As filed with the Securities and Exchange Commission
on February 12, 1999
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VIATEL, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3787366
(State or Other Jurisdiction (I.R.S. Employer
of 685 THIRD AVENUE Identification
Incorporation or NEW YORK, NEW YORK 10017 Number)
Organization) (212) 350-9200
(Address, Including Zip Code, and Telephone
Number, Including Area Code, of Registrant's
Principal Executive Offices)
------------------------------
SHELDON M. GOLDMAN, ESQ.
SENIOR VICE PRESIDENT,
BUSINESS AFFAIRS AND GENERAL COUNSEL
VIATEL, INC.
685 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 350-9200
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code, of
Agent For Service)
COPIES OF ALL COMMUNICATIONS TO:
JAMES P. PRENETTA, ESQ.
KELLEY DRYE & WARREN LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
(212) 808-7800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time following the effectiveness of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. |_|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------- ------------------------- ------------------------- -------------------------- -------------------------
Title of Shares to be Amount to be Registered Proposed Maximum Proposed Maximum Amount of Registration
Registered Aggregate Price Per Aggregate Offering Fee
Share Price(1)
- --------------------------- ------------------------- ------------------------- -------------------------- -------------------------
- --------------------------- ------------------------- ------------------------- -------------------------- -------------------------
Common Stock, par value 6,824,249 Shares $17.8125 $121,556,935.30 $35,859.30
$.01 per share
- --------------------------- ------------------------- ------------------------- -------------------------- -------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended.
The Proposed Maximum Aggregate Price Per Share is estimated on the basis of
the average of the high and low trading prices for Viatel, Inc.'s Common
Stock on February 8, 1999, as reported by the Nasdaq National Market.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
The information in this Preliminary Prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This Preliminary
Prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
6,824,249 SHARES
VIATEL, INC.
COMMON STOCK, $.01 PAR VALUE
This Prospectus may be used by us for the issuance, from time to time,
of up to 6,824,249 shares of our common stock, upon the conversion of our
outstanding Subordinated Debentures or shares of Series A Preferred Stock. We
will not receive any proceeds from the issuance of these shares of our common
stock. The expenses incurred in registering the shares of common stock covered
by this Prospectus, including legal and accounting fees, will be paid by us.
None of the shares of common stock covered hereby have been registered prior to
the filing of the registration statement of which this Prospectus is a part.
Our corporate offices are located at 685 Third Avenue, New York, New
York 10017 and our telephone number is (212) 350-9200.
Our common stock is traded on the Nasdaq National Market under the
symbol "VYTL." On February 10, 1999, our common stock closed at $17.00 per
share.
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 2 TO READ ABOUT CERTAIN FACTORS
YOU SHOULD CONSIDER BEFORE CONVERTING YOUR SUBORDINATED DEBENTURES OR SHARES OF
SERIES A PREFERRED STOCK INTO SHARES OF OUR COMMON STOCK.
------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February , 1999.
<PAGE>
RISK FACTORS
THIS PROSPECTUS INCLUDES AND INCORPORATES "FORWARD LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E
OF THE SECURITIES EXCHANGE ACT OF 1934. ALTHOUGH WE BELIEVE THAT OUR PLANS,
INTENTIONS AND EXPECTATIONS REFLECTED IN OR SUGGESTED BY SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS
OR EXPECTATIONS WILL BE ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS WE MAKE IN THIS
PROSPECTUS ARE SET FORTH BELOW. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO
THE COMPANY OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE FOLLOWING CAUTIONARY STATEMENTS.
SUBSTANTIAL LEVERAGE
We have now and will continue to have a significant amount of
indebtedness. Our substantial indebtedness could have important consequences to
you. For example, it could:
- limit our ability to obtain additional financing in the future
for working capital, capital expenditures, acquisitions and
general corporate purposes;
- require us to dedicate a substantial portion of our cash flow
from operations to payments on our indebtedness, thereby
reducing the funds available to us for other purposes,
including working capital, capital expenditures, acquisitions
and general corporate purposes;
- make us more vulnerable to economic downturns, limiting our
ability to withstand competitive pressures and reduce our
flexibility in responding to changing business and economic
conditions;
- limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
- place us at a competitive disadvantage compared to our
competitors that have less debt; and
- limit, along with the financial and other restrictive
covenants, our ability to borrow additional funds. And,
failing to comply with those covenants could result in an
event of default which, if not cured or waived, could have a
material adverse effect on us.
ABILITY TO SERVICE DEBT
Our ability to make payments on and to refinance our indebtedness will
depend on our ability to generate cash in the future. This, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash
flow from operations to meet our debt service requirements. We may need to
refinance all or a portion of our indebtedness. Based on our current level of
operation, we anticipate that cash flows from operations may be insufficient to
repay our indebtedness at scheduled maturity and that some or all of such
indebtedness may need to be refinanced. Our ability to do so will depend on,
among other things, our financial condition at the time, the restrictions in the
agreements governing our indebtedness and other factors, including market
conditions. If such refinancing were not possible or if additional financing
were not available, we could be forced to dispose of assets under circumstances
that might not be favorable to realizing the highest price for such assets or to
default on our obligations with respect to our indebtedness.
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RESTRICTIVE COVENANTS
The indentures pursuant to which our long-term debt was issued
restrict, and in some cases significantly limit or prohibit, among other things,
our ability and the ability of our subsidiaries to incur additional
indebtedness, make prepayments of certain indebtedness, pay dividends, make
investments, engage in transactions with stockholders and affiliates, issue
capital stock, create liens, sell assets and engage in mergers and
consolidations. However, the limitations set forth in such indentures are
subject to a number of important qualifications and exceptions. In particular,
while the indentures restrict our ability to incur additional indebtedness, they
permit us and our subsidiaries to, among other things, incur an unlimited amount
of secured indebtedness to finance telecommunications assets and build-out. If
new indebtedness is added to our and our subsidiaries' current debt levels, the
related risks that we and they now face could intensify.
UNCERTAINTIES ASSOCIATED WITH LIMITED OPERATING HISTORY
We commenced operations in 1991, and, therefore, have only a limited
operating history upon which you can evaluate our business. You should evaluate
our chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties frequently encountered by
companies in their early stage of development. Furthermore, the liberalization
of Western European telecommunications regulation since January 1, 1998 has
dramatically changed the telecommunications market in a number of the European
Union member states in which we operate.
SUBSTANTIAL NET LOSSES AND NEGATIVE CASH FLOW FROM OPERATIONS
We have experienced net losses and negative earnings before interest,
taxes, depreciation and amortization since we commenced operations. In addition,
we have also experienced significant increases in capital expenditures and
expenses associated with the development and expansion of our network. We expect
to incur operating and net losses, and negative earnings before interest, taxes,
depreciation and amortization and negative cash flow from operating activities
until at least the year 2000. However, our negative earnings before interest,
taxes, depreciation and amortization and negative cash flows are likely to
continue beyond the year 2000 if we extend expansion plans, if retail prices
decline faster than anticipated, interconnection rates and wholesale prices paid
by us do not decline as quickly as anticipated or because of any of the other
risks described herein. Accordingly, we cannot assure you that we will achieve
or sustain profitability or positive cash flows from operating activities in the
future. If we cannot achieve profitability or positive cash flows from operating
activities, we may be unable to meet working capital or future debt service
requirements which would have a material adverse effect on our business,
financial condition and results of operations. See "- Substantial Capital
Requirements" and "- Variability of Operating Results."
RISKS ASSOCIATED WITH THE VIATEL NETWORK
Our success is dependent, in part, on our ability to continue to
expand our network and on our ability to provide seamless technical operation of
our network. Furthermore, as we continue to expand our network to increase its
capacity and reach, we will face increasing demands and challenges including (1)
effectively managing the construction of new fiber routes, obtaining any
necessary rights-of-way and required licenses for such construction and
completing any such construction on budget and on time, (2) increasing traffic
volume on our network and (3) selling indefeasible rights-of-use and other
capacity on the network. If the costs of construction projects significantly
exceed our budget for those projects, we may be required to obtain additional
financing or to abandon or curtail portions of such projects. If we encounter
construction delays, we will not be able to route our traffic over these owned
facilities as soon as we hope, which will, for some period of time, have a
detrimental effect on our ability to increase traffic volumes and gross margins.
In addition, construction delays associated with these rings could negatively
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affect our ability to sell indefeasible rights-of-use or capacity to other
carriers. Our network is subject to several risks which are outside of our
control, such as the risk of damage to software and hardware resulting from
fire, power loss, natural disasters and general transmission failures caused by
a number of additional factors. Any failure of our network or other systems or
hardware that causes significant interruptions to our operations could have a
material adverse effect on our business, financial condition and results of
operations. Our operations are also dependent on our ability to successfully
integrate new and emerging technologies and equipment into the network, which
could increase the risk of system failure and result in further strains upon our
network. We attempt to minimize customer inconvenience in the event of a system
disruption by routing traffic to other circuits and switches which may be owned
by other carriers. However, prolonged or significant system failures, or
difficulties for customers in accessing and maintaining connection with our
network, could seriously damage our reputation and result in customer attrition,
reduced margins and financial losses. Additionally, any damage to our switching
centers in New York, New York, Somerset, New Jersey or London, England (of which
there are two) could have a material adverse effect on our ability to monitor
and manage the network operations and generate accurate call detail reports.
The expansion and development of our network will entail the
significant expenditure of resources in projecting growth in traffic volume and
routing preferences and determining the most cost effective means of growing the
network, for example, through variable or fixed lease arrangements, the purchase
of indefeasible rights-of-use or minimum investment units on digital fiber optic
cables or digital microwave equipment, or the construction of transmission
infrastructure. Failure to project traffic volume and route preferences
correctly or to determine the optimal means of expanding our network would
result in less than optimal utilization of our network and could have a material
adverse effect on our business, financial condition and results of operations.
We are aware that certain long distance carriers and consortia are
expanding capacity in Europe and believe that other long distance carriers, as
well as potential new entrants, such as alternative carriers, global consortia
of telecommunications operators, international carriers, Internet backbone
networks, resellers, value-added networks and other service providers, are
considering the construction of new fiber optic and other long distance
transmission networks. For example, the Ulysses cable system owned by MCI
WorldCom and the Hermes Europe Railtel B.V cable system connect cities that will
be linked by our network. In addition, Level 3 Communications, British Telecom,
Global Crossing and KPN/Qwest have announced their plans to construct fiber
optic networks in Europe. As a result, there has been pricing pressure with
respect to sales of indefeasible rights-of-use and capacity on our network and
transmission of calls between connected cities. Such price competition is
expected to continue and further price competition could have a material adverse
effect on our business, financial condition and results of operations. Since the
cost of the actual fiber is a relatively small portion of building new
transmission lines, persons building such lines are likely to install fiber that
provides substantially more transmission capacity than will be needed over the
short or medium-term. Further, recent technological advances have shown the
potential to greatly expand the capacity of existing and new fiber optic cable,
which will add to available supply and thereby create additional pricing
pressure. Demand for transmission capacity in the United States has recently
been fueled by businesses seeking data transmission capacity. European
businesses are not currently using data transmission to the same extent as U.S.
businesses due to higher costs. If European businesses do not substantially
increase their demand for data services, our ability to utilize our network will
be adversely affected. In addition, we intend to sell indefeasible rights-of-use
and capacity in our network to other carriers, which will result in competitors
having capacity on various routes along our network, which in turn will result
in pricing pressures with respect to traffic carried along these routes. If
industry capacity expansion results in capacity that exceeds overall demand in
general or along any of our routes, severe additional pricing pressure could
develop.
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SUBSTANTIAL CAPITAL REQUIREMENTS
We currently have budgeted approximately $530.0 million for the
construction of transmission infrastructure. However, we cannot assure you that
actual costs of these costruction projects will not substantially exceed our
budget for such projects. Future sources of financing may include additional
public and private debt and equity offerings, project financing, equipment
financings and the sale of indefeasible rights-of-use or capacity in our
network. We cannot assure you that additional financing arrangements will be
available to us on acceptable terms. Moreover, the amount of our substantial
total outstanding indebtedness may adversely affect our ability to raise
additional funds.
We believe that available cash, project financing, equipment financing
and the sale of indefeasible rights-of-use and capacity on our network will
provide sufficient funds for us to expand our business as planned and to fund
our operating losses for at least the next 12 to 18 months. However, the actual
amount of our future capital requirements will depend on a number of factors,
including:
- the success of our business;
- the start-up dates for new tranmission infrastructure;
- the rate at which we further expand our network;
- the types of services that we offer;
- staffing levels;
- acquisitions and customer growth; and
- other factors that are not within our control,
including competitive conditions, government
regulatory developments and capital costs.
In the event that our plans or assumptions change or prove to be
inaccurate or available cash, project financing, equipment financing and
proceeds from the sale of indefeasible rights-of-use and capacity on our network
prove to be insufficient to fund our growth in the manner and at the rate
currently anticipated, we may be required to delay or abandon some or all of our
development and expansion plans or we may be required to seek additional sources
of financing earlier than currently anticipated.
COMPETITION
Competitive pricing policies have created substantial pressure on our
gross margins. Our success depends upon our ability to compete with other
telecommunications providers in each of our markets. These providers include the
incumbent telecommunications operator in each country in which we operate,
global alliances among some of the world's largest telecommunications carriers,
such as "Global One" (Sprint, France Telecom and Deutsche Telekom) and an
alliance between MCI Worldcom and Telefonica de Espania, and new entrants, such
as alternative carriers, Internet backbone networks and other service providers.
Other potential competitors include cable communications companies, wireless
telephone companies, electric and other utilities with rights-of-way, railways,
microwave carriers and large end-users which have private networks. The
intensity of competition and price declines have increased over the past several
years and we believe that such competition and price declines will continue to
intensify, particularly in Western Europe, as other providers obtain operative
connectivity. Many of our current and potential competitors have substantially
greater financial, marketing and other resources than us. If our competitors
devote significant additional resources to the provision of international or
national long distance telecommunications services to our target customer base
of small and medium-sized businesses, such action could have a material adverse
effect on our business, financial condition and results of operations and we
cannot assure you that we will be able to compete successfully.
Customers in most of our current and targeted European markets are not
accustomed to obtaining services from competitors to incumbent
telecommunications operators and may be reluctant to use emerging
telecommunications providers, such as Viatel. In particular, our target customer
base of small and medium-sized businesses with significant international calling
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needs, may be reluctant to entrust their telecommunications needs to new
operators that are believed to be unproven. In addition, in continental Europe,
certain of our competitors (including the incumbent telecommunications
operators) provide potential customers with a broader range of services than we
currently offer.
Competition for customers in the telecommunications industry is
primarily based on price and quality of services offered. We price services
primarily by offering discounts to the prices charged by incumbent
telecommunications operators and other major competitors. However, prices for
international long distance calls have decreased substantially over the past few
years in the markets in which we currently maintain operations or in which we
expect to establish operations. Some of our larger competitors may be able to
use their greater financial resources to cause severe price competition in the
countries in which we operate or expect to operate. It appears that incumbent
telecommunications operators in Western Europe are responding to deregulation
more rapidly and aggressively than occurred after deregulation in the United
States and the United Kingdom. We expect that prices for our services will
continue to decrease for the foreseeable future and that incumbent
telecommunications operators and other dominant telecommunications providers
will continue to improve their product offerings. The improvement in product
offerings and service provisions by the incumbent telecommunications operators
could similarly have a material adverse effect on our competitiveness to the
extent that the we are unable to provide similar levels of offerings and
services. If the incumbent telecommunications operator in any jurisdiction uses
its competitive advantages to their fullest extent, our operations in such
jurisdiction would be adversely affected. Furthermore, the marginal cost of
carrying calls over fiber optic cable is extremely low. As a result, certain
industry observers have predicted that, within a few years, there may be
dramatic and substantial price reductions and that long distance calls will not
be significantly more expensive than local calls. In addition, certain carriers
are implementing plans to offer telecommunications services over the Internet at
substantially reduced prices. Any price competition could have a material
adverse effect on our business, financial condition and results of operations.
We believe that incumbent telecommunications operators generally have
certain competitive advantages that we and other competitors do not have due to
their control over local connectivity. We currently rely on the incumbent
telecommunications operators for access to the public switched telephone network
and the provision of leased lines, and the failure of the incumbent
telecommunications operators to provide such access or leased lines at
reasonable pricing or within a reasonable time frame could have a material
adverse effect on our business, financial condition and results of operations.
The reluctance of some national regulators to provide operative interconnection
as a result of their failure to grant regulatory approvals, provide necessary
provisioning and enforce access to such operators' networks and essential
facilities could have a material adverse effect on our competitive position. We
cannot assure you that we will be able to compete effectively in any of these
markets.
SUBSTANTIAL GOVERNMENT REGULATION
OVERVIEW. National and local laws and regulations governing the
provision of telecommunications services differ significantly among the
countries in which we currently operate and intend to operate. The
interpretation and enforcement of such laws and regulations varies and could
limit our ability to provide certain telecommunications services in certain
markets. We cannot assure you that future regulatory, judicial and legislative
changes will not have a material adverse effect on the Company, that domestic or
international regulators or third parties will not raise material issues with
regard to our compliance or noncompliance with applicable laws and regulations,
or that other regulatory activities will not have a material adverse effect on
our business, financial condition and results of operations.
INTERNATIONAL TRAFFIC. Under the World Trade Organization Basic Telecom
Agreement (the "WTO Agreement"), concluded on February 15, 1997, 69 countries
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comprising 95% of the global market for basic telecommunications services agreed
to permit competition from foreign carriers. In addition, 59 of these countries
have subscribed to specific procompetitive regulatory principles. The WTO
Agreement became effective on February 5, 1998 and has been implemented, to
varying degrees, by the signatory countries. We believe that the WTO Agreement
will increase opportunities for us and our competitors. However, we cannot
assure you that the WTO Agreement will result in beneficial regulatory
liberalization in all signatory countries.
On November 26, 1997, the Federal Communications Commission adopted the
Foreign Participation Order to implement the U.S. obligations under the WTO
Agreement. In this order, the Federal Communications Commission adopted an open
entry standard for carriers from World Trade Organization member countries,
generally facilitating market entry for such applicants by eliminating certain
existing tests. These tests remain in effect, however, for carriers from
non-World Trade Organization member countries. Petitions for reconsideration of
the Foreign Participation Order are pending at the Federal Communications
Commission.
International carriers serving the United States, including the
Company, remain subject to the Federal Communications Commission's international
settlement policies, including rules adopted by the Federal Communications
Commission regarding international settlement rates which became effective on
January 1, 1998. The international accounting rate system allows a U.S.
facilities-based carrier to negotiate an "accounting rate" with a foreign
carrier for handling each minute of international telephone service. Each
carrier's portion of the accounting rate, usually one-half, is referred to as
the settlement rate. The international settlement rates order generally requires
U.S. facilities-based carriers to negotiate settlement rates with their foreign
correspondent at no greater than Federal Communications Commission-established
"benchmark" prices. Historically, international settlement rates have vastly
exceeded the cost of terminating telecommunications traffic. In addition, the
international settlement rates order imposed new conditions upon certain
carriers, including the Company. First, the Federal Communications Commission
conditioned facilities-based authorizations for service on a route on which a
carrier has a foreign affiliate upon the foreign affiliate offering all other
U.S. carriers a settlement rate at or below the relevant benchmark. Our foreign
affiliates in the United Kingdom, Germany, France and The Netherlands satisfy
this condition. Second, the Federal Communications Commission conditioned any
authorization to provide switched services over either facilities-based or
resold international private lines upon the condition that at least half of the
facilities based international message telephone service traffic on the subject
route is settled at or below the relevant benchmark rate. This condition applies
whether or not the licensee has a foreign affiliate on the route in question. In
the foreign participation order described above, however, if the subject route
does not comply with the benchmark requirement, a carrier can demonstrate that
the foreign country provides "equivalent" resale opportunities. Accordingly,
since the February 9, 1998 effective date of the Foreign Participation Order, we
have been permitted to resell private lines for the provision of switched
services to any country that either has been found by the Federal Communications
Commission to comply with the benchmarks or has been determined to be
equivalent. We, however, remain subject to prior Federal Communications
Commission approval in order to provide resold private lines to any country in
which we have an affiliated carrier that has not been found by the Federal
Communications Commission to lack market power. Many parties have appealed the
international settlement rates order to the U.S. Court of Appeals for the D.C.
Circuit or have filed petitions for reconsideration with the Federal
Communications Commission. On January 12, 1999, the U.S. Court of Appeals for
the D.C. Circuit issued an order resolving this appeal, upholding the
international settlement rates order in all respects. The appellants now have
the option of requesting that the case be heard by the U.S. Supreme Court. The
petition for reconsideration is still pending at the Federal Communications
Commission. We cannot predict the outcome of these proceedings and their
possible impact on the Company.
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Increasing regulatory liberalization in many countries'
telecommunications markets now permits more flexibility in the way we can route
calls. Although certain Federal Communications Commission rules limit the way in
which some international calls can be routed, we do not believe that our network
configuration, specifically the way in which traffic is routed through our
facilities in the UK, is specifically prohibited by, or undermines in any way
the intent of, these rules. It is possible, however, that the Federal
Communications Commission could find that our network configuration violates
these rules. If we were found to be in violation of these routing restrictions,
and if the violation was sufficiently severe, it is possible that the Federal
Communications Commission could impose sanctions and penalties upon the Company.
CALL REORIGINATION. In addition, outside the European Union we provide
a small number of customers with access to services through the use of call
reorigination. A substantial number of countries have prohibited certain forms
of call reorigination. We cannot assure you that certain of our services and
transmission methods will not be or not become prohibited in certain
jurisdictions and, depending on the jurisdictions, services and transmission
methods affected, there could be a material adverse effect on our business,
financial condition and results of operations.
UNSETTLED NATURE OF REGULATORY ENVIRONMENT. We have pursued and expect
to continue to pursue a strategy of providing our services to the maximum extent
we believe permissible under applicable laws and regulations. Our provision of
services in Western Europe may also be affected if any European Union member
state imposes greater restrictions on non-European Union international service
than on such service within the European Union. We cannot assure you that the
United States or foreign jurisdictions will not adopt laws or regulatory
requirements that will adversely affect us. Additionally, we cannot assure you
that future United States or foreign regulatory, judicial or legislative changes
will not have a material adverse effect on us or that regulators or third
parties will not raise material issues with regard to our compliance with
applicable laws or regulations. If we are unable to provide the services we are
presently providing or intend to provide or to use our existing or contemplated
transmission methods, due to our inability to receive or retain formal or
informal approvals for such services or transmission methods, or for any other
reason related to regulatory compliance or the lack thereof, such events could
have a material adverse effect on our business, financial condition and results
of operations.
Since January 1, 1998, we, as well as our U.S. competitors, have been
required by the Federal Communications Commission to make contributions to a
universal service fund to subsidize telecommunications services for low-income
persons, schools and libraries, and rural health care providers. These
contributions are based upon our gross revenues. There can be no assurance that
we will be able fully to pass the cost of these contributions on to our
customers or that doing so will not result in a loss of customers.
EUROPEAN IMPLEMENTATION. The national governments of the European
Union member states were required to pass legislation to liberalize the
telecommunications markets within their countries to give effect to European
Commission directives. Although most of the member states have now implemented
the required legislation, they have done so on an inconsistent, and sometimes
unclear, basis. In addition, the legislation and/or its implementation has, in
certain circumstances, imposed significant obstacles on the ability of carriers
to proceed with the necessary licensing process. Such barriers include
requirements that carriers post significant bonds, make significant capital
commitments to build infrastructure, complete extensive application
documentation and pay significant license fees. Implementation has also been
slow in certain member states as a result of such member state's failure to
dedicate the resources necessary to have a functioning regulatory body in place.
The above factors and other potential obstacles associated with the effective
implementation of liberalization could have a material adverse effect on our
operations by preventing us from expanding our operations either as quickly or
as currently intended, as well as a material adverse effect on our business,
financial condition and results of operations.
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RISKS ASSOCIATED WITH MANAGEMENT AND IMPLEMENTATION OF GROWTH STRATEGY
Our rapid and continued growth has placed, and is expected to continue
to place, a significant strain on our administrative, operational and financial
resources and has increased demands on our systems and controls. In addition, we
cannot assure you that we will be able to successfully add services or expand
our geographic markets or that existing regulatory barriers to our current or
future operations will be reduced or eliminated. As we increase our services and
expand our geographic markets, there will be additional demands on our customer
support, sales and marketing and administrative resources and network
infrastructure. We cannot assure you that our administrative, operating and
financial control systems and infrastructure will be adequate to maintain and
effectively monitor future growth or that we will be able to successfully
attract, train and manage additional employees. The failure to continue to
upgrade our administrative, operating and financial control systems and
infrastructure or the occurrence of unexpected expansion difficulties could have
a material adverse effect on our business, financial condition and results of
operations. See "- Dependence on Effective Information Systems; Year 2000
Technology Risks."
RISK ASSOCIATED WITH CONVERSION TO THE "EURO"; RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS AND FOREIGN EXCHANGE RATE RISKS
In January 1999, a new currency called the "euro" was introduced in
eleven of the fifteen European Union member states. There is a three-year
phase-in period for the euro, and by January 2002 the participating European
Union member states are expected to operate with the euro as their single
currency. Some of the rules and regulations with regard to the euro have yet to
be promulgated and completed by the European Commission. Although our management
does not believe that the conversion to the euro will have a material or adverse
impact on our business, they have not completed their assessment of the effect
that the introduction of the euro will have on our business, financial
conditions and results of operations.
There are certain risks inherent in conducting an international
business. Such risks include, among others:
- regulatory limitations restricting or prohibiting the provision
of our services;
- unexpected changes in regulatory requirements, tariffs, customs,
duties and other trade barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles;
- problems in collecting accounts receivable;
- political risks;
- fluctuations in currency exchange rates and the
conversion to the "euro" by several members of the European
Union;
- foreign exchange controls which restrict or prohibit repatriation
of funds;
- technology export and import restrictions or prohibitions;
- delays from custom's brokers or government agencies;
- seasonal reductions in business activity during the summer months
in Europe and certain other parts of the world; and
- potentially adverse tax consequences resulting from operating in
multiple jurisdictions with different tax laws.
If any of these risks materialize, our business, financial condition
and results of operations could be materially and adversely affected.
Since our inception in 1991, we have invested heavily in developing our
ability to provide international telecommunications services within Western
Europe and other deregulating markets and in developing and expanding our market
presence, including entering into the national long distance telecommunications
markets in Belgium, France, Germany, Italy, The Netherlands, and Spain. Our
payment obligations with respect to our outstanding indebtedness are denominated
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in U.S. Dollars and the euro, but certain of our revenues are denominated in
Sterling. Any appreciation in the value of the U.S. Dollar or the euro relative
to the Sterling could have a material adverse effect on our ability to make
payments on such obligations. We do not currently use financial hedging
transactions, although in the future we may elect to manage the exchange rate
exposure presented by our euro denominated obligations. We cannot provide any
assurance that exchange rate fluctuations will not have a material adverse
effect on our ability to make payments on our outstanding indebtedness. In
addition, we cannot assure you that the laws or administrative practices
relating to taxation, foreign exchange or other matters in countries within
which we operate will not change. Any such change could have a material adverse
effect on our business, financial condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
We may seek to acquire customer bases and businesses from, make
investments in, or enter into strategic alliances with, other companies. Any
future acquisitions, investments, strategic alliances or related efforts will be
accompanied by the risks commonly encountered in such transactions. Such risks
include, among others:
- the difficulty of identifying appropriate acquisition candidates;
- the difficulty of assimilating the operations and personnel of
the acquired entities;
- the potential disruption of our ongoing business;
- the inability of management to capitalize on the opportunities
presented by acquisitions, investments or strategic alliances;
- the failure to successfully incorporate licensed or acquired
technology and rights into our services;
- the failure to maintain uniform standards, controls, procedures
and policies; and
- the impairment of relationships with employees as a result of
changes in management and ownership.
Additionally, in connection with an acquisition, we may experience
rates of customer attrition that are significantly higher than the rate of
customer attrition which we generally experience. Further, to the extent that
any such transaction involves customer bases or businesses located outside the
United States, the transaction would involve the risks associated with
international operations. We cannot assure you that we would be successful in
overcoming these risks or any other problems encountered with such acquisitions,
investments or strategic alliances. See "- Risks Associated with the Viatel
Network" and "- Risks Associated with International Operations and Foreign
Exchange Rate Risks".
RAPIDLY CHANGING INDUSTRY, TECHNOLOGY AND CUSTOMER REQUIREMENTS;
SIGNIFICANT PRICE DECLINES
The telecommunications industry is changing rapidly due to, among other
factors, (1) liberalization, (2) privatization of incumbent telecommunications
operators, (3) technology and customer requirements, (4) significant price
declines, (5) technological improvements, (6) expansion of telecommunications
infrastructure and (7) the continued globalization of the world's economies and
free trade. Such changes may happen at any time and can significantly affect our
operations from period-to-period. We cannot assure you that one or more of these
factors will not have unforeseen effects which could have a material adverse
effect on the Company. Also, we cannot assure you, even if these factors turn
out as anticipated, that we will be able to implement our strategy or that our
strategy will be accepted in this rapidly evolving market.
The telecommunications industry is characterized by rapid and
significant technological advancements, introductions of new products and
services utilizing new technologies and broadband applications, increased
availability of transmission capacity and increased utilization of the Internet
for voice and data transmission. As new technologies develop, we may be placed
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at a competitive disadvantage and competitive pressures may force us to
implement such new technologies at substantial cost. In addition, competitors
may implement new technologies before we are able to implement such
technologies, allowing such competitors to provide enhanced services and
superior quality compared to those provided by us. We cannot assure you that we
will be able to respond to such competitive pressures and implement such
technologies on a timely basis or at an acceptable cost. One or more of the
technologies currently utilized by us, or which we may implement in the future,
may not be preferred by our customers or may become obsolete. If we are unable
to respond to competitive pressures, implement new technologies on a timely
basis, penetrate new markets in a timely manner in response to changing market
conditions or customer requirements, or if new or enhanced services offered by
us do not achieve a significant degree of market acceptance, any such event
could have a material adverse effect on our business, financial condition and
results of operations.
Prices for international long distance calls were historically kept
artificially high in part by above-cost international settlement rates which
allowed carriers to enjoy high gross margins on international calls. However,
many observers believe that, given the negligible marginal cost to a
facilities-based carrier of carrying an international call and given the
emergence of competition in many countries, the international settlement rate
system is in the process of collapsing and that the price of international calls
will not be sufficiently more expensive than domestic long distance calls. In
addition, the European Union Interconnection Directive, which became effective
in January 1998, requires European Union operators with significant market power
to charge cost-based and non-discriminatory prices for transmission of
cross-border traffic. This has had an effect on settlement rates with countries
and territories outside the European Union and may contribute to the collapse of
the international settlement rate system. For the foregoing reasons, during 1998
and the first six weeks of 1999 substantial price reductions were reflected in
international rates, particularly the rates charged for calls between countries
where competition exists. This represents a steep decline from rates charged for
such calls as recently as several years ago and we expect rates on international
calls, particularly between the United States and Western Europe, to continue to
decline significantly. Furthermore, the Federal Communications Commission has
adopted the international settlement rate order, which is designed to bring
downward pressure on international telephone rates by requiring U.S. carriers to
pay lower settlement rates to their correspondent foreign carriers.
Industry observers predict that telephone charges will be less affected
by the distance a call is carried, particularly with the possible increased use
of voice services over the internet. As a consequence, if we are unable to
effectively implement our strategy of owning, rather than leasing, facilities,
we could experience a substantial reduction in gross margin on international
calls which, absent a substantial increase in billable minutes of traffic
carried or charges for additional services, would have a material adverse effect
on our business, financial condition and results of operations. In addition,
during 1998 a number of incumbent telecommunications operators took steps to
substantially reduce retail prices, in excess of reductions in wholesale prices,
in an effort to protect their market and deter competitors, such as us. See "-
Competition."
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS; YEAR 2000 TECHNOLOGY RISKS
To efficiently produce customer bills in a timely manner, we must
record and process millions of call detail records quickly and accurately. While
we believe that our billing and information systems are currently sufficient for
our operations, such systems will require enhancements and ongoing investments,
particularly as volume increases. We cannot assure you that we will not
encounter difficulties in enhancing our systems or integrating new technology
into our systems. Our failure to implement any required system enhancement, to
acquire new systems or to integrate new technology in a timely and cost
effective manner could have a material adverse effect on our business, financial
condition and results of operations.
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The year 2000 issue is the result of computer programs, microprocessors
and embedded date reliant systems using two digits rather than four to define
the applicable year. If such programs are not corrected, such date sensitive
computer programs, microprocessors and embedded systems may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculation causing disruptions in operations. In an effort
to assess our year 2000 state of readiness, during 1997 we began performing a
complete inventory assessment of all of our information technology and
non-information technology systems, the vast majority of which have either been
developed or purchased by us within the past four years. Based on our review to
date, we believe that the vast majority of our existing systems are year 2000
compliant. However, we cannot provide any assurance until the year 2000 occurs
that such is the case. With regard to systems which are not currently year 2000
compliant, we are actively replacing such systems to ensure our ability to
continue to meet our internal needs and the requirements of our customers. We
currently anticipate that the upgrade or modification of such non-compliant
systems will be completed during the first half of 1999. We have also initiated
formal communications with the key carriers and other vendors on which our
operations and infrastructure are dependent to determine the extent to which we
are susceptible to a failure resulting from such third parties' inability to
remediate their own year 2000 issues. We cannot assure you that the carriers and
other vendors on which our operations and infrastructure rely are or will be
year 2000 compliant in a timely manner. Interruptions in the services provided
to us by these third parties could result in disruptions in our services.
Depending upon the extent and duration of any such disruptions and the specific
services affected, such disruptions could have a material adverse affect on our
business, financial condition and results of operations. In addition,
disruptions in the economy generally resulting from year 2000 issues could also
have a material adverse affect on us. We could be subject to litigation
resulting from any disruption in our services. The amount and potential
liability or lost revenue cannot be reasonably estimated at this time.
RELIANCE ON THIRD PARTIES FOR LEASED CAPACITY AND INTERCONNECTION ARRANGEMENTS
Other than our fiber ring which connects London, Paris, Brussels,
Antwerp and Rotterdam and indefeasible rights-of-use and minimum investment
units which we own in certain digital fiber optic cables, we do not currently
own any other telecommunications transmission lines. As a result, we are
generally not able to terminate calls over our own network and are currently
dependent upon other facilities-based carriers, virtually all of which are our
competitors. We currently lease transmission lines from the respective incumbent
telecommunications operator in each country in which we operate. In addition,
our ability to access customers and effectively utilize our network is dependent
upon our ability to secure operative interconnection agreements, providing
access and egress into and from the public switched telephone network, with the
respective incumbent telecommunications operator in each market in which we
operate. We currently have interconnection agreements with Cable & Wireless and
British Telecom in the United Kingdom, France Telecom in France, KPN in The
Netherlands, Infostrada in Italy and Deutsche Telekom in Germany, and expect to
secure additional interconnection agreements in certain other European Union
member states in which we operate. Difficulties or delays in obtaining necessary
operative interconnections in a satisfactory or timely manner may significantly
delay or prevent the maximum utilization of our network which could have a
material adverse effect on Viatel.
Notwithstanding our fiber ring connecting London, Paris, Brussels,
Antwerp and Rotterdam, we currently lease capacity for point-to-point circuits
with fixed monthly payments and buy minutes of use pursuant to agreements with
maximum twelve-month terms and are vulnerable to changes in our lease
arrangements, capacity limitations and service cancellations. These lease
arrangements present us with high fixed costs, while revenues generated by the
utilization of these leases will vary based on traffic volume and pricing.
Accordingly, if we are unable to generate sufficient traffic volume over
particular routes or are unable to charge appropriate rates, we could fail to
generate revenue sufficient to meet the fixed costs associated with the lease
and may incur negative gross margins with respect to such routes. Although we
believe that our arrangements and relationships with other carriers generally
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are satisfactory, the deterioration or termination of our arrangements and
relationships with one or more carriers could have a material adverse effect on
our cost structure, service quality, network coverage, financial condition and
results of operations.
DEPENDENCE ON CARRIER CUSTOMERS
Viatel derives a significant portion of its revenues from a relatively
small number of carrier customers. Accordingly, the loss of revenue from one or
more carrier customers could have a material adverse effect upon our business,
financial condition and results of operations.
Carrier customers are extremely price sensitive, generate relatively
low margin business and often choose to move their business based solely on
small price changes. In addition, smaller carrier customers generally are
perceived in the telecommunications industry as presenting a higher risk of
payment delinquency or non-payment than other customers. While we believe that
our credit criteria enables us to reduce our exposure to the higher payment
risks generally associated with carrier customers, we cannot assure you that
such criteria will afford adequate protection against such risks.
DEPENDENCE ON KEY PERSONNEL
The success of our business will depend, to a significant extent, upon
the abilities and continued efforts of our senior management, and particularly
upon the abilities and efforts of Michael J. Mahoney, our Chairman, Chief
Executive Officer and President. We do not currently have employment agreements
with any executive officer other than Mr. Mahoney, Allan L. Shaw, our Senior
Vice President of Finance and Chief Financial Officer, and Sheldon M. Goldman,
our Senior Vice President, Business Development and General Counsel. Except for
a $3.0 million "key-man" life insurance policy which we obtained on the life of
Mr. Mahoney, we do not maintain and do not contemplate obtaining such life
insurance policies on any of our employees. Our success also will depend on our
ability to attract, retain and motivate qualified management, marketing,
technical and sales executives and other personnel who are in high demand and
are often subject to competing employment opportunities. In addition, the labor
market for software engineers and central office technicians has been extremely
competitive recently and we may lose key employees or be forced to increase
their compensation. The loss of the services of key personnel, or the inability
to attract additional qualified personnel, could have a material adverse effect
on our business, financial condition and results of operations. We cannot assure
you that we will be successful in attracting, retaining and motivating such
personnel.
CONTROL BY PRINCIPAL STOCKHOLDERS
To our knowledge, as of December 31, 1998, COMSAT Investments, Inc.,
S-C V-Tel Investments and Martin Varsavsky controlled, in the aggregate,
approximately 32% of our outstanding common stock and Mr. Varsavsky individually
beneficially owned 15% of such shares. To the extent that these stockholders
exercise their voting rights in concert, they will have the power to influence
the election of Directors and the outcome of most matters requiring stockholder
approval. In addition, without the consent of these stockholders, we could be
prevented from entering into certain transactions that could be beneficial to
us. Also, third parties could be discouraged from making a tender offer or bid
to acquire our company at a price per share that is above the price at which the
stock is trading on Nasdaq.
POSSIBLE LIMITATIONS ON NET OPERATING LOSS CARRY FORWARDS
As of December 31, 1997, we had unused United States federal and
foreign income tax net operating loss carryforwards of approximately $94.7
million. Such net operating loss carryforwards begin to expire in the year 2007.
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As a result of an "ownership change," as defined in Section 382 of the
Internal Revenue Code of 1986, as amended, in October 1996, certain of our net
operating loss carryforwards from periods before such time are subject to annual
limitations. Section 382 of the Internal Revenue Code imposes limitations with
respect to the carryforward of net operating losses by a corporation that
experiences a more-than-50 percent ownership change over a three-year period (or
over a shorter period if there has been a prior ownership change within the
immediately preceding three-year period). In general, if such an ownership
change occurs, Section 382 of the Internal Revenue Code limits the amount of the
net operating losses carried over from pre-ownership change years that can be
used in any post-ownership change year to an amount equal to the product
obtained by multiplying (1) the value of the corporation's capital stock (with
certain adjustments) at the time of the ownership change and (2) an interest
rate determined by the Internal Revenue Service for the month of the ownership
change.
It is possible that the issuance of the shares contemplated by this
Prospectus, when combined with subsequent direct and indirect changes in the
ownership of the Company's capital stock within the relevant testing period,
could result in a more-than-50 percent ownership change and substantially
restrict the Company's subsequent use of its then unused net operating loss
carryforwards.
We will be required to pay U.S. federal income tax in any year in which
our taxable income exceeds the amount of each of the net operating loss
carryforwards limited by Section 382 of the Internal Revenue Code, plus the
aggregate net operating loss carryforwards from years after an ownership change.
To the extent that we do not use the full amount of our limited net operating
loss carryforwards in any year, such unused portion can be used to increase the
net operating loss carryforward limitation for subsequent years prior to the
expiration of the net operating loss carryforwards subject to the limitation.
VARIABILITY OF OPERATING RESULTS
Our quarterly operating results have fluctuated in the past, primarily
as a result of the evolution of our business, and may fluctuate significantly in
the future as a result of a variety of factors, including:
- pricing changes in the industry;
- changes in the mix of services sold or channels through which
those services are sold;
- changes in user demand, customer terminations of service, capital
expenditures and other costs relating to the expansion of our
network;
- the start-up of three phases of the Circe Network;
- the timing and costs of any acquisitions of customer bases and
businesses, services or technologies;
- the timing and costs of marketing and advertising efforts;
- the effects of government regulation and regulatory changes; and
- specific economic conditions in the telecommunications industry.
Such variability could have a material adverse effect on our business, financial
condition and results of operations. Any significant shortfall in demand for our
services in relation to our expectations, or the occurrence of any other factor
which causes revenue to fall significantly short of our expectations, would also
have a material adverse effect on our business, financial condition and results
of operations. In addition, the uncertainty of revenue growth coupled with
substantial planned increases in operating expenses and the continued evolution
in our transmission methodology from switchless resale to use of our network may
result in substantial quarterly fluctuations in our operating results. See "--
Limited Operating History; Substantial Net Losses and Negative Cash Flow from
Operations."
ANTI-TAKEOVER CONSIDERATIONS
Viatel's Certificate of Incorporation and By-laws include certain
provisions which are intended to enhance the likelihood of continuity and
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stability in the composition of our Board of Directors and which may have the
effect of delaying, deterring or preventing a future takeover or change in
control, unless such takeover or change in control is approved by our Board of
Directors, even though such a transaction may offer the holders of our common
stock the opportunity to sell such shares of our common stock at a price above
the prevailing market price. Such provisions may also render the removal of
directors and management more difficult. Specifically, the Certificate of
Incorporation and By-laws provide for a classified Board of Directors serving
staggered, three-year terms and certain advance notice requirements for
stockholder nominations of candidates for election to our Board of Directors and
certain other stockholder proposals. Such provisions could limit the price that
certain persons might be willing to pay in the future for shares of our common
stock. In addition, the Board of Directors could authorize the issuance of
additional shares of our Preferred Stock, which shares, depending upon the
rights, designations, preferences, qualifications, limitations, and restrictions
thereof, may have the effect of delaying, deterring or preventing a change in
control or may otherwise adversely affect the interests of holders of our common
stock. In addition, certain provisions of the Delaware General Corporation Law
prevent certain stockholders from engaging in business combinations with the
Company, subject to certain exceptions.
The indentures pursuant to which the vast majority of our outstanding
indebtedness was issued provide that, upon the occurrence of certain specified
events, we will be required to make an offer to purchase all of the indebtedness
outstanding under such indentures at the purchase price stated therein. However,
our ability to repurchase such indebtedness upon the occurrence of such events
may be limited by the terms of other existing contractual obligations. In
addition, we cannot assure you that, in the event of a triggering event, we will
have, or will have access to, sufficient funds to repurchase such indebtedness.
If we fail to repurchase all of indebtedness tendered for purchase upon the
occurrence of a triggering event, such failure will constitute an Event of
Default under the indentures. Further, pursuant to the terms of our Salary and
Benefits Continuation Program salaried employees with at least one year of
consecutive service with us may be entitled to receive a payment of a salary
continuation benefit if their employment is involuntarily terminated under
conditions specified in the program within one year after certain specified
events. Maximum benefits currently payable under the Program in the event of a
triggering event are limited to three months' base salary, plus two additional
weeks of salary for each completed year of service. In addition, the employment
agreements between the Company and each of Messrs. Mahoney, Shaw and Goldman
contain provisions which require us to make certain payments to such officers in
certain instances if employment is terminated following certain specified
events. Finally, our Amended Stock Incentive Plan provides that outstanding
options, restricted stock or stock appreciation rights held by certain members
of management vest in their entirety and become exercisable, and as with respect
to restricted stock, are released from restrictions on transfer and repurchase
rights in event of certain corporate transactions.
VOLATILITY OF MARKET PRICE OF COMMON STOCK
Since our common stock has been publicly traded, the market price of
our common stock has fluctuated over a wide range and may continue to do so in
the future. The market price of our common stock could be subject to significant
fluctuations in response to various factors and events, including, among other
things, the depth and liquidity of the trading market of our common stock,
variations in our operating results and the difference between actual results
and the results expected by investors and securities analysts. In addition, the
stock market in recent years has experienced broad price and volume fluctuations
that have often been unrelated to the operating performance of companies. These
broad market fluctuations also may adversely affect the market price of our
common stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of our common stock in the
public market, or even the potential for such sales, could adversely affect the
prevailing market price of our common stock and impair our ability to raise
additional capital through the sale of equity securities.
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THE COMPANY
GENERAL. Viatel is a rapidly growing, facilities-based, global provider
of telecommunications services, primarily to small and medium-sized businesses,
carriers and resellers. The Company currently operates one of the largest
alternative Pan-European networks, with international gateway switching centers
in New York, New York and London, England, network points of presence in 30
cities, direct sales forces in nine Western European cities and indirect sales
offices in more than 100 additional locations in Western Europe. The Company
offers a broad array of competitively priced, value-added services and voice
telephony to more than 230 countries and territories worldwide.
SERIES A PREFERRED STOCK AND SUBORDINATED CONVERTIBLE DEBENTURES. On
April 8, 1998, the Company issued and sold in a transaction exempt from the
registration requirements of the Securities Act of 1933, (i) 500,000 units, each
of which consisted of one 12.50% Senior Discount Note Due 2008 and .490 of a
share of 10% Redeemable Convertible Series A Preferred Stock ("Series A
Preferred Stock"); (ii) 400,000 units, each of which consisted of one 11.25%
Senior Note Due 2008 and .483 of a share of Series A Preferred Stock; (iii)
226,000 units, each of which consisted of one DM denominated 12.40% Senior
Discount Note Due 2008 and 2.77 10% Subordinated Convertible Debentures due 2011
(the "Subordinated Debentures"); and (iv) 178,000 units, each of which consisted
of one DM denominated 11.15% Senior Note Due 2008 and 2.69 Subordinated
Debentures.
As required by the terms of the April 8, 1998 offering, in August 1998
the Company commenced a registered exchange offer pursuant to which it offered
to exchange each series of unregistered notes issued in the offering for an
issue of notes with terms identical to each such series of notes. Upon
effectiveness of such registration statement, the units automatically separated
into their constituent parts.
The Registration Statement of which this Prospectus is a part was filed
pursuant to the terms of the Conversion Shares Registration Rights Agreement,
dated April 3, 1998, between the Company and the initial purchasers of the
units, which requires that on or prior to April 8, 1999 the Company file and
cause to be effective a shelf registration statement with respect to issuances
of our common stock upon conversion of the Series A Preferred Stock and
Subordinated Debentures. Subject to certain "blackout periods," the Company is
required to keep the Registration Statement effective for two years or, if
earlier, when all the Series A Preferred Stock and Convertible Debentures have
been convertible into shares of our common stock.
The Series A Preferred Stock and the Subordinated Debentures are
mandatorily convertible into shares of our common stock if the per share closing
price of the common stock for any 20 consecutive trading days during the twelve
months ended April 15, 1999, April 15, 2000, April 15, 2001, April 15, 2002 or
April 15, 2003, exceeds $26.40, $32.30, $38.20, $44.10 or $50.00, respectively;
provided that no such conversion may occur (i) until April 8, 1999 and until the
Registration Statement becomes effective and (ii) unless the price of our common
stock on the conversion date exceeds the relevant price listed above.
In addition, the Series A Preferred Stock and the Subordinated
Debentures may be converted at the option of the holder, at any time after April
8, 1999 at a conversion price of $13.20 per share of common stock, in the case
of the Series A Preferred Stock, and DM 24.473 per share of common stock, in the
case of the Subordinated Debentures, in each case subject to certain
adjustments.
USE OF PROCEEDS
We will not receive any proceeds from the conversion of the
Subordinated Debentures or the Series A Preferred Stock by the holders thereof.
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PLAN OF DISTRIBUTION
This Prospectus registers 6,824,249 shares of common stock to be issued
upon the conversion of the Subordinated Debentures and the Series A Preferred
Stock by the holders thereof.
Upon conversion of the Subordinated Debentures and the Series A
Preferred Stock, the holders shall receive registered common stock from the
Company, which may be sold in any one or more transactions on the Nasdaq Stock
Market, or any exchange on which the common stock may then be listed, in the
over-the-counter market or otherwise in negotiated transactions or a combination
of such methods of sale, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices.
LEGAL MATTERS
Certain legal matters relating to the validity of the securities
covered hereby will be passed upon for the Company by Kelley Drye & Warren LLP,
New York, New York.
EXPERTS
The consolidated financial statements and schedule of Viatel, Inc. and
subsidiaries as of December 31, 1996 and 1997, and for each of the years in the
three-year period ended December 31, 1997, have been incorporated by reference
in the Registration Statement in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Viatel is subject to the informational requirements of the Securities
Exchange Act of 1934, and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements and other
information may be read and copied at the Public Reference Room maintained by
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048, and 500 West Madison Street, Suite 1300, Chicago,
Illinois 60661-2511. Copies of such material also may be obtained from the
Public Reference Section of the Commission, at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Information regarding the operation
of the Commission's Public Reference Room may be obtained by calling the
Commission at 1-800-SEC-0330. The Commission also maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov. Our common stock is traded
on Nasdaq, and its periodic reports, proxy and information statements and other
information can be inspected at the offices of Nasdaq Operations, 1735 K Street,
N.W., Washington, D.C. 20006. Information regarding the Company may also be
obtained from its Web site at http://www.viatel.com.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act of 1933. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is made
to the Registration Statement and exhibits thereto for further information.
Exhibits to the Registration Statement that are omitted from this Prospectus may
also be obtained at the Commission's Web site described above. Statements
contained or incorporated by reference herein concerning the provisions of any
agreement or other document filed as an exhibit to the Registration Statement or
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otherwise filed with the Commission are not necessarily complete, and readers
are referred to the copy so filed for more detailed information, each such
statement being qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission pursuant to the Securities Exchange Act of 1934 are incorporated
herein by reference in this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as filed with the Commission on March
31, 1998 and amended by Form 10-K/A-1 filed with the
Commission on April 29, 1998;
(ii) Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, as filed with the Commission on May 15, 1998;
(iii) Quarterly Report on Form 10-Q for the quarter ended June
30, 1998, as filed with the Commission on August 14, 1998;
(iv) Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, as filed with the Commission on
November 16, 1998;
(v) Current Report on Form 8-K, as filed with the Commission on
March 3, 1998;
(vi) Current Report on Form 8-K, as filed with the Commission on
June 8, 1998; and
(vii) The description of Viatel's common stock, $0.01 par value,
contained in the Company's Registration Statement on Form
8-A (Registration No. 000-21261) filed with the Commission
on August 27, 1996 under Section 12 of the Securities
Exchange Act of 1934.
All reports and other documents filed by the Company pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this Prospectus and prior to the termination of this offering shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such reports and documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained therein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the documents
incorporated by reference in this Prospectus (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference into
such documents). Written requests for such documents should be directed to the
Director of Investor Relations at the Company's principal executive offices
located at 685 Third Avenue, New York, New York 10017 or by telephone at (212)
350-9200.
18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will
be paid by the Registrant in connection with the sale and distribution of the
securities being registered. All of the amounts shown are estimates except the
SEC registration fee.
SEC Registration Fee ........................... $ 35,859.30
Legal Fees and Expenses ........................ $ 15,000.00
Accounting Fees and Expenses ................... $ 2,500.00
Miscellaneous expenses ......................... $ 913.97
----------
Total ....................................... $ 54,273.27
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporations Law of the State of Delaware
(the "DGCL") provides that a Delaware corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "proceeding") (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify any person under such
Section in connection with a proceeding by or in the right of the corporation to
procure judgment in its favor, as provided in the preceding sentence, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action, except that no
indemnification shall be made with respect thereto unless, and then only to the
extent that, a court of competent jurisdiction shall determine upon application
that such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
present or former directors and officers who are successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter in any proceeding, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. A Delaware corporation may pay for the expenses (including attorneys'
fees) incurred by an officer or director in defending a proceeding in advance of
the final disposition upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation. Article Tenth of
the Registrant's Amended and Restated Certificate of Incorporation and Article X
of the Registrant's Amended and Restated Bylaws provide for indemnification of
directors and officers to the fullest extent permitted by Section 145 of the
DGCL.
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<PAGE>
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) with respect to certain unlawful dividend
payments or stock redemptions or repurchases or (iv) for any transaction from
which the director derived an improper personal benefit. Article Ninth of the
Registrant's Amended and Restated Certificate of Incorporation eliminates the
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the DGCL.
Section 145 of the DGCL permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other employee against any liability asserted against
such person and incurred by such person in such capacity, or arising out of
their status as such, whether or not the corporation would have the power to
indemnify directors and officers against such liability. The Registrant has
obtained officers' and directors' liability insurance of $15 million for members
of its Board of Directors and executive officers. In addition, the Registrant
has entered into agreements to indemnify its directors and officers from and
against any Expenses (as defined in the indemnity agreement) incurred by such
person in connection with investigating, defending, serving as a witness in,
participating in (including on appeal) or preparing for any of the foregoing in
any threatened, pending or contemplated action, suit or proceeding (including an
action by or in the right of the Registrant), or any inquiry, hearing or
investigation, to the fullest extent permitted by law, as such law may be
amended or interpreted (but only to the extent that such amendment or
interpretation provides for broader indemnification rights). The indemnity
agreement contains certain provisions to ensure that the indemnitee receives the
benefits contemplated by the agreement in the event of a "change in control" (as
defined in the indemnity agreement) such as the establishment and funding of a
trust in an amount sufficient to satisfy any and all expenses reasonably
anticipated to be incurred by the indemnitee in connection with investigating,
preparing for, participating in and/or defending a proceeding.
At present, there is no pending litigation or other proceeding
involving a director or officer of the Registrant as to which indemnification is
being sought, nor is the Registrant aware of any threatened litigation that may
result in claims for indemnification by any officer or director.
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
4.1* Indenture, dated as of April 8, 1998, between Viatel, Inc. and The
Bank of New York, as Trustee, relating to Viatel, Inc.'s 12.50%
Senior Discount Notes Due 2008 (including form of 12.50% Senior
Discount Note) (incorporated herein by reference to Exhibit 4.1 to
Viatel, Inc.'s Registration Statement on Form S-4, filed on July
10, 1998, Registration No. 333-58921 ("Viatel's 1998 Form S-4")).
4.2* Indenture, dated as of April 8, 1998, between Viatel, Inc. and The
Bank of New York, as Trustee, relating to Viatel, Inc.'s 11.25%
Senior Notes Due 2008 (including form of 11.25% Senior Note)
(incorporated herein by reference to Exhibit 4.2 to Viatel's 1998
Form S-4).
II-2
<PAGE>
4.3* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank
of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft, as
German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s
12.40% Senior Discount Notes Due 2008 (including form of 12.40%
Senior Discount Note) (incorporated herein by reference to Exhibit
4.3 to Viatel's 1998 Form S-4).
4.4* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank
of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft, as
German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s
11.15% Senior Notes Due 2008 (including form of 11.15% Senior Note)
(incorporated herein by reference to Exhibit 4.4 to Viatel's 1998
Form S-4).
4.5* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank
of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft, as
German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s
10% Subordinated Convertible Debentures Due 2011 (including form of
10% Subordinated Convertible Debenture) (incorporated herein by
reference to Exhibit 4.5 to Viatel's 1998 Form S-4).
4.6* Conversion Shares Registration Rights Agreement, dated April 3,
1998, among Viatel, Inc., Morgan Stanley & Co. Incorporated, Morgan
Stanley Bank AG, Salomon Brothers Inc, ING Baring (U.S.)
Securities, Inc. and NationsBanc Montgomery Securities LLC
(incorporated herein by reference to Exhibit 4.7 to Viatel's 1998
Form S-4).
4.7* Amended and Restated Certificate of Incorporation of Viatel, Inc.
(incorporated herein by reference to Exhibit 3.1(i)(a) to Viatel,
Inc.'s Registration Statement on Form S-1, Registration No.
333-09699, filed on August 7, 1996; Certificate of Designations,
Preferences and Rights of 10% Series A Redeemable Convertible
Preferred Stock, $.01 par value (incorporated herein by reference
to Exhibit 3(i)(b) to Viatel's 1998 Form S-4); Certificate of
Amendment to Viatel, Inc.'s Amended and Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit 4.9 to
Viatel, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 000-21261).
4.8* Second Amended and Restated Bylaws of Viatel, Inc. (incorporated
herein by reference to Exhibit 3(ii) of Viatel, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, File
No. 000-21261).
5.1 Opinion of Kelley Drye & Warren LLP as to the validity of the
securities being registered.
23.1 Consent of Kelley Drye & Warren LLP (included in their opinion
filed as Exhibit 5.1).
23.2 Consent of KPMG LLP.
24 Powers of Attorney (See Signature Page).
- ---------------------------------------
* Incorporated herein by reference.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
II-3
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price, represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant,
Viatel, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York on this 10th day of
February, 1999.
VIATEL, INC.
By: /S/ MICHAEL J.
MAHONEY
Chairman of the Board, President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint Michael J. Mahoney, Allan L. Shaw and
Sheldon M. Goldman, and each of them, as their true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for them and in
their names, places, steads, in any and all capacities, to sign this
Registration Statement to be filed with the Securities and Exchange Commission
and any and all amendments (including post-effective amendments) to this
Registration Statement, and any subsequent registration statement filed pursuant
to Rule 462 (b) under the Securities Act of 1933, as amended, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as they might or
could do in person, thereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on February 10, 1999.
Signature Title
/S/ MICHAEL J. MAHONEY Chairman of the Board, President and Chief
- ---------------------- Executive Officer (Principal Executive Officer)
Michael J. Mahoney
/S/ ALLAN L. SHAW Senior Vice President, Finance, Chief Financial
- ---------------------- Officer and Director (Principal Financial and
Allan L. Shaw Accounting Officer)
/S/ PAUL G. PIZZANI Director
- ----------------------
Paul G. Pizzani
/S/ FRANCIS J. MOUNT Director
- ----------------------
Francis J. Mount
/S/ JOHN G. GRAHAM Director
- ----------------------
John G. Graham
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
4.1* Indenture, dated as of April 8, 1998, between Viatel, Inc. and The
Bank of New York, as Trustee, relating to Viatel, Inc.'s 12.50%
Senior Discount Notes Due 2008 (including form of 12.50% Senior
Discount Note) (incorporated herein by reference to Exhibit 4.1 to
Viatel, Inc.'s Registration Statement on Form S-4, filed on July
10, 1998, Registration No. 333-58921 ("Viatel's 1998 Form S-4")).
4.2* Indenture, dated as of April 8, 1998, between Viatel, Inc. and The
Bank of New York, as Trustee, relating to Viatel, Inc.'s 11.25%
Senior Notes Due 2008 (including form of 11.25% Senior Note)
(incorporated herein by reference to Exhibit 4.2 to Viatel's 1998
Form S-4).
4.3* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank
of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft, as
German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s
12.40% Senior Discount Notes Due 2008 (including form of 12.40%
Senior Discount Note) (incorporated herein by reference to Exhibit
4.3 to Viatel's 1998 Form S-4).
4.4* Indenture, dated as of April 8, 1998, among Viatel, Inc., The Bank
of New York, as Trustee, and Deutsche Bank, Aktiengesellschaft, as
German Paying Agent and Co-Registrar, relating to Viatel, Inc.'s
11.15% Senior Notes Due 2008 (including form of 11.15% Senior Note)
(incorporated herein by reference to Exhibit 4.4 to Viatel's 1998
Form S-4).
4.5* Indenture, dated as of April 8, 1998, among Viatel, The Bank of New
York, as Trustee, and Deutsche Bank, Aktiengesellschaft, as German
Paying Agent and Co-Registrar, relating to Viatel, Inc.'s 10%
Subordinated Convertible Debentures Due 2011 (including form of 10%
Subordinated Convertible Debenture) (incorporated herein by
reference to Exhibit 4.5 to Viatel's 1998 Form S-4).
4.6* Conversion Shares Registration Rights Agreement, dated April 3,
1998, among Viatel, Inc., Morgan Stanley & Co. Incorporated, Morgan
Stanley Bank AG, Salomon Brothers Inc, ING Baring (U.S.)
Securities, Inc. and NationsBanc Montgomery Securities LLC
(incorporated herein by reference to Exhibit 4.7 to Viatel's 1998
Form S-4).
4.7* Amended and Restated Certificate of Incorporation of Viatel, Inc.
(incorporated herein by reference to Exhibit 3.1(i)(a) to Viatel,
Inc.'s Registration Statement on Form S-1, Registration No.
333-09699, filed on August 7, 1996; Certificate of Designations,
Preferences and Rights of 10% Series A Redeemable Convertible
Preferred Stock, $.01 par value (incorporated herein by reference
to Exhibit 3(i)(b) to Viatel's 1998 Form S-4); Certificate of
Amendment to Viatel, Inc.'s Amended and Restated Certificate of
Incorporation (incorporated herein by reference to Exhibit 4.9 to
Viatel, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 000-21261).
4.8* Second Amended and Restated Bylaws of Viatel, Inc. (incorporated
herein by reference to Exhibit 3(ii) of Viatel, Inc.'s Form 10-Q
for the quarter ended September 30, 1997, File No. 000-21261).
5.1 Opinion of Kelley Drye & Warren LLP as to the validity of the
securities being registered.
23.1 Consent of Kelley Drye & Warren LLP (included in their opinion
filed as Exhibit 5.1).
23.2 Consent of KPMG LLP.
24 Powers of Attorney (See Signature Page).
EXHIBIT 5.1
Kelley Drye & Warren LLP
101 Park Avenue
New York, New York 10178
February 11, 1999
Viatel, Inc.
685 Third Avenue
New York, New York 10017
Ladies and Gentlemen:
We are acting as counsel to Viatel, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing with the Securities
and Exchange Commission (the "Commission") of a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Act"). The Registration Statement relates to 6,824,249 shares of the
Company's Common Stock, $0.01 par value per share (the "Shares"), which are to
be issued upon conversion of the Company's 10% Redeemable Convertible Preferred
Stock, $0.01 par value per share (the "Series A Preferred"), and 10%
Subordinated Convertible Debentures Due 2011(the "Convertible Debentures", and
together with the Series A Preferred, the "Convertible Securities") which
securities were originally issued pursuant to exemptions from the Act provided
by Rule 144A or Regulation S.
In connection with this opinion, we have examined and relied upon copies
certified or otherwise identified to our satisfaction of: (i) an executed copy
of the Registration Statement; (ii) the Company's Amended and Restated
Certificate of Incorporation, as amended, and Amended and Restated By-laws; and
(iii) the minute books and other records of corporate proceedings of the
Company, as made available to us by officers of the Company; and have reviewed
such matters of law as we have deemed necessary or appropriate for the purpose
of rendering this opinion.
For purposes of this opinion we have assumed the authenticity of all
documents submitted to us as originals, the conformity to originals of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of all documents submitted to us as copies. We
have also assumed the legal capacity of all natural persons, the genuineness of
all signatures on all documents examined by us, the authority of such persons
signing on behalf of the parties thereto other than the Company and the due
authorization, execution and delivery of all documents by the parties thereto
other than the Company. As to certain factual matters material to the opinion
expressed herein, we have relied to the extent we deemed proper upon
representations, warranties and statements as to factual matters of officers and
other representatives of the Company. Our opinion expressed below is subject to
the qualification that we express no opinion as to any law other than the laws
of the State of New York, the corporate law of the State of Delaware and the
federal laws of the United States of America. Without limiting the foregoing, we
express no opinion with respect to the applicability thereto or effect of
municipal laws or the rules, regulations or orders of any municipal agencies
within any such state.
Based upon and subject to the foregoing qualifications, assumptions and
limitations and the further limitations set forth below, it is our opinion that
the Shares to be issued by the Company upon conversion of the Convertible
Securities have been duly authorized and reserved for issuance and, when
certificates for the Shares have been duly executed by the Company,
countersigned by a transfer agent, duly registered by a registrar for the Shares
and issued upon conversion of the Convertible Securities in accordance with
their terms, the Shares will be validly issued, fully paid and non-assessable.
This opinion is limited to the specific issues addressed herein, and no
opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York, the corporate law of the State of Delaware or the
federal laws of the United States of America be changed by legislative action,
judicial decision or otherwise.
<PAGE>
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our Firm in the Prospectus
included therein under the caption "Legal Matters." In giving such consent, we
do not admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Commission
promulgated thereunder.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
/s/ KELLEY DRYE & WARREN LLP
2
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
Viatel, Inc.:
We consent to the use of our reports incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the registration statement.
/s/KPMG LLP
New York, New York
February 11, 1999
