SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN THE PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, For Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
VIATEL, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and state how it
was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
<PAGE>
(1) Amount previously paid. N/A
(2) Form, Schedule or Registration Statement no.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
<PAGE>
[VIATEL LOGO]
July 28, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Viatel, Inc., which will be held on Thursday, September 10,
1998, in the Whitney Room at the Hotel InterContinental, 111 East 48th Street,
New York, New York 10017, at 10:00 a.m., local time. Doors to the meeting will
open at 9:45 a.m.
The business to be considered and voted upon at the meeting is
explained in the accompanying Notice of Annual Meeting of Stockholders and Proxy
Statement.
Whether or not you plan to attend the Annual Meeting in person, it is
important that your shares of common stock be represented and voted at the
Annual Meeting. Accordingly, after reading the enclosed Notice of Annual Meeting
of Stockholders and Proxy Statement, please sign, date and return the enclosed
proxy card in the postage-paid envelope provided.
Thank you for your support of our Company.
Sincerely,
/s/ Michael J. Mahoney
Michael J. Mahoney
President and Chief Executive Officer
<PAGE>
VIATEL, INC.
800 Third Avenue
New York, New York 10022
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 10, 1998
---------------------
To the Stockholders of Viatel, Inc.:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of the stockholders
of Viatel, Inc., a Delaware corporation (the "Company"), will be held on
Thursday, September 10, 1998, in the Whitney Room at the Hotel
InterContinental, 111 East 48th Street, New York, New York 10017, at 10:00
a.m., local time, for the following purposes:
1. To elect two Class B directors to hold office until the 2001
Annual Meeting of Stockholders;
2. To approve an amendment to the Company's Amended Stock
Incentive Plan to increase the number of shares of the
Company's common stock available for future grants;
3. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of
authorized shares of preferred stock available for issuance by
the Company without further stockholder approval;
4. To ratify the appointment of KPMG Peat Marwick LLP as
independent auditors for the Company for fiscal year 1998; and
5. To transact such other business as may properly be presented
at the 1998 Annual Meeting and at any adjournments or
postponements thereof.
The Board of Directors has fixed the close of business on July 24, 1998
as the record date for the purpose of determining stockholders who are entitled
to notice of and to vote at the 1998 Annual Meeting and any adjournments or
postponements thereof. A list of such stockholders will be available during
regular business hours at the Company's office, 800 Third Avenue, New York, New
York 10022 for the ten days before the meeting, for inspection by any
stockholder for any purpose germane to the meeting.
By Order of the Board of Directors,
/s/ Sheldon M. Goldman
Sheldon M. Goldman
Secretary
New York, New York
July 28, 1998
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE 1998 ANNUAL MEETING. IF
YOU ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON IF YOU WISH, EVEN IF
YOU PREVIOUSLY RETURNED YOUR PROXY.
- --------------------------------------------------------------------------------
<PAGE>
VIATEL, INC.
800 Third Avenue
New York, New York 10022
-----------------------
PROXY STATEMENT
-----------------------
This Proxy Statement is being furnished to stockholders of Viatel,
Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Company's Board of Directors (the "Board") from
holders of the outstanding shares of the Company's common stock, $0.01 par value
per share (the "Common Stock"), for use at the 1998 Annual Meeting of
Stockholders of the Company to be held on Thursday, September 10, 1998, in the
Whitney Room at the Hotel InterContinental, 111 East 48th Street, New York, New
York 10017, at 10:00 a.m., local time, and at any adjournments or postponements
thereof (the "Annual Meeting"), for the purpose of considering and acting upon
the matters set forth herein.
Only holders of record of Common Stock as of the close of business on
July 24, 1998 (the "Record Date") are entitled to notice of, and to vote at, the
Annual Meeting and any adjournments or postponements thereof. At the close of
business on such date, the Company had 23,124,489 shares of Common Stock issued
and outstanding. Holders of Common Stock are entitled to one vote on each matter
considered and voted upon at the Annual Meeting for each share of Common Stock
held of record as of the Record Date. Holders of Common Stock may not cumulate
their votes for the election of directors. Shares of Common Stock represented by
a properly executed proxy, if such proxy is received in time and not revoked,
will be voted at the Annual Meeting in accordance with the instructions
indicated in such proxy. If no instructions are indicated, shares represented by
proxy will be voted "FOR" the election, as directors of the Company, of the two
nominees named in the proxy to serve until the 2001 Annual Meeting of
Stockholders, "FOR" the amendment to the Company's Amended Stock Incentive Plan,
"FOR" the amendment to the Company's Amended and Restated Certificate of
Incorporation, "FOR" the ratification of the appointment of KPMG Peat Marwick
LLP as independent auditors for the Company for fiscal year 1998 and in the
discretion of the proxy holders as to any other matter which may properly be
presented at the Annual Meeting or any adjournments or postponements thereof.
The Proxy Statement and the accompanying proxy card are being mailed to
Company stockholders on or about July 28, 1998.
Any holder of Common Stock giving a proxy in the form accompanying this
Proxy Statement has the power to revoke the proxy prior to its use. A proxy can
be revoked (i) by an instrument of revocation delivered prior to the Annual
Meeting to the Secretary of the Company, (ii) by a duly executed proxy bearing a
later date or time than the date or time of the proxy being revoked, or (iii) at
the Annual Meeting if the stockholder is present and elects to vote in person.
Mere attendance at the Annual Meeting will not serve to revoke the proxy. All
written notices of revocation of proxies should be addressed as follows: Viatel,
Inc., 800 Third Avenue, New York, New York 10022, Attention: Sheldon M. Goldman,
Secretary.
<PAGE>
In determining the presence of a quorum at the Annual Meeting,
abstentions and broker non-votes (votes withheld by brokers in the absence of
instructions from street-name holders) will be included. The Company's Second
Amended and Restated By-laws (the "By-laws") provide that directors are 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 matter and all other matters
are approved if the votes cast in favor of the action exceed the votes cast
against the action (unless the matter is one for which the Delaware General
Corporation Law, the Company's Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") or the By-laws require a greater vote).
Therefore, with respect to any matter requiring approval of a majority of the
votes cast, abstentions will be excluded when calculating the number of votes
required for stockholder action but, with respect to the election of directors,
abstentions will have the same effect as a vote against the matter. In all
instances, broker non-votes will be excluded from the calculation.
PROPOSAL 1 - ELECTION OF DIRECTORS
The number of directors of the Company, as determined by the Board, is
seven. The Board currently has two vacancies. The Board consists of three
classes: Class A, Class B and Class C. One of the three classes, comprising
one-third of the directors, is elected each year to succeed the directors whose
terms are expiring. Directors hold office until the annual meeting for the year
in which their terms expire and until their successors are elected and qualified
unless, prior to that date, they have resigned, retired or otherwise left
office. In accordance with the Certificate of Incorporation, Class B directors
are to be elected at the Annual Meeting, Class C directors are to be elected at
the 1999 Annual Meeting of Stockholders and Class A directors are to be elected
at the 2000 Annual Meeting of Stockholders.
At the Annual Meeting, two Class B directors are to be elected to the
Board, each to serve until the Annual Meeting of Stockholders to be held in
2001. The nominees for election at the Annual Meeting are Francis J. Mount and
Paul G. Pizzani. Each nominee is presently a director of the Company. If either
nominee is unable or unwilling to serve as a director, proxies may be voted for
a substitute nominee designated by the present Board. The Board has no reason to
believe that either of the nominees will be unable or unwilling to serve as a
director.
The following table sets forth the name and age (as of the date of the
Annual Meeting) of the directors, the class to which each director has been
nominated for election or elected, their principal occupations at present, the
positions and offices, if any, held by each director with the Company in
addition to the position as a director, and the period during which each has
served as a director of the Company.
2
<PAGE>
<TABLE>
<CAPTION>
Served as a
Name Age Principal Occupation - Position Held Director Since
- ---- --- ------------------------------------ --------------
CLASS A - 2000
<S> <C> <C> <C>
Allan L. Shaw.................. 34 Senior Vice President, Finance and Chief Financial 1996
Officer of the Company
CLASS B - 1998
Francis J. Mount............... 56 Senior Vice President, Engineering and Network Operations 1998
Paul G. Pizzani................ 38 Managing Director, Wasserstein Perella Emerging Markets 1996
L.P.
CLASS C - 1999
Michael J. Mahoney............. 39 President and Chief Executive Officer of the Company 1995
John G. Graham................. 60 Senior Vice President and Chief Financial Officer of GPU, 1998
Inc.
</TABLE>
Class A Directors
ALLAN L. SHAW. Mr. Shaw has served as a director of the Company since June
1996. Mr. Shaw has served as Senior Vice President, Finance of the Company since
December 1997 and as Chief Financial Officer of the Company since January 1996.
Mr. Shaw was Vice President, Finance of the Company from January 1996 to
December 1997 and Treasurer of the Company from September 1996 to April 1998.
Prior to becoming the Company's Vice President, Finance and Chief Financial
Officer, Mr. Shaw served as Corporate Controller of the Company from November
1994 to December 1995. From August 1987 to November 1994, Mr. Shaw was employed
by Deloitte & Touche LLP, most recently as a Manager. Mr. Shaw is a Certified
Public Accountant and a member of the American Institute, United Kingdom Society
and New York State Society of Certified Public Accountants.
Class B Directors
PAUL G. PIZZANI. Mr. Pizzani has served as a director of the Company since
April 1996. Mr. Pizzani is currently a Managing Director of Wasserstein Perella
Emerging Markets L.P. where he has been employed since November 1997. Prior to
November 1997, Mr. Pizzani was associated with COMSAT Corporation and its
subsidiaries in various capacities from November 1985 to October 1997, most
recently as Treasurer of COMSAT Corporation.
3
<PAGE>
FRANCIS J. MOUNT. Mr. Mount has served as director of the Company since
June 1998. Mr. Mount has served as Senior Vice President, Engineering and
Network Operations of the Company since December 1997. Prior to joining the
Company, Mr. Mount was Senior Vice President, Business Initiatives of Primus
Telecommunications Group from October 1997 to December 1997, responsible for
Internet telephony, European operations and network quality. From June 1996 to
October 1997, Mr. Mount was Executive Vice President and Chief Operating Officer
of Telepassport, Inc. and was Vice President and Chief Operating Officer of
Telepassport, Inc. from January 1996 to June 1997. From 1990 to January 1996,
Mr. Mount was employed by MCI, most recently as Director, Global Technical
Services, responsible for international development, alliance management and all
technical operations and services outside the United States, including the
construction and maintenance of large networks such as Hyperstream, "Concert"
and private networks for large accounts such as J.P. Morgan, Proctor and Gamble
and I.B.M. From March 1967 to December 1989, Mr. Mount was employed by AT&T in
various positions.
Class C Directors
MICHAEL J. MAHONEY. Mr. Mahoney has served as a director of the Company
since 1995. Mr. Mahoney has served as Chief Executive Officer of the Company
since September 1997 and as President of the Company since September 1996.
Mr. Mahoney was also Chief Operating Officer of the Company from September 1996
to September 1997, Executive Vice President, Operations and Technology of the
Company from July 1994 to September 1996 and Managing Director, Intercontinental
of the Company from January 1996 to September 1996. From August 1990 to June
1994, Mr. Mahoney was employed by SITEL Corporation, a teleservices company,
most recently as President, Information Services Group. From August 1987 to
August 1990, Mr. Mahoney was employed by URIX Corporation, a manufacturer of
telecommunications hardware and software, in a variety of sales and marketing
positions.
JOHN G. GRAHAM. Mr. Graham has served as a director of the Company since
June 1998. Mr. Graham is currently the Senior Vice President and Chief Financial
Officer of GPU, Inc., a domestic and international electric utility and
independent power generation company. Mr. Graham has been employed by GPU since
1976 and has held his current position since 1987. From 1970 to 1976, Mr. Graham
was a Partner in the law firm of Ruprecht and Graham, Newark, New Jersey. From
1993 to 1997, Mr. Graham served as a Director and Chairman of the Audit
Committee of Edisto Resources, Inc., which was engaged in the exploration,
production and marketing of natural gas and oil.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE ELECTION OF FRANCIS J.
MOUNT AND PAUL G. PIZZANI AS CLASS B DIRECTORS.
4
<PAGE>
GENERAL INFORMATION RELATING TO THE BOARD
The Board
The business and affairs of the Company are managed by the Board. To
assist it in carrying out its duties, the Board has delegated certain authority
to three committees. The Board held three meetings in 1997. Each member of the
Board attended at least 75% of the aggregate meetings of the Board and the
committees thereof of which he was a member during 1997.
Committees of the Board
During 1997, the standing committees of the Board consisted of an Audit
Committee, a Compensation Committee and a Directors Committee (established in
May 1997). Prior to the establishment of the Directors Committee in May 1997,
the Board did not have a nominating committee or any committee performing
similar functions and all matters which would be considered by such a committee
were acted upon by the full Board. The Company's By-laws provide, in general,
that if a stockholder intends to propose business or make a nomination for the
election of directors at an annual meeting, the Company must receive notice of
such intention at least 120 days prior to the first anniversary of the preceding
year's annual meeting. If the date of the meeting is changed more than 30 days
from the prior anniversary date, notice must be delivered ten days following the
day on which notice of the annual meeting is first mailed to stockholders. The
notice must include all information relating to the proposed nominee required by
the Securities and Exchange Commission (the "Commission") to be disclosed in
solicitations of proxies for election of directors or, in the case of a
proposal, a brief description of the proposal, and any material interest of the
stockholder in the proposal. The notice must also include (i) the name and
address of the stockholder giving the notice and any other stockholders known by
such stockholder to be supporting the nominees or proposal and (ii) the class
and number of shares of the Company that are owned beneficially by such
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee or proposal. The foregoing is only a summary of
detailed provisions of the By-laws and is qualified by reference to the text
thereof.
During 1997, the Audit Committee, which consisted of Messrs. James
Peet, Pizzani and Shaw, held two meetings. The Audit Committee recommends to the
Board the firm of independent public accountants to audit the Company's
financial statements, reviews with management and the independent accountants
the operating results, considers the adequacy of internal controls and audit
procedures of the Company and reviews the nonaudit services to be performed by
the independent accountants.
During 1997, the Compensation Committee, which consisted of Messrs.
Peet, Pizzani and Mahoney, held three meetings. The Compensation Committee
reviews general policy matters relating to compensation and benefits of
employees and officers of the Company and administers the Stock Incentive Plan
(as hereinafter defined).
During 1997, the Directors Committee, which consisted of Messrs.
Varsavsky, Mahoney, Peet and Pizzani held one meeting. The Directors Committee
searches for and interviews prospective directors, makes recommendations to the
5
<PAGE>
Board regarding the size of the Board and candidates to fill vacancies on the
Board, including vacancies created by reason of an increase in the size of the
Board and nominates candidates for election to the Board. Any recommendations by
stockholders should be submitted in writing to the Secretary of the Company in
compliance with the notice requirements described above. Such recommendations
should be sent to the Company at 800 Third Avenue, New York, New York 10022,
Attention: Secretary.
Compensation of Directors
Effective June 1998, the Company increased the annual fee paid to
non-employee directors from $12,000 to $30,000 (paid $15,000 in cash, in
quarterly installments, and $15,000 in restricted shares of Common Stock),
increased from $1,000 to $1,200 the meeting fee paid to directors for every
board meeting attended and each committee meeting attended and held separately
and increased from $500 to $600 the fee paid to directors for each board meeting
or committee meeting participated in by telephone. All directors continue to be
reimbursed for out-of-pocket expenses incurred in attending Board and committee
meetings. Directors who are also employees of the Company are not separately
compensated for serving on the Board.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, any person acting
as the Company's Chief Executive Officer during 1997, regardless of the amount
of compensation, and the other most highly compensated executive officers
of the Company during 1997 whose aggregate cash and cash equivalent compensation
exceeded $100,000 (collectively, the "Named Executives").
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------ ----------------------
Other
Annual Restricted Securities
Compensation Stock Underlying All Other
Name and Principal Position Year Salary($) Bonus($) ($)(1) Awards ($) Options(#) Compensation
- --------------------------- ---- --------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Mahoney(2),....... 1997 $212,500 $125,000 -- -- -- $9,500(4)
President and Chief 1996 166,458 183,129 $102,825 $299,977(3) 253,333 --
Executive Officer 1995 123,000 117,607 52,715 -- 23,333 --
Allan L. Shaw(5),............ 1997 140,000 60,000 -- -- 60,666 8,400(4)
Senior Vice President, 1996 108,333 115,000 -- -- 43,333 --
Finance;
Chief Financial
Officer and Treasurer
Lawrence G. Malone(5),....... 1997 141,750 35,588 -- -- 73,533 8,505(4)
Senior Vice President, 1996 98,333 88,147 -- -- 33,333 --
Global Sales and Marketing
Sheldon M. Goldman(6),....... 1997 143,750 60,000 -- -- 40,200 9,000(4)
Senior Vice President, 1996 86,354 100,000 -- -- 20,000 --
Business Affairs and
General Counsel
Martin Varsavsky(2),......... 1997 271,875 -- 73,482 -- -- --
Chairman and Chief 1996 350,000 200,000 76,476 -- -- --
Executive Officer 1995 329,673 100,000 99,813 -- -- --
- -----------
</TABLE>
6
<PAGE>
(1) The amount reflected for Mr. Mahoney (i) for 1996, includes $32,416 of
tax equalization payments, $28,227 of relocation expense reimbursement
associated with Mr. Mahoney's repatriation from London to New York and
$9,263 of tax gross ups and (ii) for 1995, includes $23,834 of housing
allowance expense. The amount reflected for Mr. Varsavsky (i) for 1997,
includes $43,279 of housing allowance expense, $16,395 for housing
related expenses and $9,069 of tuition reimbursement for his children's
schooling, (ii) for 1996, includes $67,375 of housing allowance expense
and $8,180 of tuition reimbursement for his children's schooling and
(iii) for 1995, includes $35,880 of housing allowance expense and
$47,500 of relocation expense reimbursement.
(2) Mr. Mahoney was appointed as Chief Executive Officer in September 1997
following Mr. Varsavsky's resignation.
(3) Calculated based on a value of $9.00 per share, the fair market value
of the Common Stock on December 31, 1996.
(4) Represents matching contributions under the Company's 401(k) plan.
(5) The executive was not an executive officer of the Company during 1995.
(6) Mr. Goldman began his employment with the Company in March 1996.
Stock Option Grants
The following table sets forth information regarding grants of options
to purchase Common Stock made by the Company during the fiscal year ended
December 31, 1997 to each of the Named Executives. No stock appreciation rights
("SARs") were granted during 1997.
<TABLE>
Option Grants in 1997
Individual Grants
---------------------------------------------------
Potential Realizable Value
at Assumed Annual
Number of Percent of Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term (3)
Options Employees in Price Expiration ---------------------
Name Granted (#) 1997 (1) ($/Share)(2) Date (5%) (10%)
- ---- ----------- -------------- ------------ ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Mahoney.............. -- -- -- -- -- --
Allan L. Shaw................... 60,666(4)(5) 14.2% $9.00 01/01/07 $343,373 $870,174
Lawrence G. Malone.............. 40,200(4)(5) 9.4 9.00 01/01/07 227,534 576,616
33,333(4)(6) 7.8 6.50 05/27/07 136,259 345,307
Sheldon M. Goldman.............. 40,200(4)(5) 9.4 9.00 01/01/07 227,534 576,616
Martin Varsavsky................ -- -- -- -- -- --
- -----------
</TABLE>
(1) The Company granted options to purchase a total of 428,194 shares of
Common Stock during 1997.
(2) The exercise price was equal to the fair market value of the shares of
Common Stock underlying the options on the grant date.
(3) Amounts reported in these columns represent amounts that may be
realized upon exercise of options immediately prior to the expiration
of their term assuming the specified compounded rates of appreciation
(5% and 10%) on the Common Stock over the term of the options. These
assumptions are based on rules promulgated by the Commission and do not
reflect the Company's estimate of future stock price appreciation.
Actual gains, if any, on the stock option exercises and Common Stock
holdings are dependent on the timing of such exercise and the future
performance of the Common Stock. There can be no assurance that the
rates of appreciation assumed in this table can be achieved or that the
amounts reflected will be received by the option holder.
7
<PAGE>
(4) In the event of certain Corporate Transactions (as defined) involving
the Company, all unvested options become fully vested. See "-- Stock
Incentive Plan." The options granted to Messrs. Shaw and Goldman also
vest upon a Change of Control (as defined). See "-- Employment
Agreements."
(5) Options vested and became exercisable as to 33.34% on January 1,
1998 and will vest and become exercisable as to an additional 33.33% on
each anniversary thereafter.
(6) Options vested and became exercisable as to 33.34% on May 27, 1998 and
will vest and become exercisable as to an additional 33.33% on each
anniversary thereafter.
Effective January 1, 1998, the Company granted stock options to
executive officers as follows: Michael J. Mahoney, 90,000 options at an exercise
price of $5.00 per share and 90,000 options at an exercise price of $5.50 per
share; Allan L. Shaw, 60,000 options at an exercise price of $5.00 per share and
60,000 options at an exercise price of $5.50 per share; Lawrence G. Malone,
27,000 options at an exercise price of $5.00 per share and 60,000 options at an
exercise price of $5.50 per share; Sheldon M. Goldman, 60,000 options at an
exercise price of $5.00 per share and 60,000 options at an exercise price of
$5.50 per share; and Francis J. Mount, 40,000 options at an exercise price of
$5.00 per share and 60,000 options at an exercise price of $5.50 per share.
The Compensation Committee has determined that it would be in the best
interest of the Company and its stockholders to increase the number of shares
available for grant under the Stock Incentive Plan in order to enable the
Company to grant additional stock options to the Company's executive officers.
If Proposal 2 is approved by stockholders at the Annual Meeting, the
Compensation Committee intends to grant to its executive officers additional
stock options.
Year-End Option Values
The following table sets forth information regarding the number and
year end value of unexercised options held at December 31, 1997 by each of the
Named Executives. No SARs were exercised by the Named Executives during fiscal
1997.
<TABLE>
<CAPTION>
Fiscal 1997 Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised "In-the-Money"
Options at Fiscal Options at Fiscal
Year-End (#) Year-End ($)
Name Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ---- ------------------------- -----------------------------
<S> <C> <C>
Michael J. Mahoney....................... 181,980/118,019 $29,400/$0
Allan L. Shaw............................ 62,443/54,889 0/0
Lawrence G. Malone....................... 45,622/71,244 0/0
Sheldon M. Goldman....................... 26,734/33,466 0/0
Martin Varsavsky......................... 0/0 0/0
- ------------
</TABLE>
8
<PAGE>
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set
forth represent the difference between $5.00 per share, the fair market
value of the Common Stock issuable upon exercise of options at December
31, 1997 and the exercise price of the option, multiplied by the
applicable number of options.
Employment Agreements
The Company has executed employment agreements with Messrs. Mahoney,
Shaw and Goldman, pursuant to which Mr. Mahoney serves as President and Chief
Executive Officer of the Company, Mr. Shaw serves as Senior Vice President and
Chief Financial Officer and Treasurer of the Company and Mr. Goldman serves as
Senior Vice President, Business Affairs and General Counsel of the Company
(collectively, the "Employment Agreements"). The term of the Mahoney Employment
Agreement extends for a period of three years and the term of the Shaw and
Goldman Employment Agreements extend for a period of two years, in each case
unless earlier terminated in accordance with the terms thereof. Pursuant to the
respective Employment Agreement, Mr. Mahoney is entitled to receive an annual
base salary of $300,000 (subject to inflationary adjustments), Mr. Shaw is
entitled to receive an annual base salary of $175,000 and Mr. Goldman is
entitled to receive an annual base salary of $185,000, subject, in each case, to
increases approved from time to time by the Board. In addition, Mr. Mahoney's
Employment Agreement provides for an annual cash bonus payment equal to 70% of
his base salary multiplied by a bonus multiple ranging from 0.6 to 2.0
determined based upon a comparison of actual versus projected EBITDA and revenue
figures and each of Messrs. Shaw's and Goldman's Employment Agreement provides
for an annual cash bonus payment equal to 50% of their base salary multiplied by
a bonus multiple ranging from 0.6 to 2.0 determined based upon a comparison of
actual versus projected EBITDA and revenue figures. Each of the Employment
Agreements also provides that the executive will be entitled to receive annual
grants of stock options or restricted stock in amounts to be determined by the
Board in its sole and absolute discretion and provides that following a Change
of Control (as defined therein), the Company will be obligated to pay the
executive an amount equal to the Severance Amount (as defined therein) if the
executive chooses to terminate his employment and include a non-competition
covenant. Each of the Employment Agreements also contains a prohibition on the
solicitation of Company employees.
For purposes of the Employment Agreements, "Change of Control" is
defined to mean such time as (i) a "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the Exchange Act), becomes the ultimate
"beneficial owner" (as defined in Rule 13d-3 of the Exchange Act) of more than
50% of the total voting power of the then outstanding voting stock of the
Company on a fully diluted basis or (ii) individuals who at the beginning of any
period of two consecutive calendar years constituted the Board (together with
any new directors whose election by the Board or whose nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds of
the members of the Board then still in office who either were members of the
Board at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the members of the Board then in office.
9
<PAGE>
Stock Incentive Plan
The Company has adopted the Amended Stock Incentive Plan (the "Stock
Incentive Plan") under which "nonqualified" stock options ("Nonqualified Stock
Options") to acquire shares of Common Stock may be granted to employees,
directors and consultants of the Company and "incentive" stock options
("Incentive Stock Options") to acquire shares of Common Stock may be granted to
employees, including employee-directors. The Stock Incentive Plan also provides
for the grant of SARs and shares of restricted Common Stock to the Company's
employees, directors and consultants.
The Stock Incentive Plan currently provides for the issuance of up to a
maximum of 2,566,666 shares of Common Stock and is administered by the
Compensation Committee which determines which employees, officers, directors,
independent contractors and consultants of the Company will receive grants, the
amount of any grant and the terms and conditions (including any restrictions) of
such grant.
The Stock Incentive Plan provides that outstanding options, restricted
shares of Common Stock or SARs vest in their entirety and become exercisable, or
with respect to shares of restricted Common Stock, are released from
restrictions on transfer and repurchase rights, in the event of a "Corporate
Transaction." For purposes of the Stock Incentive Plan, a Corporate Transaction
includes any of the following stockholder-approved transactions to which the
Company is a party: (i) a merger or consolidation in which the Company is not
the surviving entity, other than a transaction the principal purpose of which is
to change the state of the Company's incorporation, or a transaction in which
the Company's stockholders immediately prior to such merger or consolidation
hold (by virtue of securities received in exchange for their shares in the
Company) securities of the surviving entity representing more than 50.0% of the
total voting power of such entity immediately after such transaction; (ii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company unless the Company's stockholders immediately prior to such sale,
transfer or other disposition hold (by virtue of securities received in exchange
for their shares in the Company) securities of the purchaser or other transferee
representing more than 50.0% of the total voting power of such entity
immediately after such transaction; or (iii) any reverse merger in which the
Company is the surviving entity but in which the Company's stockholders
immediately prior to such merger do not hold (by virtue of their shares in the
Company held immediately prior to such transaction) securities of the Company
representing more than 50.0% of the total voting power of the Company
immediately after such transaction. For a description of the terms of the
proposed amended Stock Incentive Plan, see Proposal No. 2.
Compensation Committee Interlocks and Insider Participation
During 1997, the members of the Compensation Committee were Messrs.
Peet, Pizzani and Mahoney. Mr. Mahoney is the Company's President and Chief
Executive Officer. None of the executive officers of the Company currently
serves on the compensation committee of another entity or any other committee of
the board of directors of another entity performing functions similar to the
Compensation Committee. No interlocking relationships exist between the
Company's Board or its Compensation Committee and the board of directors or
compensation committee of any other company.
10
<PAGE>
SHAREHOLDERS AGREEMENTS. S-C V-Tel and Martin Varsavsky are parties to
a shareholders' agreement (the "S-C V-Tel Shareholders Agreement") which
provides that, in certain instances, if Mr. Varsavsky and Juan Manuel Aisemberg
propose to sell 20.0% or more of the aggregate number of shares of Common Stock
beneficially owned by them to any person or "group" (within the meaning of
Section 13(d) or 14(d)(2) of the Exchange Act), they shall cause S-C V-Tel,
COMSAT International Inc. ("COMSAT") and certain other stockholders to have the
right to sell its shares of Common Stock in such a transaction on a pro rata
basis with Messrs. Varsavsky and Aisemberg, for the same consideration per share
and on the same terms as Mr. Varsavsky.
On April 5, 1994, Messrs. Varsavsky and Aisemberg and COMSAT entered
into a shareholders' agreement (as subsequently amended, the "COMSAT
Shareholders Agreement"). Pursuant to the terms of the COMSAT Shareholders
Agreement, so long as COMSAT beneficially owns at least 10.0% (subject to
certain adjustments) of the issued and outstanding shares of Common Stock on a
fully diluted basis, COMSAT is entitled to representation on the Company's Board
of Directors in proportion to its percentage ownership of Common Stock, subject
to a minimum of one seat, and to designate one member of an Executive Committee
of the Board if any such committee is established. COMSAT currently holds less
than 10.0% of the outstanding Common Stock.
VOTING AGREEMENT. S-C V-Tel and COMSAT are parties to a voting
agreement (the "Voting Agreement"), pursuant to which, at all times that either
S-C V-Tel or COMSAT is entitled to nominate directors to the Company's Board the
other party is required to vote its respective shares of Common Stock in favor
of the first party's nominees. The Voting Agreement remains in effect until the
earlier of the dissolution of the Company or the date on which either S-C V-Tel
or COMSAT no longer owns any shares of Common Stock. See "Certain Transactions
- -- S-C V-Tel Investments, L.P.," and "Certain Transactions -- COMSAT
Investments, Inc." for a description of the registration rights held by each of
S-C V-Tel and COMSAT.
11
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 1997, the members of the Compensation Committee were Messrs.
Peet, Pizzani and Mahoney. Mr. Peet resigned his directorship in May 1998. As a
result of his resignation, Mr. Peet is not a signatory this report.
Executive Compensation Policy
The Company's compensation program is designed to attract, motivate,
reward and retain executive personnel capable of making significant
contributions to the long-term success of the Company. During 1997, the
Company's compensation program consisted of base salary, annual incentive
bonuses and stock option grants. Base salary provides the foundation for the
Company's executive pay, its purpose is to compensate the executive for
performing his basic duties. The purpose of annual incentive bonuses is to
provide rewards for favorable performance and achievement of intermediate-term
objectives while the purpose of stock option grants is to provide incentives and
rewards for long-term performance and to motivate long-term strategic planning.
BASE SALARY. Base salaries for the Company's executive officers are set
annually subject, in certain cases, to certain minimum requirements established
under the executives' employment agreement. See "Executive Compensation --
Employment Agreements." During 1997, the Company did not employ a formula
approach that links cash compensation to corporate performance nor did it
utilize any formal survey or other compilation of empirical data on executive
compensation paid by other companies. Instead, executive compensation was
determined based on a number of subjective factors, including individual
responsibilities, performance, contribution and experience as well as the
Company's performance as compared with the prior year and general economic
factors. The base salary of $212,500 paid to Mr. Mahoney and $271,875 paid to
Mr. Varsavsky during 1997 was contractually based.
INCENTIVE BONUSES. The Company's executive officers and certain other
officers are eligible to receive annual incentive bonuses which are linked to
the financial and operating performance of the Company and the individual's
performance. Certain executive officers are assigned an individual incentive
target, which represents the amount that would be payable to the executive if
performance goals were met. The incentive targets range from 20% to 100% of base
salary. Mr. Mahoney received a $125,000 bonus in 1997 and Mr. Varsavsky received
no incentive bonus payment during such fiscal year. The incentive bonus paid to
Mr. Mahoney was determined based on a number of factors including the additional
responsibilities which he assumed upon becoming Chief Executive Officer, the
further expansion of the Company's European operations and the strategic
guidance provided in connection with the development of the Company's fiber
optic project known as "Circe".
Stock Options. The Company's compensation program also utilizes stock
options which are intended to provide additional incentive to increase
stockholder value. All stock option awards are granted with an exercise price at
least equal to 100% of fair market value of the Common Stock on the date of
grant and generally vest in increments of one-third. Currently, no specific
12
<PAGE>
formula is used to determine option awards to employees but instead awards are
based on a subjective evaluation of each individual's overall past and expected
future contribution to the Company. Neither Mr. Mahoney nor Mr. Varsavsky
received a grant of stock options during 1997.
Section 162(m) of the Internal Revenue Code
In connection with making decisions with respect to executive
compensation, the Compensation Committee has taken into account, as one of the
factors which it considers, the provisions of Section 162(m) of the Internal
Revenue Code (the "Code"), which limits the deductibility by the Company of
certain categories of compensation in excess of $1.0 million paid to certain
executive officers.
Respectfully Submitted,
Paul G. Pizzani
Michael J. Mahoney
13
<PAGE>
CERTAIN TRANSACTIONS
S-C V-Tel Investments, L.P.
Pursuant to the terms of a stock purchase agreement, dated September
30, 1993 (as subsequently amended, the "S-C V-Tel Stock Purchase Agreement"),
S-C V-Tel purchased 1,695,532 shares of Common Stock on October 1, 1993 and
2,739 shares of Common Stock on December 15, 1993 for an aggregate purchase
price of $5.0 million (the "S-C V-Tel Shares"). The S-C V-Tel Stock Purchase
Agreement provides that, among other things, after April 16, 1997, S-C V-Tel has
the right to demand registration under the Securities Act of 1933, as amended
(the "Securities Act") of the S-C V-Tel Shares. Such demand right must be
exercised for at least 30.0% and no more than 70.0% of the S-C V-Tel Shares then
owned by S-C V-Tel. No earlier than six months after the effective date of its
first demand registration, S-C V-Tel may request a second demand registration
for any remaining S-C V-Tel Shares. The expenses of such demand registrations,
excluding any underwriter's commissions and discounts relating to the sale of
the S-C V-Tel Shares, will be paid by the Company. In addition, if the Company
proposes to register any of its securities under the Securities Act, S-C V-Tel
has the right, on up to four occasions, to include in such registration a
maximum of 33-1/3% of the S-C V-Tel Shares it then owns. The expenses of any
such "piggy-back" registration, excluding any underwriter's commissions and
discounts relating to the sale of the S-C V-Tel Shares and the fees and
disbursements of S-C V-Tel's legal counsel, will be paid by the Company. S-C
V-Tel is entitled to sell or transfer any of the S-C V-Tel Shares, without the
consent of the Company, provided that the transferee is not in competition with,
or does not otherwise have interests adverse to, the Company. See "Executive
Compensation -- Compensation Committee Interlocks and Insider Participation --
Shareholders Agreements" for a description of certain tag-along rights of S-C
V-Tel.
COMSAT Investments, Inc.
Pursuant to the terms of a stock purchase agreement, dated April 5,
1994 (as subsequently amended, the "COMSAT Purchase Agreement"), COMSAT
purchased 2,140,539 shares of Common Stock for a purchase price of $8.0 million
(the "COMSAT Shares"). Pursuant to the terms of the COMSAT Purchase Agreement,
COMSAT has been granted the same demand and piggyback registration rights as S-C
V-Tel. The COMSAT Purchase Agreement further provides that COMSAT may not
transfer any COMSAT Shares to any transferee without first offering such shares
to the Company if, following such transfer, such transferee would own 20.0% or
more of the then outstanding shares of Common Stock. In addition, COMSAT has
agreed that it will not acquire more than 30.0% of the shares of Common Stock
outstanding at any time except in certain circumstances relating to changes in
the percentage of the outstanding Common Stock owned by Mr. Varsavsky. Prior to
the sale of all or substantially all of the assets of the Company or the
consolidation or merger of the Company with any person in which the Company is
not the surviving entity, COMSAT has certain rights to invest in any joint
venture proposed by the Company. See "Executive Compensation -- Compensation
Committee Interlocks and Insider Participation -- Shareholders Agreements" for a
description of certain voting rights held by COMSAT.
14
<PAGE>
Varsavsky/JazzTel
One June 3, 1998, the Company entered into a Mutual Cooperation
Agreement with Mr. Varsavsky and Jazz Telecom S.A. ("JazzTel") which provides
for (i) the joint construction of a submarine cable system between Spain and the
United Kingdom, (ii) the purchase by the Company of U.S. $6.0 million of JazzTel
common stock, (iii) the purchase of international switched minutes by JazzTel
and the Company from the other party and the Company's agreement to transit at
least 1/3 of its Spain domestic switched minute traffic over JazzTel's network
assuming the prices charged by JazzTel are competitive, (iv) the sale by each of
JazzTel and the Company to the other of indefeasible rights of use for fixed
prices, (v) certain lockup arrangements regarding shares of Common Stock owned
by Mr. Varsavsky and certain registration obligations and rights with respect to
such shares, (vi) mutual releases and (vii) liquidated damages in the event that
Mr. Varsavsky violates certain provisions of the agreement. The Company's
obligations to invest in JazzTel and its obligations to jointly construct the
proposed submarine cable system are conditioned upon, among other things,
JazzTel raising, through the capital markets, certain specified dollar amounts.
15
<PAGE>
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock, as of July 15, 1998, by (i) each
person known to the Company to own beneficially more than 5% of the Company's
outstanding shares of Common Stock, (ii) each director of the Company, (iii)
each of the Named Executives, and (iv) all executive officers and directors of
the Company, as a group. All information with respect to beneficial ownership
has been furnished to the Company by the respective stockholders of the Company.
<TABLE>
<CAPTION>
Amount and Nature Percentage
of Beneficial of
Name and Address Ownership (1) Class
- ---------------- ----------------- ----------
<S> <C> <C>
Martin Varsavsky
Parque Empresarial Edificio 2,
c/o Beatriz De Bobadilla
14,5 Ofic. B
Madrid, Spain....................................................... 5,449,666 23.6%
The Capital Group Companies
333 South Hope Street
Los Angeles, CA 90071(2)........................................... 2,882,700 12.5
COMSAT International, Inc.
6560 Rock Spring Drive
Bethesda, MD 20817(3).............................................. 2,140,539 9.3
S-C V-Tel Investments, L.P.
888 Seventh Avenue
New York, NY 10106(3).............................................. 1,698,272 7.3
FMR Corp.
82 Devonshire Street
Boston, MA 02109................................................... 1,644,200 7.1
Morgan Stanley, Dean Witter, Discover & Co.
1585 Broadway
New York, NY 10036................................................. 1,244,246 5.4
Michael J. Mahoney(4)............................................... 230,313 1.0
Allan L. Shaw(4).................................................... 67,443 *
Lawrence G. Malone(4)............................................... 56,733 *
Sheldon M. Goldman(4)(5)............................................ 34,733 *
Paul G. Pizzani..................................................... -- *
Francis J. Mount.................................................... -- *
John G. Graham...................................................... 1,000 *
All directors and executive
officers as a group (7 persons)(6)............................. 390,222 1.7
</TABLE>
- -----------
16
<PAGE>
* Represents beneficial ownership of less than 1% of the outstanding
shares of Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common
Stock subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of July 15, 1998
are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of
any other person. Except as indicated in the footnotes to this table,
the stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such stockholder's name.
(2) The amount reported reflects shares held by a subsidiary of The Capital
Group Companies solely as the investment manager of various
institutional accounts. The Capital Group Companies does not have
investment power or voting power over any of these shares.
(3) Does not include 7,147,938 shares of Common Stock which COMSAT may be
deemed to beneficially own as a result of certain voting arrangements
contained in the COMSAT Shareholders Agreement. See "Executive
Compensation -- Compensation Committee Interlocks and Insider
Participation -- Shareholders Agreements."
(4) Includes shares of Common Stock which these individuals have the right
to acquire through the exercise of options within 60 days of July 15,
1998, as follows: Michael J. Mahoney 181,980; Allan L. Shaw 62,443;
Lawrence G. Malone 56,733; Sheldon M. Goldman 26,733; and Francis J.
Mount 0.
(5) Includes 1,000 shares owned by Mr. Goldman's wife. Mr. Goldman
disclaims "beneficial ownership" of such shares within the meaning of
Rule 13d-3 under the Exchange Act.
(6) Includes vested and exercisable options to purchase 327,889 shares
of Common Stock which were granted pursuant to the Stock Incentive
Plan.
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<PAGE>
CUMULATIVE TOTAL STOCKHOLDERS RETURN
The following graph shows a comparison of cumulative total returns on
the Common Stock against the cumulative total return for The Nasdaq Stock Market
- - U.S. Index and The Nasdaq Telecommunications Index. The graph assumes an
investment of $100 on October 18, 1996 (the date the Common Stock began trading
on The Nasdaq National Market) in the Common Stock, The Nasdaq Stock Market -
U.S. Index and The Nasdaq Telecommunications Index. Cumulative total return
assumes reinvestment of dividends. The performance shown is not necessarily
indicative of future performance.
[PERFORMANCE GRAPH]
18
<PAGE>
<TABLE>
<CAPTION>
Monthly Cumulative Total Values*($)
----------------------------------
The Nasdaq Stock The Nasdaq Telecommunications
Month-End The Company Market - U.S. Index Index
- --------- ----------- ------------------- -----------------------------
<S> <C> <C> <C>
October 1996 100 98 99
November 1996 83 104 101
December 1996 75 104 103
January 1997 63 111 106
February 1997 65 105 103
March 1997 55 98 96
April 1997 52 101 100
May 1997 54 113 112
June 1997 56 116 121
July 1997 39 128 128
August 1997 40 128 124
September 1997 39 136 140
October 1997 55 129 144
November 1997 52 129 145
December 1997 42 127 153
</TABLE>
*$100 invested on October 18, 1996 in Common Stock or index, including
reinvestment of dividends, fiscal year ending December 31.
PROPOSAL 2 - PROPOSED AMENDMENT TO STOCK INCENTIVE PLAN
The Board has amended the Stock Incentive Plan, subject to approval of
the stockholders, to provide for an additional 1,600,000 shares of Common Stock
which may be issued thereunder as restricted stock or upon exercise of stock
options. Prior to this amendment, the Stock Incentive Plan provided for the
issuance of 2,566,666 shares to participants, of which 107,000 remain available
for grants as of July 15, 1998. The Board deems it advisable to increase the
number of available shares of Common Stock so as to permit the immediate
granting of additional options to senior management and to provide for future
grants to Company employees and directors of the Company.
The following summary of the plan, as proposed to be amended, is
subject to the complete terms of the plan, a copy of which is attached to this
Proxy Statement as Exhibit A.
1. ADMINISTRATION. The plan is administered by the Compensation
Committee, which must consist of not less than two non-employee director
members. Subject to the provisions of the plan, the Compensation Committee has
sole authority to select eligible participants, determine (subject to the terms
of the plan) the terms and timing of grants and to generally interpret and
administer the plan.
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<PAGE>
2. PARTICIPANTS. Subject to the terms of the plan, employees, officers,
directors, independent contractors and consultants of the Company or an
affiliate of the Company selected by the Compensation Committee, in its
discretion, are eligible to receive grants under the plan. Currently, there are
approximately 55 participants in the plan.
3. TYPES OF AWARDS. The plan authorizes the granting of stock options
(both Incentive Stock Options and Nonqualified Stock Options), shares of
restricted Common Stock and SARs. The terms and features of these various forms
of awards are set forth below and are described more fully in Exhibit A attached
hereto.
STOCK OPTIONS. Options granted under the plan may be either Incentive
Stock Options or Nonqualified Stock Options. Options may be granted to
participants in such number, at such times, and subject to such terms and
conditions as the Compensation Committee may determine, except that: (i) the
option price of an Incentive Stock Option may not be less than the fair market
value of the Common Stock on the date of grant; (ii) the option price of a
Nonqualified Stock Option may be as determined by the Compensation Committee;
(iii) no Incentive Stock Option may be granted to a "ten percent stockholder"
(as such term is defined in Section 422A of the Code) unless the exercise price
is at least 110.0% of the fair market value of the Common Stock on the date of
grant and the term of the option may not exceed five years from the date of
grant; (iv) no Incentive Stock Option may be exercised more than ten years after
the date of grant; and (v) the aggregate fair market value of the stock with
respect to which Incentive Stock Options are exercisable by a participant for
the first time by the grantee during any calendar year may not exceed $100,000.
With respect to each option granted under the plan, the Compensation Committee
may determine and reflect in the option agreement such other terms, provisions
and conditions consistent with the plan as may be determined by the Compensation
Committee.
Payment for the shares of Common Stock purchased upon exercise of an
option must be made in full upon exercise of the option, by cash (including the
following cash equivalents: certified check, bank draft or postal or express
money order payable to the order of the Company in lawful money of the United
States); provided, however, that the Compensation Committee, in its sole
discretion, may permit a participant to pay the option price, in whole or in
part (i) with shares of Common Stock owned by the participant, (ii) by
irrevocable direction to an approved securities broker to sell shares and
deliver all or a portion of the proceeds to the Company, (iii) by delivery of a
promissory note with such provisions as the Compensation Committee determines
appropriate, or (iv) in any combination of the foregoing. In addition, the
Compensation Committee, in its sole discretion, may authorize the surrender by a
participant 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 shares of Common Stock subject to such option and the
aggregate option price of such shares of Common Stock. In the Compensation
Committee's discretion, such payment may be made in cash, shares of Common Stock
with a fair value on the date of surrender equal to the payment amount, or some
combination thereof.
Each option issued to a participant will be exercisable in accordance
with its terms so long as the participant is an employee of the Company or an
affiliate of the Company. In addition, to the extent then exercisable options
will be exercisable by a participant for a period of thirty (30) days after
20
<PAGE>
termination of employment or consulting relationship or such longer period of
time as may be permitted by the Code (but in no event later than the expiration
date of the option). Options will vest in accordance with the schedule
established by the Compensation Committee at the time of grant and will not be
exercisable until vested. In the event of a Corporate Transaction, however,
outstanding options will, to the extent not then vested, vest in their entirety
and become exercisable unless assumed by the successor corporation or its parent
company pursuant to options providing substantially equal value and having
substantially equivalent provisions as the options granted pursuant to the plan.
SARS. SARs may be granted under the plan either separately or in tandem
with options and will be subject to such terms and conditions as the
Compensation Committee may deem appropriate. Each SAR will entitle the holder to
surrender the SAR, and to receive from the Company in exchange therefor, cash
compensation equal to any appreciation in value of the Common Stock underlying
such SAR. In the event of a Corporate Transaction, outstanding SARs will vest in
their entirety and become exercisable unless assumed by the successor
corporation or its parent company pursuant to SARs providing substantially equal
value and having substantially equivalent provisions as the SARs granted
pursuant to the plan.
SHARES OF RESTRICTED COMMON STOCK. Shares of restricted Common Stock
may be sold or granted under the plan in such numbers and at such times during
the term of the plan as the Compensation Committee shall determine. Each
participant who receives a grant of shares of restricted Common Stock or who
purchases shares subject to restrictions will have all the rights of a
stockholder with respect to such shares of restricted Common Stock (subject to
certain restrictions that may be imposed on transferability), including the
rights to vote, receive dividends (including stock dividends), participate in
stock splits or other capitalizations and exchange such shares in a merger,
consolidation or other reorganization.
Each sale or grant of restricted Common Stock pursuant to the plan will
be evidenced by a written restricted stock purchase agreement or restricted
stock bonus agreement, which agreement may contain such other terms, provisions
and conditions consistent with the plan as may be determined by the Compensation
Committee, including restrictions on transfer and forfeiture and vesting
provisions.
In the event of a Corporate Transaction, any shares of restricted
Common Stock will be released from restrictions on transfer and repurchase
rights unless assumed by the successor corporation or its parent company
pursuant to restricted stock agreements providing substantially equal value and
having substantially equivalent provisions as the shares of restricted Common
Stock granted pursuant to the plan.
4. TERMINATION AND AMENDMENTS. The plan terminates with respect to
Incentive Stock Options on September 29, 2003. However, 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 any amendment to the plan, be approved by the Company's
stockholders. Notwithstanding the foregoing, the Board may not amend the plan
without the approval of the stockholders of the Company to: (i) increase the
maximum number of shares subject to Incentive Stock Options issued under the
plan; or (ii) change the designation or class of persons eligible to receive
Incentive Stock Options under the plan.
21
<PAGE>
5. TRANSFERABILITY. Neither options granted pursuant to the plan, nor
any right thereunder, will be transferable by the participant by operation of
law or otherwise other than by will or the laws of descent and distribution.
During the participant's lifetime, options may be exercised only by the
participant. Stock subject to a restricted stock purchase agreement or
restricted stock bonus agreement will be transferable only as provided in such
agreement.
6. CONSIDERATION. The consideration to be received by the Company for
the granting of options or SARs or the granting of shares of restricted Common
Stock is the continued employment of participants. Consideration for the
issuance of shares under the plan will consist of the payment of the option
price upon exercise of an option, surrender of a related option upon exercise of
a SAR and payment of the established purchase price with respect to the purchase
of shares of restricted Common Stock.
7. TAX CONSEQUENCES. The grant of an option or SAR will have no
immediate tax consequences for the participant or the Company. The participant
will have no taxable income upon exercising an Incentive Stock Option (except
that an alternative minimum tax may apply), and the Company will not receive a
deduction when an Incentive Stock Option is exercised. If the participant does
not dispose of the shares of Common Stock acquired on exercise of an Incentive
Stock Option within the two-year period beginning on the day after the grant of
the Incentive Stock Option or within one year after the transfer of such shares
to the participant, the gain or loss on a subsequent sale will be a capital gain
or loss to the participant. The Company would not be entitled to any deduction
in such event. If the participant disposes of the shares within the two-year or
one-year period described above, the participant generally will realize ordinary
income and the Company will be entitled to a corresponding deduction. Upon
exercising a SAR or a Nonqualified Stock Option, the participant must recognize
ordinary income in an amount equal to the difference between the exercise price
and the fair market value of the Common Stock on the date of exercise, unless
the shares of Common Stock received are subject to certain restrictions. The
Company is entitled to a deduction for the same amount as of the exercise date
(or the date the restrictions lapse).
Awards granted under the plan that are settled in cash or shares of
Common Stock that are either transferable or not subject to a substantial risk
of forfeiture are taxable as ordinary income in an amount equal to the cash or
the fair market value of the shares received. Awards granted under the plan that
are settled in shares of Common Stock that are subject to restrictions as to
transferability or subject to a substantial risk of forfeiture are taxable as
ordinary income in an amount equal to the fair market value of the shares
received at the first time such shares become transferable or not subject to a
substantial risk of forfeiture, whichever occurs earlier. Awards of restricted
Common Stock granted under the plan are taxable as ordinary income, as of the
earlier of the date that the shares become transferable or are no longer subject
to a substantial risk of forfeiture, in an amount equal to the fair market value
of the shares on such date, unless the participant makes an election under
Section 83(b) of the Code. If a Section 83(b) election is made, the participant
must include in income the value of the shares as of the date of grant.
The Company will receive a deduction for the amount recognized as
income by the participant, subject to the provisions of Section 162(m) of the
Code, which provides for a possible denial of a tax deduction to the Company for
compensation for certain key executive officers in excess of $1.0 million in any
year.
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<PAGE>
The tax treatment upon disposition of shares of Common Stock acquired
under the plan will depend on how long the shares have been held. In the case of
shares of Common Stock acquired through exercise of an option, the tax treatment
will also depend on whether or not the shares were acquired by exercising an
Incentive Stock Option. There will be no tax consequences to the Company upon
disposition of shares of Common Stock acquired under the plan, except that the
Company may receive a deduction in the case of disposition of shares acquired
under an Incentive Stock Option before the applicable holding period has been
satisfied.
8. OTHER INFORMATION. The closing price of the Common Stock on July 22,
1998 was $18-1/4.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE STOCK INCENTIVE PLAN.
PROPOSAL 3 - AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
REGARDING INCREASE IN AUTHORIZED PREFERRED STOCK
By resolution adopted in July 1998, the Board of the Company proposed
the adoption by the stockholders of an amendment to the Certificate of
Incorporation of the Company pursuant to which the number of authorized shares
of preferred stock, $.01 par value (the "Preferred Stock"), of the Company would
be increased from 1,000,000 to 2,000,000 and the Board directed that the
proposed amendment be submitted to a vote by the stockholders at the Annual
Meeting.
If the stockholders approve the amendment, the Certificate of
Incorporation of the Company will be amended as proposed by the Board and the
number of authorized shares of Preferred Stock will be increased to 2,000,000.
Of the 1,000,000 currently authorized shares of Preferred Stock, as of
July 15, 1998, 450,008 shares of Series A Preferred Stock were outstanding and
an aggregate of 268,034 shares of Series A Preferred Stock were reserved for
issuance for payment of in-kind dividends on the issued and outstanding shares
of Series A Preferred Stock.
While the Board does not have a present plan to issue additional
shares of Preferred Stock, it believes that it is desirable that the Company
have the flexibility to issue such shares without further stockholder action.
The availability of additional shares of Preferred Stock will enhance the
Company's flexibility in connection with such matters as public and private
financings or for other corporate purposes. The Board will determine whether,
when and on what terms the issuance of shares of Preferred Stock may be
warranted in connection with any of the foregoing purposes.
The availability for issuance of additional shares of Preferred Stock
could enable the Board to render more difficult or discourage an attempt to
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obtain control of the Company, however, the Company is not aware of any pending
or threatened efforts to obtain such control.
If the proposed amendment is approved, all or any of the authorized
shares of Preferred Stock may be issued without further action by the
stockholders, subject to any restrictions imposed by The Nasdaq National Market,
and without first offering such shares to the stockholders for subscription.
THE BOARD RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSED AMENDMENT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION AUTHORIZING AN INCREASE IN THE NUMBER OF
SHARES OF PREFERRED STOCK AVAILABLE FOR ISSUANCE.
PROPOSAL 4 - RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The Board desires to obtain stockholder ratification of the resolution
appointing KPMG Peat Marwick LLP, New York, New York, as independent auditors
for the Company for fiscal year 1998. KPMG Peat Marwick LLP served as the
Company's auditors for the fiscal year ended December 31, 1997.
If the appointment of KPMG Peat Marwick LLP is not ratified, the
adverse vote will be considered as an indication to the Board that it should
select other independent auditors for the following fiscal year. Given the
difficulty and expense of making any substitution of auditors after the
beginning of the current fiscal year, it is contemplated that the appointment
for fiscal year 1998 will be permitted to stand unless the Board finds other
good reason for making a change.
A representative of KPMG Peat Marwick LLP will attend the Annual
Meeting, will have an opportunity to make a statement if he or she desires to do
so, and will be available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR THE COMPANY FOR
FISCAL YEAR 1998.
COSTS OF SOLICITATION
The cost of preparing, printing and mailing this Proxy Statement and
the accompanying proxy card, and the cost of solicitation of proxies on behalf
of the Board will be borne by the Company. The Company has retained Corporate
Investor Communications, Inc. to assist in the solicitation of proxies from
stockholders at an estimated fee of $6,200, plus reimbursement of out-of-pocket
expenses. In addition to the use of the mail, proxies may be solicited
personally or by telephone by regular employees of the Company without
additional compensation as well as by Corporate Investor Communications, Inc.
Banks, brokerage houses and other institutions, nominees or fiduciaries will be
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requested to forward the proxy materials to the beneficial owners of the Common
Stock held of record by such persons and entities and will be reimbursed for
their reasonable expenses incurred in connection with forwarding such material.
OTHER MATTERS
As of the date of this Proxy Statement, the Board knows of no other
matters which will be brought before the Annual Meeting. In the event that any
other business is properly presented at the Annual Meeting, it is intended that
the persons named in the enclosed proxy will have authority to vote such proxy
in accordance with their judgment on such business.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
certain officers and persons holding more than 10% of a registered class of the
Company's equity securities to file reports of ownership and reports of changes
in ownership with the Commission and The Nasdaq National Market. Directors,
certain officers and greater than 10% stockholders are also required by
Commission regulations to furnish the Company with copies of all such reports
that they file. Based on the Company's review of copies of such forms provided
to it, the Company believes that all filing requirements were complied with
during the fiscal year ended December 31, 1997, except for several filings which
the Company believes should have been made by Martin Varsavsky following his
resignation as Chairman of the Board and Chief Executive Officer of the Company,
and one late filing by Francis J. Mount, Senior Vice President, Engineering and
Network Operations and a Director of the Company.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals submitted for inclusion in the Proxy Statement to
be issued in connection with the Company's 1999 Annual Meeting of Stockholders
must be mailed to the Secretary, Viatel, Inc., 685 Third Avenue, 24th Floor, New
York, New York 10022, and must be received by the Secretary on or before March
30, 1999. In addition, stockholder proposals for presentation at the 1999 Annual
Meeting must also be received on or before March 30, 1999. See "General
Information Relating to the Board -- Committees of the Board."
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ANNUAL REPORT
A copy of the Company's 1997 Annual Report to Stockholders is being
mailed with this Proxy Statement to each stockholder entitled to vote at the
Annual Meeting. Stockholders not receiving a copy of such Annual Report may
obtain one, without charge, by writing or calling Sheldon M. Goldman, Secretary,
Viatel, Inc., 800 Third Avenue, New York, New York 10022, telephone (212)
350-9200.
By Order of the Board of Directors,
/s/ Sheldon M. Goldman
Sheldon M. Goldman
Secretary
New York, New York
July 28, 1998
26
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ANNEX A
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 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.
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(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 4,166,666 shares of Stock shall
be available for the grant of options or the issuance of Stock under the Plan.
If an option is surrendered (except surrender for shares of Stock) or for any
other reason ceases to be exercisable in whole or in part, the shares which were
subject to such option but as to which the option had not been exercised shall
continue to be available under the Plan. Any Stock which is retained by the
Company upon exercise of an option in order to satisfy the exercise price for
such option or any withholding taxes due with respect to such option exercise
shall be treated as issued to the optionee and will thereafter not be available
under the Plan.
(b) If there is any change in the Stock subject to either the Plan,
an Option Agreement (as defined below), a Restricted Stock Purchase Agreement, a
Restricted Stock Bonus Agreement or a SAR Agreement (as defined in paragraph 8)
through merger, consolidation, reorganization, recapitalization,
reincorporation, stock split, stock 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.
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4. Eligible Individuals. Individuals who shall be eligible to have
granted to them the options, Stock or SARs provided for by the Plan shall be
such employees, officers, directors, independent contractors, and consultants of
the Company or an Affiliate as the Committee in its discretion, shall designate
from time to time ("Eligible Individuals"). Notwithstanding the foregoing, only
employees of the Company or an Affiliate (including officers and directors who
are bona fide employees) shall be eligible to receive Incentive Stock Options.
5. The Option Price. The exercise price of the Stock covered by each
Incentive Stock Option shall be not less than the per share fair market value of
such Stock on the date the option is granted. The exercise price of the Stock
covered by each Nonqualified Stock Option shall be as determined by the
Committee. Notwithstanding the foregoing, in the case of an Incentive Stock
Option granted to a person possessing more than ten percent of the combined
voting power of the Company or an Affiliate, the exercise price shall be not
less than 110 percent of the fair market value of the Stock on the date the
option is granted. The exercise price of an option shall be subject to
adjustment to the extent provided in paragraph 3(b), above.
6. Terms and Conditions of Options.
(a) Each option granted pursuant to the Plan will be evidenced by a
written agreement (the "Option Agreement") executed by the Company and the
person to whom such option is granted.
(b) The Committee shall determine the term of each option granted
under the Plan; provided, however, that the term of an Incentive Stock Option
shall not be for more than 10 years and that, in the case of an Incentive Stock
Option granted to a person possessing more than ten percent of the combined
voting power of the Company or an Affiliate, the term shall be for no more than
five years.
(c) In the case of Incentive Stock Options, the aggregate fair
market value (determined as of the time such option is granted) of the Stock
with respect to which Incentive Stock Options are exercisable for the first time
by an Eligible Individual in any calendar year (under this Plan and any other
plans of the Company or its Affiliates) shall not exceed $100,000.
(d) The Stock Option Agreement may contain such other terms,
provisions and conditions consistent with this Plan as may be determined by the
Committee. If an option, or any part thereof, is intended to qualify as an
Incentive Stock Option, the Option Agreement shall contain those terms and
conditions which are necessary to so qualify it.
7. Terms and Conditions of Stock Purchases and Bonuses.
(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.
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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 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
A-4
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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
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.
13. Withholding Taxes.
(a) No Stock shall be granted or sold under the Plan to any
participant, and no SAR may be exercised, until the participant has made
arrangements acceptable to the Committee for the satisfaction of federal, state,
and local income and employment tax withholding obligations, including without
limitation obligations incident to the receipt of Stock under the Plan, the
lapsing of restrictions applicable to such Stock, the failure to satisfy the
conditions for treatment as Incentive Stock Options under applicable tax law, or
the receipt of cash payments. Upon exercise of a stock option or lapsing of
restrictions on Stock issued under the Plan, the Company may satisfy its
withholding obligations by withholding from the optionee or requiring the
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.
A-5
<PAGE>
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 (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.
(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 the issuance of additional 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 additional Incentive Stock Options under the Plan prior
to the stockholders' meeting, but until stockholder approval of the Plan is
obtained, no such additional Incentive Stock Option shall be exercisable.
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ANNEX B
PROPOSED AMENDMENT TO CERTIFICATE OF INCORPORATION
The first paragraph of Article IV of the Amended and Restated
Certificate of Incorporation of the Company will be amended to read as follows:
"The total authorized capital stock of the Corporation shall be
Fifty-Two Million (52,000,000) shares consisting of Fifty Million (50,000,000)
shares of Common Stock, par value $.01 per share (the "Common Stock"), and Two
Million (2,000,000) shares of Preferred Stock."
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VIATEL, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 10, 1998
Solicited on Behalf of the Board of Directors
The undersigned hereby authorizes Michael J. Mahoney and Sheldon M.
Goldman, and each of them individually, with power of substitution, to vote and
otherwise represent all of the shares of Common Stock of Viatel, Inc. (the
"Company"), held of record by the undersigned, at the Annual Meeting of
Stockholders of the Company to be held in the Whitney Room at the Hotel
InterContinental, 111 East 48th Street, New York, New York, on Thursday,
September 10, 1998 at 10:00 a.m., local time, and any adjournments or
postponements thereof, as indicated on the reverse side hereof.
The undersigned acknowledges receipt of the Notice of Annual Meeting
and Proxy Statement dated, in each case, July 28, 1998. All other proxies
heretofore given by the undersigned to vote shares of the Company's Common Stock
are expressly revoked.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DESCRIBED ON THE
REVERSE HEREOF BY THE STOCKHOLDER. IF NOT OTHERWISE DIRECTED, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION AS DIRECTORS OF THE COMPANY ALL NOMINEES NOMINATED IN
ITEM 1 AND FOR THE PROPOSALS REFERRED TO IN ITEMS 2, 3 AND 4.
(Continued and to be signed and dated on the reverse side.) VIATEL, INC., P.O.
BOX 11288, NEW YORK, NY 10203-0288
<PAGE>
(The Board of Directors recommends a vote "FOR")
1. To elect two (2) Class B directors to the Board of Directors of the
Company to hold office until the 2001 Annual Meeting of Stockholders.
FOR all nominees WITHHOLD AUTHORITY to vote EXCEPTIONS
listed below _____ for all nominees listed below _____ _____
Nominees: Paul G. Pizzani and Francis J. Mount.
[INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.]
Exceptions _____________________________________________________________________
2. To approve an amendment to the Company's Amended Stock Incentive Plan
to increase the number of shares of the Company's Common Stock
available for future grants.
FOR _____ AGAINST _____ ABSTAIN _____
3. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized
shares of the Company's preferred stock available for future issuance.
FOR _____ AGAINST _____ ABSTAIN _____
4. The ratification of the appointment of KPMG Peat Marwick LLP, New York,
New York, as independent auditors for the Company for fiscal year 1998.
FOR _____ AGAINST _____ ABSTAIN _____
Change of Address and
or Comments Mark Here ____
Please sign exactly as your
name appears hereon. When
signing in a discretionary
capacity, print your full
title.
Dated:_______________, 1998
___________________________
Signature
___________________________
Signature
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
Voting must be indicated
(x) in Black or Blue Ink___
