.2 1.2 1.3
-----------------------------------------------------------------------------
PERCENT OF 130%
OR ABOVE 1.1 1.1 1.2 1.2 1.2 1.3 1.3
-----------------------------------------------------------------------------
PROJECTED 140%
OR ABOVE 1.1 1.2 1.2 1.2 1.3 1.3 1.3
REVENUE
- ---------------------------------------------------------------------------------------------------
</TABLE>
(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 a 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.
<PAGE>
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 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/ ALLAN L. SHAW
----------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,736,392
<SECURITIES> 13,856,976
<RECEIVABLES> 11,835,220
<ALLOWANCES> 1,050,000
<INVENTORY> 0
<CURRENT-ASSETS> 35,455,612
<PP&E> 40,680,813
<DEPRECIATION> 10,456,000
<TOTAL-ASSETS> 113,672,599
<CURRENT-LIABILITIES> 22,506,912
<BONDS> 86,701,324
0
0
<COMMON> 226,351
<OTHER-SE> 3,599,987
<TOTAL-LIABILITY-AND-EQUITY> 113,672,599
<SALES> 0
<TOTAL-REVENUES> 52,149,570
<CGS> 0
<TOTAL-COSTS> 44,946,680
<OTHER-EXPENSES> 31,852,488
<LOSS-PROVISION> 1,685,547
<INTEREST-EXPENSE> 9,229,738
<INCOME-PRETAX> (30,823,440)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,823,440)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,823,440)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)
</TABLE>
