<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
VIATEL, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 4813 13-3787366
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
</TABLE>
685 THIRD AVENUE
NEW YORK, NEW YORK 10017
(212) 350-9200
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
------------------------------
JAMES P. PRENETTA, ESQ.
VICE PRESIDENT 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:
JAY R. SCHIFFERLI, ESQ.
KELLEY DRYE & WARREN LLP
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CT 06901-3229
(203)-327-2669
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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(d)
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
11.50% Senior Dollar Notes due 2009.... $269,456,000.00 100% $269,456,000.00 $71,136.38
</TABLE>
(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457(f).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS 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 PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
PRELIMINARY PROSPECTUS
[LOGO]
OFFER TO EXCHANGE
11.50% SENIOR DOLLAR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR ANY AND ALL OUTSTANDING
11.50% SENIOR DOLLAR NOTES DUE 2009
WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
We are offering to exchange up to $269,456,000 in principal amount of our
11.50% senior dollar notes due 2009 which have been registered under the
Securities Act of 1933 for our existing unregistered 11.50% senior dollar notes
due 2009 originally issued in December 1999.
TERMS OF THE EXCHANGE OFFER:
- The exchange offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on , 2000, unless extended.
- We will accept for exchange all existing unregistered notes that are
validly tendered prior to 5:00 p.m., New York City time, on the expiration
date.
- You may withdraw tendered existing notes at any time prior to the
expiration date. The exchange offer is not conditioned upon any minimum
principal amount of existing notes being tendered for exchange.
- We are offering to issue the registered notes to satisfy our obligations
contained in a registration rights agreement entered into when the
existing unregistered notes were either (1) issued by us in connection
with our unregistered exchange offer made to institutional accredited
investors who owned 11.0% senior discount notes due 2008 of Destia
Communications, Inc. or (2) sold by us in a private placement transaction
pursuant to Rule 144A under the Securities Act, and therefore were not
registered with the SEC.
- The terms of the registered notes to be issued in this exchange offer are
substantially identical to the existing notes, except the registered notes
do not contain certain transfer restrictions, registration rights and
additional interest for failure to comply with the registration rights
that are contained in the existing notes.
- Any existing notes not tendered and accepted in the exchange offer will
remain outstanding and will be entitled to all the rights and preferences
that existed prior this exchange offer.
- If you fail to tender your existing notes while this exchange offer
remains open, you will continue to hold unregistered securities and your
ability to transfer them could be adversely affected.
- We will not receive any proceeds from the exchange offer. Pursuant to the
registration rights agreement, we will pay all expenses incident to our
consummation of the exchange offer and compliance with the terms of the
registration rights agreement. See "The Exchange Offer."
This prospectus, together with the letter of transmittal, is being sent to
all holders of existing notes.
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 13 FOR
A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN
EVALUATING THE EXCHANGE OFFER.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 13
Special Note Regarding Forward-Looking Statements........... 24
The Exchange Offer.......................................... 25
Use of Proceeds............................................. 33
Capitalization.............................................. 34
Selected Consolidated Financial Data........................ 35
Unaudited Pro Forma Combining Financial Information......... 37
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 43
Business.................................................... 55
Description of the Exchange Notes........................... 75
Certain United States Federal Income Tax Considerations..... 110
Plan of Distribution........................................ 116
Legal Matters............................................... 116
Experts..................................................... 116
Where You Can Find More Information About Us and Destia..... 117
Incorporation of Documents by Reference..................... 117
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
PRESENTATION OF FINANCIAL INFORMATION
We report our financial statements in U.S. dollars and prepare our financial
statements in accordance with generally accepted accounting principles in the
United States. In this prospectus, except where otherwise indicated, reference
to "$" or "U.S. dollars" are to the lawful currency of the United States.
Viatel has a fiscal year-end of December 31.
Our principal executive offices are located at 685 Third Avenue, New York,
New York 10017. Our telephone number at this location is (212) 350-9200.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND MAY
NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
UNDERSTANDING OF VIATEL AND THE EXCHANGE NOTES OFFERED BY THIS PROSPECTUS, YOU
SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE, THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES, AND
THE RISK FACTORS.
THE COMPANY
We are a rapidly growing international communications company, providing
high quality, competitively priced, long distance communication and data
services to end-users, carriers and resellers.
Our revenue has grown from $32.3 million in 1995 to $210.4 million for the
nine months ended September 30, 1999, and today we have direct sales forces in
12 Western European cities and an indirect sales force in more than 180
locations in Western Europe.
To capitalize on the opportunities presented by deregulation of the
telecommunications industry in Western Europe, we established an early presence
and sought aggressively to acquire licenses, interconnection and infrastructure.
Today, we have licenses in each of Belgium, France, Germany, Italy, The
Netherlands, Spain and the United Kingdom and interconnection agreements with
the incumbent telecommunications operator in each of these countries. We also
have a license in Switzerland.
We currently operate one of Europe's largest pan-European networks, with
points of interconnection in over 78 cities. We believe that control of network
infrastructure is critical to becoming a high quality, low-cost provider of
communications services because it will enable us to better manage service
offerings, quality of transmission and costs. Accordingly, we are currently in
the process of migrating from a network composed of international and domestic
leased circuits to a network composed primarily of owned circuits. To facilitate
this transition, in 1998 we commenced construction of a five-ring fiber optic
network in the largest telecommunications markets in Europe. These five rings,
which are expected to consist of approximately 8,700 route kilometers, comprise
the "Circe Network." In March 1999, we completed construction of phase one of
the Circe Network, which connects four European countries and includes London,
Paris, Amiens, Brussels, Antwerp, Rotterdam and Amsterdam. In July 1999, we
completed construction of phase two of the Circe Network which extends through
northern France, The Netherlands and into western Germany. The third phase,
which will extend through eastern Germany, currently is scheduled to be placed
into service during the first quarter of 2000. We currently anticipate that the
fourth and fifth phases of the Circe Network, which will extend into southern
France and Switzerland, will be completed during the third quarter of 2000.
We believe, and our experience to date has indicated, that demand from
end-users, carriers and other communications companies for high quality
transmission capacity in Europe will increase over the next several years due to
fundamental changes in the communications industry brought about by regulatory
and technical improvements. We also believe that cost effective transmission
capacity in Europe will allow new capacity intensive applications to be created
which will, in turn, fuel the need for capacity. Our network should allow us to
meet this increased demand by providing abundant transmission capacity for these
applications as well as for the continued growth in our existing voice service
business.
As part of our strategy to capture a share of the rapidly growing data
market, in the first quarter of 1999 we entered into an arrangement with Lucent
Technologies, Inc. pursuant to which Lucent is installing asynchronous transfer
mode backbone network equipment on our Circe Network. This backbone equipment is
designed to enable us to provide packet switched voice, video conferencing,
private intranets and dedicated Internet protocol transport over an integrated
platform and to offer end-users high capacity, speed and reliability. Lucent has
agreed to cooperate with us in developing marketing strategies to promote our
data services, to train our personnel and to assist us in achieving
3
<PAGE>
network-to-network interfaces with certain specified carriers. We expect our
data network to be commercially operable in the second quarter of 2000.
VIATEL/DESTIA ACQUISITION
On August 27, 1999, we agreed to acquire Destia through a merger of Destia
with one of our subsidiaries, and on December 8, 1999 we completed the merger.
As a result of the transaction, each share of Destia capital stock was converted
into the right to receive 0.445 of a share of Viatel common stock and Destia
became a wholly-owned subsidiary of Viatel. In connection with the merger, we
completed an exchange offer of our 11.50% senior notes due 2009 for all of
Destia's 11% senior discount notes due 2008. In addition, in connection with the
merger, we consummated a private placement of $63.7 million additional principal
amount of our 11.50% senior notes due 2009. The notes we issued in the exchange
offer and sold in the private placement are a single class of notes and are
being registered for exchange under this prospectus.
As a result of our acquisition of Destia, Destia is required to offer to
repurchase all of the outstanding Destia 13.50% senior notes due 2007 at a
purchase price equal to 101% of the outstanding principal amount, together with
accrued and unpaid interest. Destia launched this required offer to purchase on
December 22, 1999. As of September 30, 1999, the outstanding principal amount of
the Destia 13.50% notes was $150.7 million. Based on current and historical
trading prices of the Destia 13.50% notes, we do not expect that the holders of
these notes will tender their notes for repurchase. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources--Capital Additions; Commitments."
DESTIA
Destia is a rapidly growing, facilities-based provider of domestic and
international long distance telecommunications services in Europe and North
America. Destia's customer base consists of residential customers, commercial
customers, ethnic groups and other telecommunications carriers. Destia currently
offers a variety of retail telecommunications services, including international
and domestic long distance, calling card and prepaid card services, Internet
access, wireless and wholesale transmissions services.
Additional information regarding Destia is available in its public filings
with the SEC. Instructions for obtaining more information regarding Destia are
set forth under the heading "Where You Can Find More Information About Us and
Destia."
4
<PAGE>
THE EXCHANGE OFFER
The $269,456,000 aggregate principal amount of existing 11.50% notes that
are the subject of this exchange offer were issued by us on December 8, 1999 in
transactions exempt from the registration requirements of the Securities Act and
applicable state securities laws and may not be offered or sold in the United
States unless registered or sold pursuant to an available exemption under the
Securities Act and applicable state securities laws. In connection with these
December 1999 transactions, we entered into a registration rights agreement
which grants all holders of these existing 11.50% notes certain exchange and
registration rights. This exchange offer is intended to satisfy these exchange
and registration rights, all of which will terminate upon the consummation of
the exchange offer contemplated by this prospectus, except under limited
circumstances. This exchange offer is being made for all outstanding existing
notes. See "The Exchange Offer." The exchange notes will be entitled to the
benefits of the indenture under which the existing 11.50% notes were issued. See
"Description of the Exchange Notes."
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The Exchange Offer..................... We are offering to exchange $269,456,000 million principal
amount of our 11.50% senior dollar notes due 2009, which
have been registered under the Securities Act (the
"exchange notes"), for your outstanding 11.50% senior
dollar notes due 2009, exchanged or sold in the December
1999 transactions. To exchange your existing notes, you
must properly tender them, and we must accept your notes.
We will exchange all existing notes that you validly
tender and do not validly withdraw. We will issue
registered exchange notes at or promptly after the end of
the exchange offer contemplated by this prospectus.
Resale................................. We believe that you can offer for resale, resell or
otherwise transfer the exchange notes offered hereby
without complying with the registration and prospectus
delivery requirements of the Securities Act if:
- you are not an "affiliate" of Viatel, as defined in
Rule 405 of the Securities Act,
- you are acquiring the exchange notes in the ordinary
course of business, and
- you are not participating, nor intend to participate
and have no arrangement or understanding with any
person to participate, in any distribution of the
exchange notes.
If any of these conditions is not satisfied and you
transfer any exchange notes without delivering a proper
prospectus or without qualifying for a registration
exemption, you may incur liability under the Securities
Act. We will not assume or indemnify you against such
liability.
Each broker-dealer that receives exchange notes for its
own account in exchange for existing notes, where such
notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of such
</TABLE>
5
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<S> <C>
exchange notes. See "Plan of Distribution." A
broker-dealer may use this prospectus for an offer to
resell, a resale or other retransfer of the exchange
notes.
Consequences of Failure to Exchange
Existing Notes....................... You will continue to hold existing notes that remain
subject to existing transfer restrictions if:
- you do not tender your existing notes, or
- you tender your existing notes and they are not
accepted for exchange.
Subject to certain limited exceptions, we will have no
obligation to register the existing notes after we
consummate this exchange offer. See "The Exchange
Offer--Terms of the Exchange Offer" and "Risk
Factors--Your Failure to Participate in the Exchange Offer
Will Have Adverse Consequences."
Expiration Date........................ This exchange offer expires at 5:00 p.m., New York City
time, on , 2000, unless extended by us.
Conditions to the Exchange
Offer................................ This exchange offer is subject to customary conditions,
which we may waive.
Procedures for Tendering the Existing
Notes................................ If you wish to accept the exchange offer, you must submit
required documentation and effect a tender of existing
notes pursuant to the procedures for book-entry transfer
(or other applicable procedures), all in accordance with
the instructions described in this prospectus and in the
letter of transmittal. See "The Exchange Offer--Procedures
for Tendering," "--Book-Entry Transfer" and "--Guaranteed
Delivery Procedures." Other procedures may apply with
respect to book-entry transfers. See "The Exchange
Offer--Exchanging Book-Entry Notes."
Guaranteed Delivery Procedures......... If you wish to tender your existing notes, but cannot
properly do so prior to the expiration date, you may
tender your existing notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Acceptance of Existing Notes and
Delivery of Exchange Notes........... Subject to certain conditions, as described more fully
herein, we will accept for exchange any and all existing
notes properly tendered in this exchange offer and not
withdrawn, prior to 5:00 p.m., New York City time, on the
expiration date. The exchange notes issued pursuant to
this exchange offer will be delivered as promptly as
practicable following the expiration date. See "The
Exchange Offer--Terms of the Exchange Offer."
Withdrawal Rights...................... You may withdraw the tender of your existing notes at any
time prior to 5:00 p.m., New York City time, on the
expiration date.
</TABLE>
6
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Certain United States Federal Income
Tax Considerations................... For information regarding certain United States Federal
Income Tax considerations relating to this exchange offer
and the purchase, ownership and disposition of exchange
notes, you should read the discussion under the heading
"Certain United States Federal Income Tax Considerations."
Use of Proceeds........................ We will not receive any proceeds from the issuance of the
exchange notes in this exchange offer.
Exchange Agent......................... The Bank of New York is serving as exchange agent for this
exchange offer. You can find the address for the exchange
agent under the heading "The Exchange Offer--Exchange
Agent."
</TABLE>
7
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THE EXCHANGE NOTES
The form and terms of the exchange notes are identical in all material respects to the form and
terms of the existing notes, except that the exchange notes will be registered under the Securities
Act. As a result, the exchange notes will not bear legends restricting their transfer and will not
contain the registration rights or liquidated damages provisions contained in the existing notes.
The exchange notes represent the same debt as the existing notes. The existing notes and the
exchange notes are governed by the same indenture.
Exchange Notes Offered................. $269,456,000 principal amount of our 11.50% senior dollar
notes due 2009. Although the registered notes issued in
this exchange offer will have the same terms as our
currently outstanding registered 11.50% senior dollar
notes due 2009, which were issued in an exchange offer in
July 1999, the notes offered hereby will not be fungible
with such existing registered notes due to, among other
reasons, the original issue discount attributable to the
notes issued in this exchange offer.
Maturity............................... March 15, 2009.
Interest............................... Interest on the notes will be payable semi-annually in
cash on March 15 and September 15 of each year, commencing
March 15, 2000. Holders of exchange notes will receive
interest on March 15, 2000 from the date of their initial
issuance.
Original Issue Discount................ The exchange notes will have original issue discount for
U.S. federal income tax purposes. Accordingly, unless the
amount thereof is "DE MINIMIS," such original issue
discount will accrue from the issue date of the notes and
will be includible as interest income periodically in a
U.S. holder's gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments to
which the income is attributable. See "Certain United
States Federal Income Tax Considerations."
Security............................... The first three scheduled interest payments on the notes
are secured by U.S. government securities, which we
pledged to the trustee for the benefit of the holders. A
failure by us to pay interest on the notes in a timely
manner through the first three scheduled interest payment
dates for such notes will constitute an immediate event of
default under the indenture with no grace or cure period.
See "Description of the Exchange Notes -- Security."
Optional Redemption.................... We may redeem any of the notes, in whole or in part, at
any time on or after March 15, 2004. The redemption price
is 105.750% of the principal amount at maturity, plus
accrued interest. The redemption prices decline each year
after 2004 and will be 100% of their principal amount at
maturity, plus accrued interest, beginning on March 15,
2007.
In addition, before March 15, 2002, we may redeem up to
35% of the aggregate principal amount of notes with the
net proceeds of sales of certain kinds of our capital
stock at the redemption prices set forth in this
prospectus, plus accrued and unpaid
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8
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interest. We may make this redemption only if after such
redemption, an amount equal to at least 65% of the
principal amount of the notes remain outstanding and only
if notice of the redemption is given within 60 days of the
related sale of stock.
Change of Control...................... Upon a change of control (as defined under "Description of
the Exchange Notes"), we will be required to make an offer
to purchase the notes. The purchase price will equal 101%
of their principal amount plus accrued and unpaid
interest.
Ranking................................ The existing notes are, and the exchange notes will be,
unsecured (except as described in "-- Security" above),
senior obligations of ours, ranking equally in right of
payment with all existing and future unsecured
unsubordinated obligations and will be senior in right of
payment to all of our existing and future subordinated
indebtedness. At September 30, 1999, giving pro forma
effect to the exchange of all the Destia 11.0% discount
notes for our 11.50% senior notes in the December 8, 1999
exchange offer, the private placement and the acquisition
of Destia, we had approximately $1.7 billion of
indebtedness. The existing notes are, and the exchange
notes will be, effectively subordinated to all existing
and future liabilities (including trade payables) of our
subsidiaries, including Destia's 13.50% senior notes due
2007. As of September 30, 1999, the aggregate amount of
obligations (including trade payables) of our subsidiaries
was approximately $279.4 million. On that date, Destia and
its subsidiaries had $478.3 million of obligations,
including trade payables and all of Destia's notes. Destia
and its subsidiaries are now our subsidiaries.
Certain Covenants...................... The indenture contains certain covenants which restrict
our ability and the ability of our subsidiaries to:
- incur additional indebtedness,
- create liens,
- engage in sale-leaseback transactions,
- pay dividends or make distributions in respect of
their capital stock,
- make certain investments or certain other restricted
payments,
- sell assets,
- redeem capital stock,
- issue or sell stock of restricted subsidiaries, and
- enter into transactions with stockholders or
affiliates or, with respect to us, effect a
consolidation or merger.
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9
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<TABLE>
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The limitations are, however, subject to a number of
important qualifications and exceptions.
Trading................................ There has previously been only a limited secondary market,
and no public market, for the existing notes. The existing
notes have been approved for trading in the PORTAL market.
There is no established trading market for the exchange
notes. We do not currently intend to apply for listing of
the exchange notes on any national securities exchange or
for quotation through any automated quotation system.
Accordingly, there can be no assurance as to the
development of any market for, or the liquidity of any
market that may develop in, the exchange notes.
</TABLE>
For additional information regarding the exchange notes, see "Description of
the Exchange Notes" and "Certain United States Federal Income Tax
Considerations."
RISK FACTORS
Before making a decision to exchange your existing notes in the exchange
offer, you should consider the information presented under the caption "Risk
Factors."
10
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data. The
data does not present all of our financial information. You should read this
information together with the consolidated financial statements and the notes to
those statements appearing elsewhere in this prospectus and the information
under "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The as adjusted
balance sheet data gives pro forma effect to the acquisition of Destia, the
exchange of all outstanding Destia discount notes for $71.24, in cash (inclusive
of a $20.00 consent payment), and $686.03 in principal amount of existing notes
for each $1,000 principal amount at maturity of Destia's discount notes, and the
sale of $63.7 million of existing notes in the December 8, 1999 private
placement. The assumptions underlying the adjustments are more fully described
under the caption "Unaudited Pro Forma Combining Financial Information." EBITDA
consists of earnings before interest, income taxes, extraordinary loss,
dividends on preferred stock and depreciation and amortization. Capital
additions for each period consist of capital expenditures, the net increase in
payables for property and equipment purchases, assets acquired under capital
lease obligations and capitalized interest during the period. Deficiency of
earnings to fixed charges is calculated as income before taxes, dividends on
preferred stock and extraordinary items plus interest expense, divided by fixed
charges. Fixed charges consist of interest on indebtedness, dividends on
preferred stock and one-third of rental expense. Earnings were not sufficient to
cover fixed charges. Restricted securities represents government obligations
purchased by us which secure the payment of certain interest payments on our
outstanding senior notes.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- --------- -------- ---------
(UNAUDITED)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA: (IN THOUSANDS)
Revenue:
Communication services revenue............................ $ 50,419 $ 73,018 $ 131,938 $ 86,133 $ 151,204
Capacity sales............................................ -- -- 3,250 -- 59,173
-------- -------- --------- -------- ---------
Total revenue......................................... 50,419 73,018 135,188 86,133 210,377
Operating expenses:
Cost of services and sales................................ 42,130 63,504 122,109 77,624 162,858
Selling, general and administrative....................... 32,866 36,077 44,893 31,057 63,380
Depreciation and amortization............................. 4,802 7,717 16,268 10,706 39,039
-------- -------- --------- -------- ---------
Total operating expenses.............................. 79,798 107,298 183,270 119,387 265,277
-------- -------- --------- -------- ---------
Operating loss.............................................. (29,379) (34,280) (48,082) (33,254) (54,900)
Interest income............................................. 1,852 3,686 28,259 19,906 21,413
Interest expense............................................ (10,848) (12,450) (79,177)(1) (52,715) (97,344)(1)
-------- -------- --------- -------- ---------
Loss before extraordinary loss.............................. (38,375) (43,044) (99,000) (66,063) (130,831)
Extraordinary loss on debt prepayment....................... -- -- (28,304) (28,304) --
-------- -------- --------- -------- ---------
Net loss.................................................... (38,375) (43,044) (127,304) (94,367) (130,831)
Dividends on redeemable convertible preferred stock....... -- -- (3,301) (2,131) (1,341)
-------- -------- --------- -------- ---------
Net loss attributable to common stockholders................ $(38,375) $(43,044) $(130,605) $(96,498) $(132,172)
======== ======== ========= ======== =========
</TABLE>
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(1) We capitalize interest costs that relate to debt to finance the Circe
Network, until the related portion of the Circe Network is placed into
service. In 1998 and the nine months ended September 30, 1999, we
capitalized $3.3 million and $7.1 million, respectively, of interest costs.
11
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<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1996 1997 1998 1998 1999
-------- -------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED FINANCIAL DATA: (IN THOUSANDS, EXCEPT OTHER OPERATING DATA)
EBITDA...................................................... $(24,577) $(26,563) $ (31,814) $(22,548) $ (15,861)
Net cash used in operating activities....................... (26,331) (22,525) (60,318) (13,501) (65,013)
Net cash used in investing activities....................... (1,592) (43,164) (349,992) (148,676) (373,338)
Net cash provided by financing activities................... 94,772 11,286 729,035 730,626 539,526
Capital additions........................................... 9,800 40,214 220,903 104,884 511,909
Deficiency of earnings to fixed charges..................... (38,442) (43,208) (133,927) (97,969) (139,285)
OTHER OPERATING DATA:
Billable minutes (000s)..................................... 62,249 140,918 383,875 248,887 909,574
Switches.................................................... 13 14 15 15 15
Points of interconnection................................... 13 33 34 33 78
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 434,936 $ 520,770
Restricted cash equivalents and restricted marketable
securities................................................ 168,864 227,188
Cash securing letters of credit for network construction.... 79,537 79,537
Working capital............................................. 284,314 352,046
Property and equipment, net................................. 715,483 861,808
Intangible assets, net...................................... 66,506 939,909
Total assets................................................ 1,594,401 2,820,373
Long-term debt, excluding current installments.............. 1,262,491 1,679,105
Stockholders' equity (deficiency)........................... (32,719) 648,849
</TABLE>
12
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, HOLDERS
OF EXISTING NOTES SHOULD REVIEW CAREFULLY THE FOLLOWING RISK FACTORS BEFORE
TENDERING THEIR EXISTING NOTES IN THE EXCHANGE OFFER. THE RISKS DESCRIBED BELOW
ARE NOT THE ONLY ONES THAT WE FACE. OUR BUSINESS, OPERATING RESULTS OR FINANCIAL
CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED BY THESE RISKS. YOU SHOULD ALSO
REFER TO OTHER INFORMATION INCLUDED IN THIS PROSPECTUS.
AS A RESULT OF THE MERGER, DESTIA IS REQUIRED TO OFFER TO REPURCHASE ITS 13.50%
SENIOR NOTES DUE 2007, AND CURRENTLY WE DO NOT HAVE THE FINANCIAL RESOURCES TO
FUND BOTH THIS REPURCHASE AND OUR BUSINESS PLAN
As a result of our acquisition of Destia, under the terms of the indenture
governing Destia's 13.50% senior notes due 2007, Destia is required to offer to
repurchase promptly all of those notes outstanding at a purchase price equal to
101% of the principal amount of those notes. Destia launched this required offer
to purchase on December 27, 1999. As of September 30, 1999, the total principal
amount of those outstanding notes was approximately $150.7 million. If we were
required to divert our available cash to fund Destia's repurchase of all or a
significant amount of the notes, our ability to implement our business plan,
which is currently fully funded, would be restricted. Failure to complete the
repurchase offer would result in a default on the Destia 13.50% notes, which, in
turn, would be an event of default with respect to all of our senior
indebtedness. An event of default on our senior indebtedness would enable the
holders of such indebtedness to accelerate payment. As of September 30, 1999,
Viatel had total senior indebtedness of approximately $1.3 billion, and the
obligation to repay this amount due to such an acceleration would have a
material and adverse effect on us, as described below under the risk factor
captioned "Our Cash Flow May Not Be Sufficient to Permit Repayment of Our
Indebtedness When Due."
Based on the current and historical trading prices of the Destia 13.50%
notes, we do not expect that the holders of these notes will tender them for
repurchase. However, if there is a significant adverse change in the market for
debt securities or an adverse change with respect to either us or Destia, it is
likely that some or all of the Destia 13.50% notes will be tendered in the
repurchase offer.
THE NOTES ARE STRUCTURALLY SUBORDINATE TO THE OBLIGATIONS OF OUR SUBSIDIARIES,
INCLUDING THE DESTIA 13.50% NOTES
We conduct a substantial portion of our business through our subsidiaries.
Therefore, we depend upon dividends and other payments from our subsidiaries to
generate the funds necessary to meet our obligations, including the payment of
principal and interest on our outstanding notes. As a result, our creditors,
including any holders of the notes, will effectively rank junior to all
creditors of our subsidiaries, including any holders of outstanding Destia
13.50% notes. As of September 30, 1999, the aggregate amount of obligations
(including trade payables) of our subsidiaries was approximately
$279.4 million. On that date, Destia and its subsidiaries had $478.3 million of
obligations (including trade payables) and all the Destia notes. Destia and its
subsidiaries are now our subsidiaries.
WE AND DESTIA MAY ENCOUNTER DIFFICULTIES IN COMBINING OPERATIONS AND REALIZING
SYNERGIES
We completed the acquisition of Destia on December 8, 1999 with the
expectation that the acquisition will result in certain benefits, including
operating efficiencies, cost savings and synergies. Achieving the benefits of
the merger will depend in part upon the integration of our businesses and
Destia's in an efficient manner, which we believe will require considerable
effort. In addition, the consolidation of operations will require substantial
attention from management. The diversion of management attention and any
difficulties encountered in the transition and integration process could have a
material adverse effect on us. We cannot assure you that we and Destia will
succeed in
13
<PAGE>
integrating our respective operations in a timely manner or that the expected
efficiencies, cost savings and synergies of the merger will be realized.
WE WILL INCUR SIGNIFICANT MERGER-RELATED CHARGES
We estimate that, as a result of the merger, we will incur integration costs
associated with consolidating corporate headquarters and other administrative
functions, terminating certain leases and severance and facility closing costs
associated with consolidating certain product lines. In addition, we will incur
merger-related costs such as financial advisory, legal and accounting fees,
financial printing and other related charges.
WE MUST OBTAIN AN ADDITIONAL WAIVER UNDER THE TERMS OF DESTIA'S CREDIT
FACILITIES
Destia's credit facility with NTFC Capital Corporation, under which Destia
had borrowed approximately $17.2 million as of September 30, 1999, required
Destia to obtain NTFC's consent or prepay the borrowed amounts outstanding,
prior to any change in control transaction. Since our acquisition of Destia
would have triggered this consent/repayment requirement, Destia has obtained a
waiver of this provision from NTFC which extends until March 7, 2000. Before
March 7, 2000, we will be required either to (i) obtain a further waiver from
NTFC or (ii) prepay the outstanding amounts owed at a premium of not more than
101% of the amount outstanding prior to the recent waiver. We cannot provide any
assurance, however, that NTFC will grant an additional waiver, or that it will
grant such a waiver on terms that are acceptable to us. If NTFC does not grant
the waiver and we do not prepay the amount owed, then we will be in default
under the NTFC credit facility which, in turn, would be an event of default with
respect to all of our senior indebtedness. An event of default on our senior
indebtedness would enable the holders of such indebtedness to accelerate
payment. As of September 30, 1999, we had total senior indebtedness of
approximately $1.7 billion (giving pro forma effect to the acquisition of
Destia), and the obligation to repay this amount would have a material and
adverse effect on us, as described below under the risk factor captioned "Our
Cash Flow May Not Be Sufficient to Permit Repayment of Our Indebtedness When
Due."
THE NOTES HAVE ORIGINAL ISSUE DISCOUNT
The existing notes were issued at a discount from their stated principal
amount at maturity for U.S. federal income tax purposes. Consequently, original
issue discount will be includible in the gross income of a U.S. holder of notes
for U.S. federal income tax purposes in advance of the receipt of cash payments
on such notes, unless the amount of original issue discount is "DE MINIMIS." In
addition, if the notes constitute "applicable high yield discount obligations"
for federal income tax purposes, we will not be permitted to deduct original
issue discount in respect of the notes until we actually pay such original issue
discount, and some portion of such discount may not be deductible at any time.
See "Certain United States Federal Income Tax Considerations."
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR BUSINESS
We and Destia have a significant amount of indebtedness. As of
September 30, 1999, we had approximately $1.3 billion and Destia had
approximately $384.4 million of indebtedness. As of September 30, 1999, on a pro
forma basis, after giving effect to the merger, the private placement and the
December 1999 exchange offer, we would have had approximately $1.7 billion of
indebtedness and a pro forma stockholders' equity of $648.9 million.
Furthermore, our discount notes will accrete in value (I.E., effectively
increase in principal amount) by $217.2 million before they begin to pay
interest in cash. This substantial indebtedness could have important
consequences. For example, it could:
- limit our ability to obtain additional financing for working capital,
capital expenditures, acquisitions, joint ventures and general corporate
purposes;
14
<PAGE>
- 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, joint ventures and general corporate purposes;
- make us more vulnerable to economic downturns, limiting our ability to
withstand competitive pressures and reducing 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 our ability to borrow additional funds.
Any of the foregoing could have a material adverse effect on us and our
ability to make payments on the notes.
TO DATE, WE AND DESTIA HAVE INCURRED SUBSTANTIAL NET LOSSES AND NEGATIVE CASH
FLOW FROM OPERATIONS AND, IF THIS CONTINUES, WE WILL BE UNABLE TO MEET OUR
WORKING CAPITAL AND FUTURE DEBT SERVICE REQUIREMENTS
Our operating loss, negative EBITDA and net loss have increased for each of
the last four years. In 1998, we had an operating loss of $48.1 million,
negative EBITDA of $31.8 million and a net loss of $127.3 million and, on a pro
forma basis, after giving effect to the combination with Destia, would have had
an operating loss of $207.8 million, negative EBITDA of $58.7 million and a net
loss of $332.3 million. For the nine months ended September 30, 1999, we had an
operating loss of $54.9 million, negative EBITDA of $15.9 million and a net loss
of $130.8 million and, on a pro forma basis, after giving effect to the
combination with Destia, would have had an operating loss of $187.3 million,
negative EBITDA of $39.5 million and a net loss of $301.9 million. In 1998, we
had interest expense of $79.2 million and, on a pro forma basis, after giving
effect to the combination with Destia, would have had interest expense of
$135.4 million. For the nine months ended September 30, 1999, we had interest
expense of $97.3 million and, on a pro forma basis, after giving effect to the
combination with Destia, would have had interest expense of $140.5 million.
We are likely to have negative EBITDA and negative cash flow beyond 2000 if:
- we extend our expansion plans,
- prices charged to end-users for capacity sales or telecommunications
services decline faster than we anticipate,
- interconnection rates and wholesale prices paid by us do not decline as
quickly as we anticipate or
- any of the other risks described in this prospectus materialize.
Accordingly, there can be no assurance 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 our working capital and future debt service
requirements, which would have a material adverse effect on our business,
financial condition, results of operations and our ability to make payments on
the notes.
OUR CASH FLOW MAY NOT BE SUFFICIENT TO PERMIT REPAYMENT OF OUR INDEBTEDNESS WHEN
DUE
Our ability to make payments on and to refinance our indebtedness will
depend on our ability to generate cash in the future. There can be no assurance
that our business will generate sufficient cash
15
<PAGE>
flow from operations to meet our debt service requirements. Our cash flow from
operations may be insufficient to repay our indebtedness at scheduled maturity
and some or all of such indebtedness may have to be refinanced. If we are unable
to refinance our debt or if additional financing is not available on acceptable
terms, or at all, we could be forced to dispose of assets under circumstances
that might not be favorable to realizing the highest price for the assets or to
default on our obligations with respect to our indebtedness, either of which
could have a material adverse effect on our ability to make payments on the
notes.
OUR OPERATING RESULTS MAY BE SUBJECT TO SUBSTANTIAL FLUCTUATIONS
Our quarterly operating results have fluctuated in the past, primarily as a
result of the evolution of our business, and may fluctuate substantially in the
future as a result of a variety of factors, including:
- pricing changes in the industry;
- the start-up and ready-for-service dates of each phase of the Circe
Network;
- timing of capacity sales;
- 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 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.
Variability in our operating results could have a material adverse effect on
our business, financial condition, results of operations and our ability to make
payments on the notes. 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, results of
operations and our ability to make payments on the notes. 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.
DUE TO RESTRICTIONS IN OUR AND DESTIA'S INDENTURES, WE MAY NOT BE ABLE TO
OPERATE OUR BUSINESS AS WE DESIRE
The indentures under which our long-term debt and Destia's outstanding
long-term debt were issued contain a number of conditions and/or limitations on
the way in which each company can operate its business. These limitations may
force us to pursue less than optimal business strategies or forego business
arrangements which could have been financially advantageous to us and our
stockholders. The Viatel and Destia indentures restrict, and in some cases
significantly limit or prohibit, among other things, the ability of each company
and its respective subsidiaries to:
- incur additional indebtedness,
- create liens,
- engage in sale-leaseback transactions,
- pay dividends or make distributions with respect to their capital stock,
16
<PAGE>
- make certain investments,
- sell assets,
- redeem capital stock,
- issue or sell stock of restriced subsidiaries, or
- enter into transactions with shareholders or affiliates or, with respect
to Viatel and Destia, effect a consolidation or merger.
OUR FUTURE GROWTH WILL REQUIRE SUBSTANTIAL ADDITIONAL CAPITAL WHICH COULD EXCEED
BUDGETED AMOUNTS AND CAUSE US TO DELAY OR ABANDON EXPANSION PROJECTS
Our future growth will require substantial additional capital which may
exceed budgeted amounts. If we do not have sufficient cash to fund our growth as
planned, we may be required to delay or abandon some or all of our development
and expansion plans or we may have to seek additional money earlier than
anticipated. We cannot provide any assurance that additional financing
arrangements will be available to us on acceptable terms or at all. Moreover,
the amount of our and Destia's outstanding indebtedness may adversely affect our
ability to engage in additional financings. Our inability to obtain additional
financing when required on acceptable terms could have a material adverse effect
on our ability to make payments on the notes.
FAILURE TO IMPLEMENT OUR STRATEGY OF OWNING FACILITIES COULD SIGNIFICANTLY
IMPACT OUR FINANCIAL PERFORMANCE
If we are unable to successfully implement our strategy of owning, rather
than leasing, telecommunications facilities, we could experience a significant
decrease in the margin which we make on telecommunications traffic transmitted
on our network. Unless we are able to significantly increase the number of
billable minutes which we carry or the amount we can charge for additional
services, this decrease in margins would have a material adverse effect on our
business, financial condition, results of operations and our ability to make
payments on the notes.
FAILURE TO SELL CAPACITY ON OUR CIRCE NETWORK OR PRICE REDUCTIONS FOR
CROSS-BORDER CAPACITY IN EUROPE COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS
Our success and ability to achieve our business objectives depends, in part,
upon our sales and marketing capabilities, particularly on sales of capacity on
our Circe Network. The market for capacity has experienced significant price
reductions, which are expected to continue. Although we have been successful in
meeting capacity sales objectives to date, there can be no assurance that such
success will continue or that we will be able to realize our business plan.
Furthermore, even if capacity sales projections are realized, price declines for
cross-border capacity may limit operating profitability or the ability to
generate sufficient cash flow to service our indebtedness. If we are unable to
effectively sell capacity on our network, it would have a material adverse
effect on our business, financial condition, results of operations and our
ability to make payments on the notes.
WE MAY NOT BE ABLE TO PROVIDE DATA TRANSMISSION SERVICES EFFECTIVELY
We have not had substantial experience in providing data transmission
services and, consequently, we can provide no assurance that we will be
successful in the data transmission business. Our ability to successfully enter
the data transmission business will depend upon, among other things, our ability
to:
- select new equipment and software and integrate these into our network;
- hire and train qualified personnel;
17
<PAGE>
- enhance our billing, back-office and information systems to accommodate
data transmission services; and
- obtain customer acceptance of our service offerings.
If we are not successful, there may be a material adverse effect on our
business, financial condition, results of operations and our ability to make
payments on the notes.
The data transmission business is also extremely competitive and prices have
declined substantially in recent years and are expected to continue to decline.
In providing these services, we will be dependent upon vendors for assistance in
the planning and deployment of our data product offerings, as well as ongoing
training and support. Our vendors may not have adequate experience in providing
equipment and configuring data networks in our various markets. We may also
experience technical difficulties in integrating our equipment and handling
differing data transmission protocols in our various markets. For example, we
initially thought that our data network would be in commercial operation by the
fourth quarter of 1999, but now believe that it will be delayed until the second
quarter of 2000.
Unlike some of our competitors, we are not currently carrying voice
communications using Internet Protocol technology on our network. While Destia
currently carries portions of its traffic using Internet Protocol overlay, there
is a risk that we will not be able to develop this Internet Protocol technology
well enough to be able to use it for voice traffic and, therefore, will not be
able to realize the anticipated cost reductions associated with using Internet
Protocol for voice transmissions.
OUR ABILITY TO USE OUR AND DESTIA'S NET OPERATING LOSS CARRYFORWARDS MAY BE
LIMITED
As of December 31, 1998, we had federal income tax net operating loss
carryforwards of $218.8 million which begin to expire in 2007. A tax asset
related to this loss carryforward does not appear on our balance sheet because
it is unclear if we will generate taxable income prior to the expiration of the
net operating loss carryforwards. Our ability to use the net operating loss
carryforwards of the combined company to reduce future tax payments would be
limited if a 50% ownership change, as defined for these purposes, were to occur
over a three-year period. As a result of an ownership change in October 1996,
certain of our net operating loss carryforwards from before such time are
subject to this limitation. It is possible that our acquisition of Destia, when
combined with prior or subsequent direct or indirect changes in the ownership of
Viatel common stock within the relevant three-year period, could trigger this
limitation. In addition, as of December 31, 1998, Destia had federal income tax
net operating loss carryforwards of approximately $80.0 million. The extent to
which we may use Destia's net operating loss carryforwards to reduce its future
tax liability may also be limited. As a result of these limitations, the future
tax liability of the combined company may be greater than the individual tax
liabilities of Viatel and Destia in the absence of the merger.
THE TELECOMMUNICATIONS INDUSTRY IS HIGHLY COMPETITIVE WITH PARTICIPANTS THAT
HAVE GREATER RESOURCES THAN WE DO, AND WE MAY NOT BE ABLE TO COMPETE
SUCCESSFULLY
Our success depends upon our ability to compete with other
telecommunications providers in each of our markets, many of which have
substantially greater financial, marketing and other resources than we have. The
markets in which we intend to offer our services are extremely competitive and
competition is expected to intensify, particularly in Western Europe as
liberalization continues. Although our acquisition of Destia has created a
company with increased revenues, purchasing power and product offering, if our
competitors devote significant additional resources to the provision of
international or national long distance telecommunications services to our
current target customer base, this action could have a material adverse effect
on our business, financial condition, results of operations and our ability to
make payments on the notes. There can be no assurance that we will be able to
compete successfully.
18
<PAGE>
Our competitors include the incumbent telecommunications operator in each
country in which we operate, global alliances among some of the world's largest
telecommunications carriers and new entrants, such as alternative carriers,
Internet backbone networks and other service providers. Two other broadband
European networks are currently operational--KPN/Qwest and GTS/Esprit, and other
broadband networks in Europe are expected to be operational in the next ten to
twelve months, which includes networks being constructed by Global Crossing,
Interoute and Concert, the joint venture between British Telecom and AT&T. In
addition, Colt Telecom Group and Level 3 Communications are sharing the costs of
constructing two networks -- one to link the German cities of Berlin, Koln,
Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart and the other linking
Paris, Frankfurt, Amsterdam, Brussels and London. Other potential competitors
include:
- Internet service providers,
- 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 in both billable minutes and capacity have
increased over the past several years and we believe that competition will
continue to intensify, particularly in Western Europe, as other providers obtain
connectivity. The prices for European wholesale minutes of use that we provide
to other carriers have continued to decline and are expected to continue to
decline in the future. See "Business--Services."
In the United States, the regional Bell operating companies also may, in the
near future, compete with the combined company for long distance customers in
their "in region" service areas. Regional Bell operating companies have to
satisfy a list of competitive requirements before they are authorized to offer
long distance service to their local customers. No regional Bell operating
company is authorized to do so yet, but Bell Atlantic, which serves the New York
metropolitan and mid-Atlantic regions, has long been considered by industry
observers to be the regional Bell operating company most likely to be permitted
to offer long distance services. On September 29, 1999, Bell Atlantic filed its
Section 271 application for authority to provide interLATA services within New
York with the Federal Communications Commission. The Federal Communications
Commission has 90 days to review Bell Atlantic's filing. The New York Public
Service Commission and the Department of Justice have made their recommendations
to the Federal Communications Commission. A decision from the Federal
Communications Commission is expected prior to December 25, 1999. The New York
Public Service Commission and the Department of Justice has recommended that the
application be approved, subject to certain specified conditions. Because a
substantial portion of the combined company's U.S. customer base and traffic
will originate in the New York Metropolitan area, Bell Atlantic will be a
particularly formidable competitor. For long distance calls, Bell Atlantic will
have a substantial cost advantage because it will not have to pay access fees to
a local carrier to originate the call. Access fees constitute a large portion of
a long distance carrier's cost of services. Moreover, should Bell Atlantic's
proposed acquisition of GTE be consummated, Bell Atlantic will have even greater
resources to compete in its service markets.
We are aware that certain long distance carriers are expanding their
capacity and believe that other long distance carriers and data service
providers, as well as potential new entrants to the industry, will construct new
fiber optic and other long distance transmission networks. Since the cost of the
actual fiber is a relatively small portion of the cost of building new
transmission lines, persons building such lines are likely to install fiber that
provides substantially more transmission capacity than will be
19
<PAGE>
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. In addition, our sales or leases of capacity on the Circe
Network to other carriers may result in competitors having capacity on our
routes along the Circe Network, which may in turn result in pricing pressures
with respect to traffic carried along these routes. If capacity expansion in the
telecommunications industry results in capacity that exceeds overall demand in
general or along any of our routes, severe additional pricing pressure could
develop. In addition, strategic alliances or similar transactions could result
in additional competitive pressure that could have a material adverse effect on
us.
NETWORK CONSTRUCTION DELAYS AND SYSTEM DISRUPTIONS OR FAILURES COULD ADVERSELY
AFFECT OUR BUSINESS
Our success depends, in part, on our ability to continue to expand our
network and on our ability to provide seamless technical operation of this
network. Furthermore, as we continue to expand our network to increase our
capacity and reach, we will face increasing demands and challenges including:
- 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;
- increasing traffic volume on our network; and
- selling capacity on our network.
If the costs of construction projects significantly exceed the budget for
those projects, we may be required to obtain additional financing, proceed on a
joint build basis or to abandon or curtail portions of those projects. If we
encounter construction delays, we will not be able to route our traffic over our
owned facilities as soon as we have planned, which could have a detrimental
effect on our ability to increase traffic volumes and gross margins. In
addition, construction delays could negatively affect our ability to sell
indefeasible rights-of-use or capacity to other carriers. Our network is also
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, results of operations and our ability to
make payments on the notes.
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. In the event of a system disruption, we could seek to minimize customer
inconvenience 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 could have a material adverse effect on our ability to manage our
network operations, generate accurate call detail reports and monitor our
systems.
The expansion and development of our network will require 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
20
<PAGE>
purchase of capacity or minimum investment units on digital fiber optic cables
or digital microwave equipment, the purchase of dark fiber or the further
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,
results of operations and our ability to make payments on the notes.
FOREIGN CURRENCY EXCHANGE RATES COULD HAVE ADVERSE EFFECTS ON OUR BUSINESS
Our payment obligations with respect to our outstanding indebtedness are
denominated in U.S. Dollars and the Euro, but certain of our revenues are
denominated in Pound Sterling. Any appreciation in the value of the U.S. Dollar
or the Euro relative to the Pound Sterling could have a material adverse effect
on our ability to make payments on such obligations.
In the future, we may elect to manage exchange rate exposure presented by
our Euro-denominated obligations through the use of hedging transactions. There
can be no 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 provide any assurance that the laws or administrative
practices relating to taxation, foreign exchange or other matters in countries
within which we and Destia operate will not change, which could have a material
adverse effect on our business, financial condition, results of operations and
our ability to make payments on the notes.
WE COULD EXPERIENCE SYSTEM FAILURES AND SERVICE DISRUPTIONS AS A RESULT OF THE
YEAR 2000 ISSUE
We face certain risks arising from the Year 2000 issue which could have a
material adverse affect on our business, financial condition, results of
operations and our ability to make payments on the notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000."
OUR DEPENDENCE UPON THIRD PARTIES FOR LEASED CAPACITY AND INTERCONNECTION
ARRANGEMENTS MAY RESULT IN SUBOPTIMAL UTILIZATION OF OUR NETWORK
We currently lease capacity for point-to-point circuits with fixed monthly
payments and buy minutes of use under 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 those routes. A deterioration of our relationship with one or more
carriers could have a material adverse effect on our cost structure, service
quality, network coverage, financial condition, results of operations and our
ability to make payments on the notes.
Our ability to access customers and to utilize effectively our network is
dependent upon our ability to secure operative interconnection agreements,
providing access to and an exit from the public switched telephone network, with
the respective incumbent telecommunications operator in each market 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 us and on our ability to make payments on the notes.
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THE COMBINED COMPANY IS DEPENDENT UPON THIRD-PARTY SALES ORGANIZATIONS OVER
WHICH IT CAN EXERCISE ONLY LIMITED CONTROL
The combined company sells a substantial portion of its services through
indirect channels of distribution, which consist of independent sales agents,
distributors and, to a lesser extent, resellers. The combined company does not
have control over such agents, distributors and resellers and, therefore, is not
able to ensure that they will perform in a satisfactory manner or that their
interests will be aligned with our interests. In addition, such entities also
may terminate their business relationships with us at any time, with little or
no prior notice. Destia has found this risk to be especially pronounced in its
multilevel marketing program in the United Kingdom, where a master agent could
decide to terminate its business relationship, and that of its sub-agents, and
conduct business with a competitor. Unsatisfactory performance by such entities,
or the termination by them of their business relationship with us, would hinder
our ability to grow and could have a material adverse effect on our business and
on our ability to make payments on the notes.
LOSS OF SIGNIFICANT CARRIER CUSTOMERS WOULD RESULT IN A SIGNIFICANT LOSS OF
REVENUES
We currently derive a significant portion of our revenues from a relatively
small number of carrier customers. During the nine months ended September 30,
1999 and the year ended December 31, 1998, carrier customers accounted for 34.4%
and 58.3% of our total revenue, respectively, with one carrier customer
accounting for 10.6% of total revenue for 1998. Carrier customers generally are
extremely price sensitive and move their traffic from carrier to carrier based
on small price changes. In the deregulating markets in Western Europe, this risk
is particularly acute. Accordingly, the loss of revenue from significant carrier
customers would have a material adverse effect upon our business, financial
condition, results of operations and our ability to make payments on the notes.
OUR BUSINESS WILL SUFFER IF WE LOSE CERTAIN KEY PERSONNEL OR FAIL TO ATTRACT AND
RETAIN OTHER QUALIFIED PERSONNEL
The continued success of our business will be dependent, 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, Chairman,
Chief Executive Officer and President, and Alfred West, Vice Chairman. We do not
currently have employment agreements with any members of key management other
than Mr. Mahoney, Allan L. Shaw, Senior Vice President, Finance and Chief
Financial Officer, Sheldon M. Goldman, Senior Vice President, Business and Legal
Affairs, Alfred West, Vice Chairman, and Alan L. Levy, Chief Operating Officer,
nor do we intend to enter into employment agreements with any other members of
key management other than Lawrence G. Malone, Senior Vice President, Global
Sales and Marketing, and Francis J. Mount, Senior Vice President, Engineering
and Network Operations. Except for a $3.0 million key-man life insurance policy
on the life of Mr. Mahoney, we do not maintain and do not contemplate obtaining
such life insurance policies on any of our employees.
The success of our business 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 who often have multiple employment
options. 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, retain and motivate qualified
personnel, could have a material adverse effect on our business, financial
condition and results of operations.
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WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION WHICH MAY AFFECT OUR ABILITY
TO OFFER CERTAIN SERVICES AND WHICH MAY BE CHANGED IN A MANNER ADVERSE TO US
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. See "Business--Regulation."
The interpretation and enforcement of such laws and regulations varies and
could limit our ability to provide telecommunications services in certain
markets. We cannot assure you that:
- future regulatory, judicial and legislative changes will not have a
material adverse effect on us;
- domestic or international regulators or third parties will not raise
material issues with regard to our compliance with applicable laws and
regulations; or
- other regulatory activities will not have a material adverse effect on our
business, financial condition and results of operations.
Recently Destia, as well as other service providers, have been cited by the
Pennsylvania Public Utility Commission for failure to respond to a Year 2000
compliance survey. Destia has reached a settlement agreement with the
Pennsylvania Public Utility Commission in the amount of $7,000 which we expect
to receive formal Commission approval in January 2000. In addition, Destia
recently sought to transfer its state licenses to its subsidiaries. Some of
these putative transfers might have been improperly effectuated. Any of such
matters could have an adverse effect on Destia's ability to conduct business in
such states.
YOU MAY FIND IT DIFFICULT TO SELL YOUR EXCHANGE NOTES
The existing notes have been approved for trading in the PORTAL market.
However, the exchange notes will be new securities for which there is currently
no public market. There is no established trading market for the exchange notes.
We do not currently intend to apply for listing of the exchange notes on any
national securities exchange or for quotation through any automated quotation
system. Accordingly, we can provide no assurance as to the development of any
market for or the liquidity of any market that may develop for the exchange
notes, your ability to sell your exchange notes or the price at which you would
be able to sell your exchange notes. If such a trading market were to develop,
the exchange notes could trade at prices that may be higher or lower than the
initial market values depending on many factors, including prevailing interest
rates, our results of operations, the market for similar securities and general
macroeconomic and market conditions.
Historically, the market for noninvestment grade debt securities has been
subject to disruptions that have caused susbstantial volatility in the prices of
securities similar to the notes. There can be no assurance that the markets for
the exchange notes will not be subject to similar disruptions. Any such
disruptions may have an adverse effect on the holders of the exchange notes.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
The existing notes have not been registered under the Securities Act or
under the securities laws of any state and you may not resell, offer them for
resale or otherwise transfer them unless they are subsequently registered or
resold under and exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your existing
notes for exchange notes in this exchange offer, you will not be able to resell,
offer to resell or otherwise transfer the existing notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction not subject to, the Securities Act. In addition, you
will no longer be able to obligate us to
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register the outstanding notes under the Securities Act except in limited
circumstances provided under the registration rights agreement entered into when
the existing notes were issued.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
risks and uncertainties. You can identify these statements by forward-looking
words such as "anticipate," "believe," "could," "estimate," "expect," "intend,"
"may," "should," "will," and "would" or similar words. You should read
statements that contain these words carefully because they discuss our future
expectations, contain projections of our future results of operations or of our
financial position or state other "forward-looking" information. We believe that
it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or control. The factors listed above in the section captioned "Risk
Factors," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you tender your existing notes for exchange notes, you should
be aware that the occurrence of the events described in these risk factors and
elsewhere in this prospectus could have a material adverse effect on our
business, financial condition and results of operations.
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THE EXCHANGE OFFER
The following contains a summary of the material provisions of the
registration rights agreement, dated as of December 8, 1999. This summary may
not contain all of the information you might consider important, and we urge you
to carefully review the registration rights agreement, a copy of which has been
filed as an exhibit to the registration statement of which this prospectus is a
part. Copies are available as set forth under the heading "Where You Can Find
More Information About Us and Destia."
TERMS OF THE EXCHANGE OFFER
GENERAL
In connection with the issuance of the existing notes the holders of
existing notes became entitled to the benefits of the registration rights
agreement.
Under the registration rights agreement, we have agreed to use our best
efforts to consummate the exchange offer by June 8, 2000. We are required to
keep the exchange offer open for not less than 20 business days after the date
notice of the exchange offer is mailed to holders of existing notes. The
exchange offer being made hereby, if consummated by June 8, 2000, will satisfy
those requirements under the registration rights agreement.
Upon the terms and subject to the conditions set forth in this prospectus
and in the related letter of transmittal, all existing notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date
will be accepted for exchange. Exchange notes will be issued in exchange for an
equal principal amount of outstanding existing notes accepted in the exchange
offer. Existing notes may be tendered only in integral multiples of $1,000
principal amount at maturity. This prospectus, together with the letter of
transmittal, is being sent to all registered holders as of , 2000. The
exchange offer is not conditioned upon any minimum principal amount of existing
notes being tendered for exchange. However, the obligation to accept existing
notes for exchange pursuant to the exchange offer is subject to certain
customary conditions as set forth herein under "--Conditions."
Existing notes shall be deemed to have been accepted as validly tendered
when, as and if we have given oral or written notice thereof to the exchange
agent. The exchange agent will act as agent for the tendering holders of
existing notes for the purposes of receiving the exchange notes and delivering
exchange notes to such holders.
Based on interpretations by the staff of the SEC as set forth in no-action
letters issued to third parties (including Exxon Capital Holdings Corporation
(available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5,
1991), K-III Communications Corporation (available May 14, 1993) and Shearman &
Sterling (available July 2, 1993)), we believe that the exchange notes issued
pursuant to the exchange offer may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such holder that is a
broker-dealer or an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
- such exchange notes are acquired in the ordinary course of business,
- at the time of the commencement of the exchange offer such holder has no
arrangement or understanding with any person to participate in a
distribution of such exchange notes, and
- such holder is not engaged in, and does not intend to engage in, a
distribution of such exchange notes.
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We have not sought, and do not intend to seek, a no-action letter from the SEC
with respect to the effects of the exchange offer, and there can be no assurance
that the staff of the SEC would make a similar determination with respect to the
exchange notes as it has in such no-action letters.
By tendering existing notes in exchange for exchange notes and executing the
letter of transmittal, each holder will represent to us that:
- any exchange notes to be received by it will be acquired in the ordinary
course of business,
- it has no arrangements or understandings with any person to participate in
the distribution of the existing notes or exchange notes within the
meaning of the Securities Act, and
- it is not an "affiliate," as defined in Rule 405 under the Securities Act,
of us.
If such holder is a broker-dealer, it will also be required to represent that
the existing notes were acquired as a result of market-making activities or
other trading activities and that it will deliver a prospectus in connection
with any resale of exchange notes. See "Plan of Distribution." Each holder,
whether or not it is a broker-dealer, shall also represent that it is not acting
on behalf of any person that could not truthfully make any of the foregoing
representations contained in this paragraph. If a holder of existing notes is
unable to make the foregoing representations, such holder may not rely on the
applicable interpretations of the staff of the SEC and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Upon consummation of the exchange offer, subject to certain limited
exceptions, holders of existing notes who do not exchange their existing notes
for exchange notes in the exchange offer will no longer be entitled to
registration rights and will not be able to offer or sell their existing notes,
unless such existing notes are subsequently registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. Subject to limited
exceptions, we will have no obligation to effect a subsequent registration of
the existing notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The expiration date shall be , 2000 unless we, in our sole
discretion, extend the exchange offer, in which case the expiration date shall
be the latest date to which the exchange offer is extended.
To extend the expiration date, we will notify the exchange agent of any
extension by oral or written notice and will notify the holders of the existing
notes by means of a press release or other public announcement prior to
9:00 A.M., New York City time, on the next business day after the previously
scheduled expiration date. Such announcement may state that we are extending the
exchange offer for a specified period of time.
We reserve the right (1) to delay acceptance of any existing notes, to
extend the exchange offer or to terminate the exchange offer and not permit
acceptance of existing notes not previously accepted if any of the conditions
set forth herein under "--Conditions" shall have occurred and shall not have
been waived by us prior to the expiration date, by giving oral or written notice
of such delay, extension or termination to the exchange agent, or (2) to amend
the terms of the exchange offer in any manner deemed by us to be advantageous to
the holders of the existing notes. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the exchange agent. If the exchange offer is amended
in a manner determined by us to constitute a material change, we will promptly
disclose such amendment in a manner reasonably calculated to inform the holders
of the existing notes of such amendment.
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Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we shall have no obligations to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will accrue interest at the rate of 11.50% per annum from
the last interest payment date on which interest was paid on the existing note
surrendered in exchange therefor, or, if no interest has been paid on such
existing note, from the issue date of such existing note, PROVIDED, that if an
existing note is surrendered for exchange on or after a record date for an
interest payment date that will occur on or after the date of such exchange and
as to which interest will be paid, interest on the exchange note received in
exchange therefor will accrue from the date of such interest payment date.
Interest on the exchange notes is payable on March 15 and September 15 of each
year, commencing March 15, 2000. No additional interest will be paid on existing
notes tendered and accepted for exchange.
PROCEDURES FOR TENDERING
To tender in the exchange offer, a holder must complete, sign and date the
letter of transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver such letter of transmittal or such facsimile, together with any other
required documents, to the exchange agent prior to 5:00 p.m., New York City
time, on the expiration date. In addition, either
- certificates of such existing notes must be received by the exchange agent
along with the letter of transmittal, or
- a timely confirmation of a book-entry transfer of such existing notes, if
such procedure is available, into the exchange agent's account at The
Depository Trust Company, pursuant to the procedure for book-entry
transfer described below, must be received by the exchange agent prior to
the expiration date with the letter of transmittal, or
- the holder must comply with the guaranteed delivery procedures described
below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE NOTE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO EXISTING NOTES, LETTER OF TRANSMITTAL OR
OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO US. Delivery of all existing notes
(if applicable), letter of transmittal and other documents must be made to the
exchange agent at its address set forth below. Holders may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by a holder of existing notes will constitute an agreement
between such holder and us in accordance with the terms and subject to the
conditions set forth herein and in the letter of transmittal. Any beneficial
owner whose existing notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender should
contact such registered holder promptly and instruct such registered holder to
tender on his or her behalf.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of
Rule 17Ad-15 under the Securities Exchange Act, each an "eligible institution",
unless the existing notes tendered pursuant thereto are tendered (1) by a
registered holder of existing notes who has not
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completed the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal or (2) for the account of an eligible
institution.
If a letter of transmittal is signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such person should so indicate when
signing, and unless waived by us, evidence satisfactory to us of their authority
to so act must be submitted with such letter of transmittal.
All questions as to the validity, form, eligibility, time of receipt and
withdrawal of the tendered existing notes will be determined by us in our sole
discretion, which determination will be final and binding. We reserve the
absolute right to reject any and all existing notes not properly tendered or any
existing notes which, if accepted, would, in the opinion of counsel to us, be
unlawful. We also reserve the absolute right to waive any irregularities or
conditions of tender as to particular existing notes. Our interpretation of the
terms and conditions of the exchange offer, including the instructions in the
letter of transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of existing notes must
be cured within such time as we shall determine. Neither us, the exchange agent
nor any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of existing notes, nor shall any of them
incur any liability for failure to give such notification. Tenders of existing
notes will not be deemed to have been made until such irregularities have been
cured or waived. Any existing notes received by the exchange agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost to such holder by the exchange
agent, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
In addition, we reserve the right, in our sole discretion, subject to the
provisions of the indenture pursuant to which the notes are issued,
- to purchase or make offers for any existing notes that remain outstanding
subsequent to the expiration date or, as set forth under "--Conditions,"
to terminate the exchange offer,
- to redeem existing notes as a whole or in part at any time and from time
to time, as set forth under "Description of the Exchange Notes--Optional
Redemption," and
- to the extent permitted under applicable law, to purchase existing notes
in the open market, in privately negotiated transactions or otherwise.
The terms of any such purchases or offers could differ from the terms of the
exchange offer.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
all existing notes properly tendered will be accepted promptly after the
expiration date, and the exchange notes will be issued promptly after acceptance
of the existing notes. See "--Conditions." For purposes of the exchange offer,
existing notes shall be deemed to have been accepted as validly tendered for
exchange when, as and if we have given oral or written notice thereof to the
exchange agent. For each existing note accepted for exchange, the holder of such
existing note will receive an exchange note having a principal amount equal to
that of the surrendered existing note.
In all cases, issuance of exchange notes for existing notes that are
accepted for exchange pursuant to the exchange offer will be made only after
timely receipt by the exchange agent of
- certificates for such existing notes or a timely book-entry confirmation
of such existing notes into the exchange agent's account at The Depository
Trust Company,
- a properly completed and duly executed letter of transmittal, and
- all other required documents.
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If any tendered existing notes are not accepted for any reason set forth in the
terms and conditions of this exchange offer, such unaccepted or such
nonexchanged existing notes will be returned without expense to the tendering
holder thereof (if in certificated form) or credited to an account maintained
with The Depository Trust Company as promptly as practicable after the
expiration or termination of this exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the existing notes at The Depository Trust Company for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in The Depository Trust Company's
system may make book-entry delivery of existing notes by causing The Depository
Trust Company to transfer such existing notes into the exchange agent's account
at The Depository Trust Company in accordance with its procedures for transfer.
However, although delivery of existing notes may be effected through book-entry
transfer at The Depository Trust Company, the letter of transmittal or facsimile
thereof with any required signature guarantees and any other required documents
must, in any case, be transmitted to and received by the exchange agent at one
of the addresses set forth below under "--Exchange Agent" on or prior to the
expiration date or the guaranteed delivery procedures described below must be
complied with.
EXCHANGING BOOK-ENTRY NOTES
The exchange agent and The Depository Trust Company have confirmed that any
financial institution that is a participant in The Depository Trust Company may
utilize the Automated Tender Offer Program ("ATOP") procedures to tender
existing notes.
Any participant in The Depository Trust Company may make book-entry delivery
of existing notes by causing The Depository Trust Company to transfer such
existing notes into the exchange agent's account in accordance with its ATOP
procedures for transfer. However, the exchange for the existing notes so
tendered will only be made after a book-entry confirmation of such book-entry
transfer of existing notes into the exchange agent's account, and timely receipt
by the exchange agent of an agent's message and any other documents required by
the letter of transmittal. The term "agent's message" means a message,
transmitted by the The Depository Trust Company and received by the exchange
agent and forming part of a book-entry confirmation, which states that The
Depository Trust Company has received an express acknowledgment from a
participant tendering existing notes that are the subject of such book-entry
confirmation that such participant has received and agrees to be bound by the
terms of the letter of transmittal, and that we may enforce such agreement
against such participant.
GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a timely
basis, a tender may be effected if
- the tender is made through an eligible institution,
- prior to the expiration date, the exchange agent receives by facsimile
transmission, mail or hand delivery from such eligible institution a
properly completed and duly executed letter of transmittal and notice of
guaranteed delivery, substantially in the form provided by us, which
(1) sets forth the name and address of the holder of existing notes and
the amount of existing notes tendered,
(2) states that the tender is being made thereby, and
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(3) guarantees that within three Nasdaq National Market trading days
after the date of execution of the notice of guaranteed delivery, the
certificates for all physically tendered existing notes, in proper
form for transfer, or a book-entry confirmation, as the case may be,
and any other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent, and
- the certificates for all physically tendered existing notes, in proper
form for transfer, or a book-entry confirmation, as the case may be, and
all other documents required by the letter of transmittal are received by
the exchange agent within three Nasdaq National Market trading days after
the date of execution of the notice of guaranteed delivery.
WITHDRAWAL OF TENDERS
Tenders of existing notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent prior to 5:00 p.m., New York City time on the
expiration date at the address set forth below under "--Exchange Agent." Any
such notice of withdrawal must
- specify the name of the person having tendered the existing notes to be
withdrawn,
- identify the existing notes to be withdrawn, including the principal
amount of such existing notes,
- in the case of existing notes tendered by book-entry transfer, specify the
number of the account at the book-entry transfer facility from which the
existing notes were tendered and specify the name and number of the
account at the book-entry transfer facility to be credited with the
withdrawn existing notes and otherwise comply with the procedures of such
facility,
- contain a statement that such holder is withdrawing its election to have
such existing notes exchanged,
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such existing notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer to have the trustee with respect to the existing
notes register the transfer of such existing notes in the name of the
person withdrawing the tender, and
- specify the name in which such existing notes are registered, if different
from the person who tendered such existing notes.
All questions as to the validity, form, eligibility and time of receipt of such
notice will be determined by us and our determination shall be final and binding
on all parties. Any existing notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any existing
notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the tendering holder thereof without cost to such
holder, in the case of physically tendered existing notes, or credited to an
account maintained with the applicable book-entry transfer facility for the
existing notes as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn existing notes may be
retendered by following one of the procedures described under "--Procedures for
Tendering" and "--Book-Entry Transfer" above at any time on or prior to
5:00 p.m., New York City time, on the expiration date.
CONDITIONS
Notwithstanding any other provision of the exchange offer, we shall not be
required to accept for exchange, or to issue exchange notes in exchange for, any
existing notes and may terminate or amend
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the exchange offer if at any time prior to 5:00 p.m., New York City time, on the
expiration date, we determine, in our reasonable judgment, that the exchange
offer violates applicable law, any applicable interpretation of the staff of the
SEC or any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of us and may be asserted
by us regardless of the circumstances giving rise to any such condition or may
be waived by us in whole or in part at any time and from time to time in our
reasonable discretion. The failure by us at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, we will not accept for exchange any existing notes tendered,
and no exchange notes will be issued in exchange for any such existing notes, if
at such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of either indenture under the Trust Indenture Act. We are required
to use every reasonable effort to obtain the withdrawal of any order suspending
the effectiveness of the registration statement at the earliest possible moment.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and tenders of existing notes
that have been deposited with a custodian for, and registered in the name of,
The Depository Trust Company, should be directed to the exchange agent addressed
as follows:
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 815-3750
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Reorganization Section (212) 815-6339
101 Barclay Street, Floor 7 East CONFIRM BY TELEPHONE:
New York, New York 10286 (212) 815-3750
Attention: Kin Lau
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by us. The principal solicitation for tenders pursuant to the exchange
offer is being made by mail; however, additional solicitations may be made by
telegraph, telephone, telecopy or in person by officers and regular employees of
us.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We, however, will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses incurred in connection
with such services. We may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by us in
forwarding copies of this prospectus and related documents to the beneficial
owners of the existing notes, and in handling or forwarding tenders for
exchange.
The expenses to be incurred by us in connection with this exchange offer
will be paid by us, including fees and expenses of the exchange agent and
trustee and accounting, legal, printing and related fees and expenses.
31
<PAGE>
We will pay all transfer taxes, if any, applicable to the exchange of
existing notes pursuant to the exchange offer. If, however, exchange notes or
existing notes for principal amounts not tendered or accepted for exchange are
to be registered or issued in the name of any person other than the registered
holder of the existing notes tendered, or if tendered existing notes are
registered in the name of any person other than the person signing the letter of
transmittal, or if a transfer tax is imposed for any reason other than the
exchange of existing notes pursuant to this exchange offer, then the amount of
any such transfer taxes imposed on the registered holder or any other persons
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the letter of
transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of existing notes who do not exchange their existing notes for
exchange notes pursuant to this exchange offer will continue to be subject to
the restrictions on transfer of such existing notes as set forth in the legend
thereon as a consequence of the issuance of the existing notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the existing notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. We do
not currently anticipate that we will register the existing notes under the
Securities Act. To the extent that existing notes are tendered and accepted in
the exchange offer, the trading market for untendered and tendered but
unaccepted existing notes could be adversely affected.
32
<PAGE>
USE OF PROCEEDS
The exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement entered into when the existing notes were
either issued in exchange for Destia's 11% senior discount notes due 2008 or
sold in the December 8, 1999 private placement. We will not receive any cash
proceeds from the issuance of the exchange notes in exchange for existing notes.
In consideration for issuing the exchange notes, we will receive existing notes
in like aggregate principal amount, the terms of which are identical in all
material respects to the terms of the respective exchange notes. The existing
notes surrendered in exchange for exchange notes will be retired and cancelled
and cannot be reissued. Accordingly, the issuance of the exchange notes will not
result in any increase or decrease in our outstanding indebtedness.
The net proceeds from the issuance of the existing notes sold in the
December 8, 1999 private placement were approximately $58.4 million after
deducting discounts and commissions and expenses of that offering payable by us.
We used $37.0 million of the net proceeds from that offering to purchase U.S.
government securities which secure the payment of the first three interest
payments on the existing notes. The remainder of the net proceeds were used as
follows: $15.4 million to pay the cash payment portion of the December 1999
exchange offer, and $6.0 million to pay the consent payment in the exchange
offer.
33
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, various other
assets and our capitalization as of September 30, 1999 on an actual basis and on
a pro forma basis to give effect to:
- the issuance of $209.1 million principal amount at maturity of existing
notes in exchange for the Destia 11% senior discount notes,
- the sale of $63.7 million principal amount of existing notes offered in
the private placement and the use of the net proceeds of approximately
$58.4 million as follows: $37.0 million is assumed to be applied to
purchase U.S. government securities, $15.4 million to pay the cash payment
portion of the exchange offer, and the remaining $6.0 million to the
consent payment, and
- consummation of the Destia acquisition.
You should read the information in this table in conjunction with "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Unaudited Pro Forma Combining Financial
Information" and our consolidated financial statements and related notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1999
---------------------------
PRO FORMA
OFFER
ACTUAL AND MERGER
---------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Cash and cash equivalents................................... $ 434,936 $ 520,770
========== ==========
Restricted cash equivalents................................. $ 5,447 $ 5,447
========== ==========
Cash securing letters of credit on network construction..... $ 79,537 $ 79,537
========== ==========
Restricted marketable securities, current and non-current... $ 163,417 $ 221,741
========== ==========
Long-term liabilities, excluding current installments:
Long-term debt.......................................... $1,262,491 $1,679,105
Notes payable and obligations under capital leases,
excluding current installments.......................... 28,109 52,766
---------- ----------
Total long-term debt.................................. 1,290,600 1,731,871
---------- ----------
Stockholders' (deficiency) equity:
Common stock, $.01 par value; 150,000,000 shares
authorized;
32,627,144 shares issued and outstanding, actual and
46,712,041 shares issued and outstanding, pro forma.... 326 467
Additional paid-in capital.............................. 389,845 1,071,272
Unearned compensation................................... (6,115) (6,115)
Accumulated other comprehensive loss.................... (24,968) (24,968)
Accumulated deficit..................................... (391,807) (391,807)
---------- ----------
Total stockholders' equity (deficiency)............... (32,719) 648,849
---------- ----------
Total capitalization................................ $1,257,881 $2,380,720
========== ==========
</TABLE>
34
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our consolidated financial statements, including the
notes thereto, and our other consolidated financial data included elsewhere in
this prospectus. The consolidated statement of operations data, other
consolidated financial data and consolidated balance sheet data as of and for
the years ended December 31, 1994, 1995, 1996, 1997 and 1998 are derived from
our consolidated financial statements and the notes related thereto, which were
audited by KPMG LLP, independent certified public accountants. The consolidated
financial statements as of December 31, 1997 and 1998 and for each of the years
in the three-year period ended December 31, 1998 and the report of KPMG LLP
thereon, are included elsewhere in this prospectus. The selected consolidated
statement of operations data, other consolidated financial data and consolidated
balance sheet data as of and for the nine-month periods ended September 30, 1998
and 1999 are derived from our unaudited consolidated financial statements
included elsewhere in this prospectus, which, in the opinion of management,
include all adjustments necessary for a fair presentation of our financial
condition and results of operations for such periods. The results of operations
for interim periods are not necessarily indicative of a full year's operations.
EBITDA consists of earnings before interest, income taxes, extraordinary loss,
dividends on preferred stock and depreciation and amortization. Capital
additions for each period consist of capital expenditures, the net increase in
payables for property and equipment purchases, assets acquired under capital
lease obligations and capitalized interest during the period. Deficiency of
earnings to fixed charges is calculated as income before taxes, dividends on
preferred stock and extraordinary items plus interest expense, divided by fixed
charges. Fixed charges consist of interest on indebtedness, dividends on
preferred stock and one-third of rental expense. Earnings were not sufficient to
cover fixed charges. Restricted securities represents government obligations
purchased by us which secure the payment of certain interest payments on our
outstanding senior notes.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue:
Communication services revenue......... $ 26,268 $ 32,313 $ 50,419 $ 73,018 $ 131,938 $ 86,133 $ 151,204
Capacity sales......................... -- -- -- -- 3,250 -- 59,173
-------- -------- -------- -------- --------- --------- ---------
Total revenue........................ 26,268 32,313 50,419 73,018 135,188 86,133 210,377
Operating expenses:
Cost of services and sales............. 22,953 27,648 42,130 63,504 122,109 77,624 162,858
Selling, general and administrative.... 14,463 24,370 32,866 36,077 44,893 31,057 63,380
Depreciation and amortization.......... 789 2,637 4,802 7,717 16,268 10,706 39,039
Equipment impairment loss.............. -- 560 -- -- -- -- --
-------- -------- -------- -------- --------- --------- ---------
Total operating expenses............. 38,205 55,215 79,798 107,298 183,270 119,387 265,277
-------- -------- -------- -------- --------- --------- ---------
Operating loss........................... (11,937) (22,902) (29,379) (34,280) (48,082) (33,254) (54,900)
Interest income.......................... 214 3,282 1,852 3,686 28,259 19,906 21,413
Interest expense......................... (772) (8,856) (10,848) (12,450) (79,177)(1) (52,715) (97,344)(1)
-------- -------- -------- -------- --------- --------- ---------
Loss before extraordinary loss........... (12,495) (28,476) (38,375) (43,044) (99,000) (66,063) (130,831)
Extraordinary loss on debt prepayment.... -- -- -- -- (28,304) (28,304) --
-------- -------- -------- -------- --------- --------- ---------
Net loss................................. (12,495) (28,476) (38,375) (43,044) (127,304) (94,367) (130,831)
Dividends on redeemable convertible
preferred stock........................ -- -- -- -- (3,301) (2,131) (1,341)
-------- -------- -------- -------- --------- --------- ---------
Net loss attributable to common
stockholders........................... $(12,495) $(28,476) $(38,375) $(43,044) $(130,605) $ (96,498) $(132,172)
======== ======== ======== ======== ========= ========= =========
- ---------------------------------------------------------------------------------------------------------------------------
(1) We capitalize interest costs that relate to debt to finance the Circe Network, until the related portion of the Circe
Network is placed into service. In 1998 and the nine months ended September 30, 1999, we capitalized $3.3 million and
$7.1 million, respectively, of interest costs.
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED FINANCIAL DATA:
EBITDA................................... $(11,148) $(20,265) $(24,577) $(26,563) $ (31,814) $ (22,548) $ (15,861)
Net cash used in operating activities.... (11,571) (18,489) (26,331) (22,525) (60,318) (13,501) (65,013)
Net cash used in by investing
activities............................. (4,996) (37,057) (1,592) (43,164) (349,992) (148,676) (373,338)
Net cash provided by (used in) financing
activities............................. 80,984 (2,306) 94,772 11,286 729,035 730,626 539,526
Capital additions........................ 4,267 11,887 9,800 40,214 220,903 104,884 511,909
Deficiency of earnings to fixed
charges................................ (12,495) (28,984) (38,442) (43,208) (133,927) (97,969) (139,285)
OTHER OPERATING DATA:
Billable minutes (000s).................. 14,981 25,932 62,249 140,918 383,875 248,887 909,574
Switches................................. 2 10 13 14 15 15 15
Points of interconnection................ 3 11 13 33 34 33 78
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- --------- --------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $66,762 $ 35,066 $ 92,982 $ 47,143 $ 501,282 $ 588,352 $ 434,936
Restricted cash equivalents and
restricted marketable securities....... -- -- -- -- 144,523 162,094 168,864
Cash securing letters of credit for
network construction................... -- -- -- -- -- -- 79,537
Working capital.......................... 58,549 26,214 79,434 7,667 428,657 540,635 284,314
Property and equipment, net.............. 6,933 15,715 21,074 54,094 266,256 151,298 715,483
Intangible assets, net................... 5,225 5,502 5,021 4,339 46,968 39,835 66,506
Total assets............................. 83,923 65,613 134,664 126,809 1,009,111 976,536 1,594,401
Long-term debt, excluding current
installments........................... 59,955 67,283 77,904 99,610 921,139 899,775 1,290,600
Redeemable convertible preferred stock... -- -- -- -- 47,121 45,951 --
Stockholders' equity (deficiency)........ 10,985 (17,618) 38,483 (8,564) (137,292) (101,207) (32,719)
</TABLE>
36
<PAGE>
UNAUDITED PRO FORMA COMBINING FINANCIAL INFORMATION
The following Unaudited Pro Forma Combining Balance Sheet of Viatel as of
September 30, 1999 and Unaudited Pro Forma Combining Statement of Operations of
Viatel for the nine months ended September 30, 1999 and the year ended
December 31, 1998 illustrate the effect of our merger with Destia, the exchange
of all outstanding Destia discount notes and the private placement consummated
on December 8, 1999. The Unaudited Pro Forma Combining Balance Sheet assumes
that the merger with Destia had been completed as of September 30, 1999 and the
Unaudited Pro Forma Combining Statements of Operations assume that the merger
with Destia had been completed as of the beginning of the periods presented.
Certain reclassifications have been made to Destia's financial statements to
conform with our presentation.
Under the terms of our acquisition of Destia, the holders of Destia common
stock received shares of our common stock on the basis of an exchange ratio of
0.445 of a share of our stock for each Destia share. Under the exchange offer,
the holders of Destia discount notes received a cash payment of $71.24
(inclusive of a $20.00 consent payment) and $686.03 principal amount of our
11.50% senior dollar notes for each $1,000 principal amount at maturity of
Destia's discount notes. To provide funding for the cash portion of the exchange
offer and the consent payment and deferred financing costs, we issued and sold
notes in a private offering.
ACCOUNTING TREATMENT
We will record the merger as a purchase transaction. For accounting
purposes, we are the acquiring corporation in the merger.
The pro forma adjustments are based upon currently available information and
assumptions that our management believes are reasonable and certain information
provided by management of Destia. We will account for the merger based upon the
estimated fair market value of the net tangible assets, intangible assets and
liabilities acquired at the date of acquisition. The adjustments included in the
Unaudited Pro Forma Combining Financial Information represent the preliminary
determination of these adjustments based upon available information. We cannot
assure you that the actual adjustments will not differ significantly from the
pro forma adjustments reflected in the Unaudited Pro Forma Combining Financial
Information.
The Unaudited Pro Forma Combining Financial Information is not necessarily
indicative of either future results of operations or results that might have
been achieved if our acquisition of Destia had been consummated as of the
indicated dates. The Unaudited Pro Forma Combining Financial Information should
be read in conjunction with our historical financial statements and the
historical financial statements of Destia, together with the related notes
thereto, which are included, or incorporated by reference, elsewhere in this
prospectus.
37
<PAGE>
UNAUDITED PRO FORMA COMBINING BALANCE SHEET AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO FORMA VIATEL PRO
VIATEL DESTIA MERGER FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................ $ 434,936 $ 85,834 $ $ 520,770
Restricted cash equivalents.............................. 5,447 -- -- 5,447
Restricted marketable securities, current................ 66,569 4,359 21,709 (4) 92,637
Trade accounts receivable, net........................... 60,995 52,518 -- 113,513
Other receivables........................................ 42,610 -- -- 42,610
Prepaid expenses......................................... 10,277 6,445 -- 16,722
---------- --------- ---------- ----------
Total current assets................................. 620,834 149,156 21,709 791,699
---------- --------- ---------- ----------
Restricted marketable securities, non-current.............. 96,848 16,978 15,278 (4) 129,104
Property and equipment, net................................ 715,483 146,325 -- 861,808
Cash securing letters of credit for network construction... 79,537 -- -- 79,537
Intangible assets, net..................................... 66,506 61,101 864,123 (1) 939,909
(61,101)(1)
9,280 (4)
Other assets............................................... 15,193 3,123 -- 18,316
---------- --------- ---------- ----------
Total assets......................................... $1,594,401 $ 376,683 $ 849,289 $2,820,373
========== ========= ========== ==========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Accrued telecommunications costs......................... $ 34,896 $ 19,842 $ -- $ 54,738
Accounts payable, other accrued expenses and deferred 64,051 59,608 7,744 (1) 132,878
revenue................................................
1,475 (4)
Property and equipment purchases payable................. 196,814 -- -- 196,814
Accrued interest......................................... 28,500 4,359 -- 32,859
Current installments of notes payable, long-term debt and
obligations under capital leases....................... 12,259 10,105 -- 22,364
---------- --------- ---------- ----------
Total current liabilities............................ 336,520 93,914 9,219 439,653
---------- --------- ---------- ----------
Long-term liabilities:
Long term debt........................................... 1,262,491 359,730 205,790 (1) 1,679,105
(209,070)(1)
60,164 (4)
Notes payable and obligations under capital leases,
excluding current installments......................... 28,109 24,657 -- 52,766
---------- --------- ---------- ----------
Total long-term liabilities.......................... 1,290,600 384,387 56,884 1,731,871
Commitments and contingencies
Stockholders' equity (deficiency):
Common stock............................................. 326 315 (315)(1) 467
141 (1)
Non-voting common stock.................................. -- 1 (1)(1) --
Additional paid-in capital............................... 389,845 82,420 (82,420)(1) 1,071,272
552,128 (1)
105,976 (1)
23,323 (1)
Unearned compensation.................................... (6,115) -- -- (6,115)
Accumulated other comprehensive loss..................... (24,968) (1,173) 1,173 (1) (24,968)
Accumulated deficit...................................... (391,807) (183,181) 183,181 (1) (391,807)
---------- --------- ---------- ----------
Total stockholders' equity (deficiency).............. (32,719) (101,618) 783,186 648,849
---------- --------- ---------- ----------
Total liabilities and stockholders' equity........... $1,594,401 $ 376,683 $ 849,289 $2,820,373
========== ========= ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combining financial information.
38
<PAGE>
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
VIATEL
VIATEL DESTIA PRO FORMA MERGER PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Communication services revenue............. $ 151,204 $226,815 $ -- $ 378,019
Capacity sales............................. 59,173 -- -- 59,173
--------- -------- --------- ---------
Total revenue............................ 210,377 226,815 -- 437,192
--------- -------- --------- ---------
Operating expenses
Cost of services and sales................. 162,858 161,415 -- 324,273
Selling, general and administrative........ 63,380 89,083 -- 152,463
Depreciation and amortization.............. 39,039 20,393 92,585 (2) 147,751
(4,266)(3)
--------- -------- --------- ---------
Total operating expenses................. 265,277 270,891 88,319 624,487
--------- -------- --------- ---------
Operating loss............................... (54,900) (44,076) (88,319) (187,295)
Interest income.............................. 21,413 5,501 -- 26,914
Interest expense............................. (97,344) (35,007) (23,517)(6) (140,467)
16,134 (5)
(733)(4)
Other expense................................ -- (1,055) -- (1,055)
--------- -------- --------- ---------
Net loss..................................... (130,831) (74,637) (96,435) (301,903)
--------- -------- --------- ---------
Dividends on redeemable convertible preferred
stock...................................... (1,341) -- -- (1,341)
--------- -------- --------- ---------
Net loss attributable to common
stockholders............................... $(132,172) $(74,637) $ (96,435) $(303,244)
========= ======== ========= =========
Loss per common share, basic and diluted:
Before extraordinary item.................. $ (4.85) $ (2.81) $ (7.34)
From extraordinary item.................... -- -- --
--------- -------- ---------
Net loss attributable to common
stockholders............................. $ (4.85) $ (2.81) $ (7.34)
========= ======== =========
Weighted average common shares outstanding,
basic and diluted.......................... 27,250 26,521 41,335 (7)
========= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combining financial information.
39
<PAGE>
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
VIATEL
VIATEL DESTIA PRO FORMA MERGER PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ---------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Communication services revenue............. $ 131,938 $193,737 $ -- $ 325,675
Capacity sales............................. 3,250 -- -- 3,250
--------- -------- --------- ---------
Total revenue............................ 135,188 193,737 -- 328,925
--------- -------- --------- ---------
Operating expenses
Cost of services and sales................. 122,109 140,548 -- 262,657
Selling, general and administrative........ 44,893 80,092 -- 124,985
Depreciation and amortization.............. 16,268 11,866 123,446 (2) 149,034
(2,546)(3)
--------- -------- --------- ---------
Total operating expenses................. 183,270 232,506 120,900 536,676
--------- -------- --------- ---------
Operating loss............................... (48,082) (38,769) (120,900) (207,751)
Interest income.............................. 28,259 11,516 -- 39,775
Interest expense............................. (79,177) (41,030) (31,356)(6) (135,389)
17,151 (5)
(977)(4)
Other expense................................ -- (661) -- (661)
--------- -------- --------- ---------
Loss before extraordinary loss............... (99,000) (68,944) (136,082) (304,026)
Extraordinary loss on debt prepayment........ (28,304) -- -- (28,304)
--------- -------- --------- ---------
Net loss..................................... (127,304) (68,944) (136,082) (332,330)
Dividends on redeemable convertible preferred
stock...................................... (3,301) -- -- (3,301)
--------- -------- --------- ---------
Net loss attributable to common
stockholders............................... $(130,605) $(68,944) $(136,082) $(335,631)
========= ======== ========= =========
Loss per common share, basic and diluted:
Before extraordinary item.................. $ (4.44) $ (3.31) $ (8.28)
From extraordinary item.................... (1.23) -- (0.76)
--------- -------- ---------
Net loss attributable to common
stockholders............................... $ (5.67) $ (3.31) $ (9.04)
========= ======== =========
Weighted average common shares outstanding,
basic and diluted.......................... 23,054 20,846 37,139 (7)
========= ======== =========
</TABLE>
See accompanying notes to unaudited pro forma combining financial information.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL INFORMATION
(1) Reflects the acquisition by Viatel Acquisition Corp. of Destia at
September 30, 1999 as follows:
(i) the issuance of 14.1 million shares of our common stock using an
exchange ratio of 0.445 of a share of our common stock for each share of
Destia common stock; our common stock is valued at $39.21 per share,
which represents the average of the closing stock price three days prior
to and three days after the announcement of the merger;
(ii) the exchange by holders of Destia's 11% senior discount notes with
accreted value of $209,070,000 at September 30, 1999, for our 11.50%
notes with an estimated aggregate principal amount of $205,790,000 and
cash of $15,372,000. Under the terms of the exchange, holders of
Destia's 11% senior discount notes receive $686.03 principal amount of
our 11.50% notes, $20.00 as a consent payment and $51.24 in cash for
each $1,000 principal amount at maturity of Destia 11% senior discount
notes. The pro forma calculations assume that none of Destia's 13.50%
senior notes due 2007 will be put back to Destia pursuant to the offer
to repurchase that Destia is required to make as a result of the
acquisition. To the extent such notes are put back to Destia, cash will
be decreased or other indebtedness will be increased;
(iii) estimated transaction costs for us of $7,744,000;
(iv) elimination of Destia goodwill and deferred financing costs;
(v) the value of our stock options exchanged for outstanding Destia stock
options. Such value has been determined using the Black-Scholes method
assuming 91.9% volatility, a risk free interest rate of 5.9% and an
average exercise period of two years;
(vi) the value of our warrants exchanged for outstanding warrants of Destia.
Such value has been determined using the Black-Scholes model assuming
91.9% volatility, a risk free interest rate of 5.9% and an average
exercise period of two years; and
(vii) the elimination of historical net assets acquired comprised of Destia's
historical stockholders' equity reduced by goodwill and deferred
financing fees.
<TABLE>
<S> <C> <C>
Issuance of common stock (dollars in thousands, except per share price)
Destia shares outstanding at September 30, 1999......... 31,547,066
Destia non-voting common shares outstanding at
September 30, 1999.................................... 104,388
-----------
Adjusted Destia shares outstanding September 30, 1999... 31,651,454
Exchange ratio of 0.445 to 1 share...................... 0.445
-----------
Number of shares issued to acquire Destia............... 14,084,897
Per share price......................................... $ 39.21
Value of shares issued.................................. $ 552,269
Value of debt exchanged................................. 205,790
Cash portion of debt exchanged.......................... 15,372
Value of options exchanged.............................. 105,976
Value of warrants exchanged............................. 23,323
Estimated Viatel transaction costs...................... 7,744
---------
Purchase price.......................................... 910,474
Less net assets acquired:
Destia 11% senior discount notes due 2008 exchanged..... $ 209,070
Destia stockholders' deficit............................ (101,618)
Destia intangible assets................................ (49,863)
Destia deferred financing fees.......................... (11,238)
-----------
Excess of cost over historical net assets acquired...... 46,351
---------
$ 864,123
=========
</TABLE>
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL INFORMATION
(1)--Continued
For illustrative purposes, we have made a preliminary allocation of excess
cost over estimated net assets acquired to goodwill as Destia's assets and
liabilities are estimated to approximate fair value. The final allocation of
purchase price to assets and liabilities acquired will depend upon the final
purchase price and the final estimates of fair values of assets and
liabilities of Destia at the closing date. We will undertake a study to
determine the fair values of assets and liabilities acquired and will
allocate the purchase price accordingly. We believe that the carrying value
of current assets and current liabilities approximates fair value and that
the excess of cost over historical net assets acquired will be allocated to
property and equipment, telecommunications licenses, goodwill and other
identifiable intangibles. However, there can be no assurance that the actual
allocation will not differ significantly from the pro forma allocation.
(2) Reflects the amortization expense of the excess of cost over historical net
assets acquired in the merger by use of the straight-line method over
7 years. Should the allocation of such excess of cost over historical net
assets acquired differ significantly as described in note 1 above,
amortization expense could increase since the depreciable lives of assets
other than goodwill may be shorter.
(3) Reflects the elimination of Destia's historical amortization of goodwill and
deferred financing costs.
(4) Reflects the sale of $63,666,000 in gross principal amount of our 11.50%
senior dollar notes due 2009 for cash. The net proceeds of $58,359,000 from
the offering are assumed to be applied as follows: a) $36,987,000 to
purchase U.S. government securities that are pledged to secure the payment
of interest through March 15, 2001 on $269,456,000 aggregate principal
amount of our 11.50% senior dollar notes; b) $15,372,000 to be applied
towards the cash payment portion of the exchange offer to holders of
Destia's 11% senior discount notes due 2008; and c) $6,000,000 towards the
consent payment paid to such holders. The related deferred financing costs
of $3,280,000 and the consent payment of $6,000,000 are being amortized over
the term of the related debt.
(5) Reflects the elimination of Destia's historical interest expense for its 11%
senior discount notes.
(6) Reflects interest expense and amortization of discount on our existing
notes.
(7) The average common shares outstanding used in calculating pro forma loss per
common share from continuing operations are calculated assuming that the
estimated number of our shares of common stock issued in the merger were
outstanding from the beginning of the periods presented. Options and
warrants to purchase shares of common stock were not included in computing
pro forma diluted earnings per common share because their inclusion would
result in a smaller loss per common share.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE
FOLLOWING DISCUSSION INCLUDES CERTAIN FORWARD-LOOKING STATEMENTS. FOR A
DISCUSSION OF IMPORTANT FACTORS, INCLUDING, BUT NOT LIMITED TO, THE CONTINUED
DEVELOPMENT OF OUR BUSINESS, ACTIONS OF REGULATORY AUTHORITIES AND COMPETITORS,
PRICE DECLINES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE RESULTS REFERRED TO IN THE FORWARD-LOOKING STATEMENTS, SEE
"RISK FACTORS."
OVERVIEW
Since our inception in 1991, we have invested heavily in developing our
ability to provide international communications services within Western Europe
and to expand our market presence. During the past seven years, we have made
substantial investments in software and back office operations, administrative
infrastructure and a direct sales organization in Western Europe. Furthermore,
we have created an extensive commercial telecommunications network in Western
Europe which we believe is necessary to economically render the voice and data
services we offer and intend to offer. We have also expanded our ability to
generate revenues in North America during 1998. Historically, our revenues were
derived from wholesale sales and retail sales, which is composed of sales to
end-users. Currently, our revenues also include revenues from the sale of
capacity on our network. Each revenue source has a different impact on our
results of operations. The sale of capacity on our Circe Network will vary
substantially from period-to-period and will result in fluctuations in our
operating results. For a discussion of the effects of the Circe Network on
communications services revenue and other line items, see "--The Circe Network."
REVENUE
Our revenue is derived from communications services and capacity sales. Our
communications services revenue is currently based primarily on the number of
minutes of use billed, "billable minutes," and, to a lesser extent, on the
additional services and products provided through our network. We currently
derive our communications services revenue principally from long distance
telecommunications services.
During recent years, the following key trends have affected the composition
of our communications services revenue:
- A growing portion of our customers, particularly in Western Europe, now
accesses our network using either "indirect access" or "dedicated access"
rather than call re-origination or international toll-free access. See
"Business--The Viatel Network."
- We have continued to expand our wholesale business. Our acquisition of
Flat Rate Communications, Inc. during 1998 resulted in a significant
increase in our wholesale business, and also increased our North American
revenues. We believe that the revenues generated in North America will
continue to increase.
- The Western European market has increased in importance for us. In
contrast, revenue from Latin America and the Asia/Pacific Rim has
declined, and is expected to continue to decline, as a percentage of total
communications revenue as we continue to grow our business in Western
Europe.
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The table set forth below presents our communications services revenue, as a
percentage of total revenue, from different regions, based on where calls
originated on our network:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ---------------------------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Western Europe............................. 39.5% 44.7% 46.6% 47.4% 72.4%
North America.............................. 18.9 21.9 41.6 38.0 24.0
Latin America.............................. 28.6 22.2 10.8 13.0 3.5
Asia/Pacific Rim and Other................. 13.0 11.2 1.0 1.6 0.1
</TABLE>
We have experienced, and expect to continue to experience, declining revenue
per minute in all of our markets, in part as a result of increasing worldwide
competition within the telecommunications industry. We believe, however, that
the impact on our results of operations from price decreases will be at least
partially offset by (1) continuing decreases in our cost of providing
telecommunications services, particularly those decreases resulting from our
continued efforts to convert from leased to owned infrastructure and reduce
interconnection costs through the use of the Circe Network as it is expanded,
(2) the introduction of new products and services and (3) our ability to enter
into additional interconnection agreements. There can be no assurance, however,
that the results referred to in the foregoing forward-looking statements,
including a decline in our cost of communications services, can be achieved.
COST OF SERVICES AND SALES
Our cost of services and sales can be classified into four general
categories: access costs, network costs, termination costs and cost of capacity
sold. Access costs generally represent the costs associated with transporting
the traffic from a customer's premises to the closest access point on our
network. Access costs vary depending upon the distance from our network to the
customer's premises and from country to country. We currently expect that our
effective per minute access costs will be reduced as deregulation continues and
competition accelerates, as certain European Union directives requiring
cost-oriented pricing (i.e., costs that an effectively competitive market would
yield) by incumbent telecommunications operators are enforced and as we are able
to obtain cost effective interconnection agreements. However, we can provide no
assurance regarding the extent or timing of such cost decreases. In the event
that such access costs do not fall as fast as we expect or at all, our gross
margins could be adversely impacted.
Network costs represent the costs of transporting calls over our network
from its point of entry to its point of exit. Network costs generally consist of
leased line rental costs, facility/network management costs and costs associated
with interconnection with facilities of incumbent telecommunications operators.
These costs will decrease substantially as each ring of the Circe Network is
placed into service and we secure infrastructure ownership on other routes,
which will enhance gross margins. However, there will be an associated increase
in depreciation and amortization expense (which is not included in network
costs). In order to succeed, we will need our per minute network costs to
decline substantially compared to our per minute revenue. See "--Depreciation
and Amortization."
We utilize least cost routing designed to terminate traffic in the most
cost-effective manner. We believe that local termination costs should decrease
as we (1) add additional switches and points of presence, (2) interconnect with
additional incumbent telecommunications operators and other infrastructure
providers and (3) construct or purchase additional transmission facilities.
Local termination costs should also decrease as new telecommunications service
providers emerge and, in Western Europe, as European Union member states
implement and enforce regulations requiring incumbent telecommunications
operators to establish rates which are set at the forward-looking, long run
economic costs that would be incurred by an efficient provider using
state-of-the-art technology.
44
<PAGE>
We cannot provide any assurance regarding the results referred to in the
foregoing forward-looking statements, including the extent or timing of cost
decreases. See "Risk Factors" and "Business--Competition" and
"Business--Government Regulation."
Termination costs currently represent the costs which we are required to pay
to other carriers from the point of exit from our network to the point of
destination. Termination costs are generally variable with traffic volume and
traffic mix. If a call is terminated in a city in which we have a switch or
point of presence, the call is usually transferred to the public switched
telephone network for local termination. If the call is to a location in which
we do not have a switch or point of presence, then the call must be transferred
to another carrier with which we are interconnected.
For a description of cost of capacity sold, see "--The Circe Network."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Our selling, general and administrative expenses include commissions paid to
independent sales representatives and overhead costs associated with our
headquarters, back office and network operations centers and sales offices. Our
selling, general and administrative expenses have continued to increase since
our inception as we have developed and expanded our business, although these
expenses have fallen as a percentage of communications revenue. We anticipate
that these expenses will continue to increase as our business is expanded in the
future, however, we cannot provide any assurance that this will be the case. We
anticipate that these expenses will continue to be incurred in advance of
anticipated related communications services revenue.
As a result of our merger with Destia, we anticipate taking a restructuring
charge in the fourth quarter of 1999.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense includes charges relating to
depreciation of property and equipment, which consist principally of
telecommunications-related equipment such as switches and points of presence,
indefeasible rights of use and minimum investment units, furniture and
equipment, leasehold improvements, and amortization of intangible assets,
including goodwill and costs associated with acquired employee bases and sales
forces. We depreciate our network over periods ranging from five to 15 years and
amortize our intangible assets over periods ranging from three to 25 years. We
expect depreciation and amortization expense to increase as we further expand
our network, particularly as each ring of the Circe Network is placed into
service, at least until significant portions of the Circe Network are sold.
THE CIRCE NETWORK
The Circe Network is expected to have significant effects on our results of
operations. The sale of capacity on the Circe Network will vary substantially
from period-to-period and, as a result, may result in fluctuations in our
operating results. During the first quarter of 1999, we began selling capacity
on the Circe Network. These sales substantially increase our gross profit (I.E.,
total revenue less cost of services and sales) because our cost of communication
services as a percentage of communications service revenue is currently higher
than the cost of capacity as a percentage of capacity sales. Due to the timing
of capacity sales and higher margin associated with such sales, our gross
profits and gross margin may also fluctuate substantially in the future, in ways
that will not necessarily reflect the trends in our communications services
business. We capitalize all of the costs associated with designing, building,
funding and placing each ring of the Circe Network into service.
Revenue from capacity sales that qualify under generally accepted accounting
principles to be treated as sales are recognized under a line item titled
"Capacity sales." Capacity sales are recognized
45
<PAGE>
as revenue when the purchaser obtains the right to use the capacity. The related
cost of capacity is reported in the same period. With respect to each sale of
capacity, the related cost of capacity sales is equal to a proportionate amount
of the total capitalized cost of the related network. Revenue from operating
leases of private line circuits will be included in communications services
revenue and will be recognized on a straight line basis over the life of the
lease. The portion of the total capitalized cost of the Circe Network used to
provide communications services is included in property and equipment and is
being charged to depreciation and amortization over its useful life.
We trade capacity on the Circe Network for capacity on other cable systems.
Depending upon structure, these trades of capacity may have a material affect on
our statement of operations. We will continue to incur sales and marketing and
related expenses that will not be capitalized and will affect our results of
operations, particularly while the Circe Network is being designed, built and
placed into service. In addition, we will continue to incur additional operating
and maintenance expenses as the remaining Circe phases become operational. As a
result of financing the Circe Network with debt, we are capitalizing a portion
of the interest incurred that relates to the construction of the Circe Network
until it is placed in service and will incur increases in interest expense
thereafter.
The Circe Network will have a beneficial effect on our costs of services and
sales as well as net income (loss). This will occur as we bring traffic
"on-net," to facilities we own, as opposed to facilities that we lease from
other carriers. A large portion of the expenses associated with facilities we
own is accounted as depreciation and amortization, while leased capacity is
accounted for as a cost of services and sales. As a result, we expect that our
gross margins and profit will be improved as we bring traffic "on-net." However,
net income (loss) will not improve to the same extent. The effect of bringing
traffic "on-net" will be somewhat delayed because our leased line agreements
require minimum notification to terminate our obligations.
RESULTS OF OPERATIONS
The following table summarizes the breakdown of our results of operations as
a percentage of revenue. Our revenue, and therefore these percentages, could
fluctuate substantially from period to period due to capacity sales, which have
a substantially different impact on margins than communications services.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------ -----------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cost of services and sales..................... 83.6% 87.0% 90.3% 90.1% 77.4%
Selling, general and administrative expenses... 65.2% 49.4% 33.2% 36.1% 30.1%
Depreciation and amortization.................. 9.5% 10.6% 12.0% 12.4% 18.6%
EBITDA loss (1)................................ 48.7% 36.4% 23.5% 26.2% 7.5%
</TABLE>
- ------------------------
(1) As used herein "EBITDA" consists of earnings before interest, income taxes,
extraordinary loss, dividends on convertible preferred stock and
depreciation and amortization. EBITDA is a measure commonly used in the
telecommunications industry to analyze companies on the basis of operating
performance. EBITDA is not a measure of financial performance under
generally accepted accounting principles, is not necessarily comparable to
similarly titled measures of other companies and should not be considered as
an alternative to net income as a measure of performance nor as an
alternative to cash flow as a measure of liquidity.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUE. Revenue increased by 144.2% from $86.1 million for the nine months
ended September 30, 1998 to $210.4 million for the nine months ended
September 30, 1999. This growth was
46
<PAGE>
attributable to a 75.6% increase in communications services revenue to $151.2
million on 909.6 million billable minutes for the first nine months of 1999 from
$86.1 million on 248.9 million billable minutes for the first nine months of
1998. Capacity sales represented $59.2 million, or 28.1% of revenue, for the
first nine months of 1999. We had no capacity sales during the first nine months
of 1998. Revenue growth for the nine months ended September 30, 1999 continues
to be generated primarily by growth from European operations.
Although there was a substantial increase in billable minutes from the first
nine months of 1998 to the first nine months of 1999, the effects of such growth
were partially offset by a decline in revenue per billable minute, as revenue
per billable minute declined by 54.3% from $.35 in the first nine months of 1998
to $.16 in the first nine months of 1999, primarily because of (i) a higher
percentage of lower-priced intra-European and national long distance traffic on
our network and (ii) reductions in prices in response to price reductions by
incumbent telecommunications operators and other carriers in many of our
markets. Revenue per billable minute excludes fixed fees associated with our
other products and service offerings.
Communication services revenue from the sale of services to retail
customers, which represented 45.2% of revenue for the nine months ended
September 30, 1998 compared to 37.5% for the nine months ended September 30,
1999, decreased 69.1% from $.42 per billable minute in the first nine months of
1998 to $.13 per billable minute in the first nine months of 1999. Communication
services revenue per billable minute from the sale of services to carriers and
other resellers decreased from $.30 in the first nine months of 1998 to $.23 in
the first nine months of 1999.
During the first nine months of 1998 as compared to the first nine months of
1999, our carrier business grew on an absolute basis, but decreased as a
percentage of revenue because our other services grew at a faster rate. The
carrier business represented approximately 54.8% of revenue and approximately
63.3% of billable minutes for the nine months ended September 30, 1998 as
compared to approximately 34.4% of revenue and approximately 34.0% of billable
minutes for the nine months ended September 30, 1999.
During the first nine months of 1998, approximately 47.4% of revenue was
generated in Western Europe as compared to 72.4% of the revenue during the first
nine months of 1999. Revenue from North America represented 38.0% during the
first nine months of 1998 compared to 24.0% during the same period in 1999.
Revenue from Latin America represented approximately 13.0% during the nine
months ended September 30, 1998 compared to 3.5% during the nine months ended
September 30, 1999. Pacific Rim revenues were less than 2% during the first nine
months of 1998 and less than 1% for the same period in 1999.
COST OF SERVICES AND SALES. Cost of services and sales increased from $77.6
million in the first nine months of 1998 to $162.9 million in the first nine
months of 1999. As a percentage of revenue, however, cost of services and sales
decreased from approximately 90.1% for the nine months ended September 30, 1998
to approximately 77.4% for the nine months ended September 30, 1999, due to our
migration from leased infrastructure to the Circe Network and other owned
capacity. The effect of bringing traffic on-net, however, will be somewhat
delayed because our leased line agreements require minimum notification to
terminate our obligations.
Cost of services and sales for the nine months ended September 30, 1999
includes costs associated with the sale of capacity on the network. The cost of
the sold capacity represented non-cash charges of the pro rata cost of the
network asset and is determined based upon the ratio of total capacity sold to
total estimated capacity multiplied by the total capitalized costs of the
related network.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $31.1 million for the nine months ended
September 30, 1998 to $63.4 million for the nine months ended September 30, 1999
and, as a percentage of revenue, decreased from approximately 36.1% for
47
<PAGE>
the nine months ended September 30, 1998 to approximately 30.1% for the
corresponding period in 1999. Much of these expenses are attributable to
overhead costs associated with our headquarters, back office and operations as
well as maintaining a physical presence in multiple jurisdictions. We expect to
incur additional expenses as we continue to invest in operating infrastructure
and actively market our products and services. Salaries and commissions, as a
percentage of total selling, general and administrative expenses, were
approximately 49.3% and 45.3% for the nine months ended September 30, 1998 and
1999, respectively. Advertising and promotion expenses have increased
substantially and will continue to be a significant component of selling,
general and administrative expenses. As a percentage of total selling, general
and administrative expenses, advertising and promotion expenses were
approximately 2.7% and 7.0% for the nine months ended September 30, 1998 and
1999 respectively.
EBITDA LOSS. EBITDA loss decreased from $22.5 million for the nine months
ended September 30, 1998 to $15.9 million for the nine months ended September
30, 1999. As a percentage of revenue, EBITDA loss decreased from approximately
26.2% in the first nine months of 1998 to approximately 7.5% in the first nine
months of 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of the network, increased from approximately $10.7 million
for the nine months ended September 30, 1998 to approximately $39.0 million for
the nine months ended September 30, 1999. The increase was due primarily to the
$596.8 million increase in gross property and equipment from $173.3 million at
September 30, 1998 to $770.1 million at September 30, 1999.
INTEREST. Interest expense increased from approximately $52.7 million in
the nine months ended September 30, 1998 to approximately $97.3 million in the
nine months ended September 30, 1999, primarily as a result of increases in our
outstanding indebtedness, which includes notes and capital lease obligations,
which increased from $899.8 million at September 30, 1998 to $1.3 billion at
September 30, 1999 . During the nine months ended September 30, 1999, we
capitalized approximately $7.1 million of interest costs. Interest income
increased from approximately $19.9 million in the nine months ended September
30, 1998 to approximately $21.4 million in the nine months ended September 30,
1999, primarily as a result of the interim investment of the net proceeds from
our debt and equity financings.
1998 COMPARED TO 1997
TOTAL REVENUE. Total revenue increased by 85.1% from $73.0 million on
140.9 million billable minutes for 1997 to $135.2 million on 383.9 million
billable minutes for 1998. Total revenue growth for 1998 was generated primarily
from increased European retail traffic and growth in our carrier business in
Western Europe and in North America which was partially offset by decreased
revenue from our Pacific Rim and Latin American operations. Total revenue for
1998 also included $3.3 million of transatlantic capacity sales.
The overall increase of 172.4% in billable minutes from 1997 to 1998 was
partially offset by declining revenue per billable minute, primarily because of
(1) a higher percentage of lower-priced intra-European and national long
distance traffic on our network as compared to intercontinental traffic, (2) a
higher percentage of lower-priced carrier traffic as compared to retail traffic
and (3) reductions in certain rates charged to retail customers in response to
price reductions enacted by incumbent telecommunications operators and other
carriers in many of our markets.
Communications services revenue per billable minute from the sale of
services to retail customers, which represented 72.1% of total revenue for 1997,
compared to 41.7% for 1998, decreased 43.5% from $.69 in 1997 to $.39 in 1998.
Total revenue per billable minute from the sale of services to carriers and
other resellers increased by 3.3% from $.30 in 1997 to $.31 in 1998 due
primarily to changes in traffic mix. The number of contracted customers billed
declined 30.2% from 21,515 at December 31,
48
<PAGE>
1997 to 15,010 at December 31, 1998. This decline in contracted customers billed
is primarily attributable to our Pacific Rim operations where the number of
customers billed declined 93.2% from 5,424 at December 31, 1997 to 369 at
December 31, 1998, representing a net loss of 5,055 customers, as a result of
currency fluctuations caused by the Asian economic crisis, which made our rates
noncompetitive.
During 1998 as compared to 1997, we significantly increased our carrier
business through which we sell switched minutes, private lines and ports to
carriers, Internet service providers and other resellers. The carrier business
has enabled us to recover partially the costs associated with increased capacity
in advance of demand from retail customers. The resulting economies of scale
have allowed us to use our network more profitably for network originations and
terminations within Europe. The carrier business represented approximately 27.9%
of total revenue and approximately 46.1% of billable minutes for 1997 as
compared to approximately 58.3% of total revenue and approximately 62.0% of
billable minutes for 1998. The increase in total revenue derived from carriers
and other resellers is partially attributable to the acquisition of Flat Rate
Communications on February 27, 1998 which also significantly increased our North
American revenues.
COST OF SERVICES. Cost of services increased from $63.5 million in 1997 to
$122.1 million in 1998 and, as a percentage of total revenue, increased from
approximately 87.0% to approximately 90.3%. Our gross margin decreased, as a
percentage of total revenue, from 13.0% for 1997 to 9.7% for 1998. This decrease
was primarily due to (1) decreased revenue per minute resulting from price
competition and foreign currency fluctuations which was not offset by
corresponding decreases in infrastructure costs, (2) increased sales to carrier
customers which generate substantially lower margins and (3) an increase in
intra-European and national long distance traffic compared to higher margin
international traffic. This decrease in gross margin, as a percentage of
revenue, is one of the principal reasons we initiated a strategy to own key
elements of our network infrastructure.
Cost of services increased in 1998 in part because of the relatively high
cost of leased infrastructure. These costs are expected to decrease as a
percentage of total revenue as we continue to migrate from leased to owned
infrastructure. From 1997 to 1998, we increased our private line circuits
capacity and, as a result, costs for private line circuits increased from
approximately $9.6 million for 1997 (approximately 13.1% of total revenue) to
approximately $17.1 million for 1998 (approximately 12.6% of total revenue).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $36.1 million in 1997 to $44.9 million in
1998 and, as a percentage of total revenue, decreased from approximately 49.4%
in 1997 to approximately 33.2% in 1998. Much of these expenses are attributable
to overhead costs associated with our headquarters, back office and network
operations as well as maintaining sales offices. Salaries and commissions, as a
percentage of total selling, general and administrative expenses, were
approximately 51.6% and 49.3% for 1997 and 1998, respectively. Advertising and
promotion expenses, as a percentage of total selling, general and administrative
expenses, were approximately 1.2% and 3.6% for 1997 and 1998, respectively. We
expect to incur additional expenses as we continue to invest in our sales and
marketing infrastructure and actively market our products and services.
EBITDA LOSS. EBITDA loss increased from $26.6 million for 1997 to
$31.8 million for 1998. As a percentage of total revenue, EBITDA loss decreased
from approximately 36.4% in 1997 to approximately 23.5% in 1998. These losses
resulted from lower gross margins as a percentage of total revenue due to the
relatively high cost of intra-European leased lines which was compounded by the
impact on revenue of aggressive price reductions implemented by incumbent
telecommunications operators.
49
<PAGE>
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of our network, increased from approximately $7.7 million
in 1997 to approximately $16.3 million in 1998. The increase was due primarily
to (1) the depreciation of equipment related to network expansion and fiber
optic cable systems placed in service during 1997 and (2) the amortization of
goodwill associated with the acquisition of Flat Rate Communications in February
1998. Depreciation expense will increase substantially as each ring of the Circe
Network becomes operational.
INTEREST. Interest expense increased from approximately $12.5 million in
1997 to approximately $79.2 million in 1998 primarily as a result of our 1998
high yield offering. Interest income increased from approximately $3.7 million
in 1997 to approximately $28.3 million for 1998 primarily as a result of the
interim investment of the net proceeds from our 1998 high yield offering. During
1998, we capitalized $3.3 million of interest costs.
1997 COMPARED TO 1996
TOTAL REVENUE. Total revenue increased by 44.8% from $50.4 million on
62.2 million billable minutes for 1996 to $73.0 million on 140.9 million
billable minutes for 1997. Total revenue growth for 1997 was generated primarily
from increased traffic volume on our network, from growth in our carrier
business and, to a lesser extent, increased traffic volume in Latin America and
the Pacific Rim.
The overall increase of 126.4% in billable minutes from 1996 to 1997 was
partially offset by declining revenue per billable minute primarily because of
(1) a higher percentage of lower-priced intra-European and national long
distance traffic from our network as compared to intercontinental traffic,
(2) a higher percentage of lower-priced carrier traffic as compared to retail
traffic, (3) reductions in certain rates charged to retail customers in response
to pricing reductions enacted by certain incumbent telecommunications operators
and other carriers in many of our markets, (4) changes in customer access
methods and (5) foreign currency fluctuations.
Total revenue per billable minute from the sale of services to retail
customers, which represented 81.1% of total revenue in 1996, compared to 72.1%
in 1997, decreased from $1.04 in 1996 to $.69 in 1997. Total revenue per
billable minute from the sale of services to carriers and other resellers
decreased from $.38 in 1996 to $.30 in 1997, primarily as a result of price
competition. The number of customers billed rose 18.4% from 18,172 at
December 31, 1996 to 21,515 at December 31, 1997.
The carrier business represented approximately 18.9% of total revenue and
approximately 35.2% of billable minutes for 1996 as compared to approximately
27.9% of total revenue and approximately 46.1% of billable minutes for 1997.
This increase in carrier revenue represents an increase of approximately 147.0%
over 1996.
COST OF SERVICES. Cost of services increased from $42.1 million in 1996 to
$63.5 million in 1997 and, as a percentage of total revenue, increased from
approximately 83.6% to approximately 87.0% for 1996 and 1997, respectively. Our
gross margin decreased from 16.4% for 1996 to 13.0% for 1997. This decrease was
primarily due to (1) decreased revenue per minute resulting from price
competition and foreign currency fluctuations which were not offset by
corresponding decreases in infrastructure costs, (2) increased sales to carrier
customers which generate substantially lower margins, and (3) an increase in
intra-European and national long distance traffic compared to higher margin
intercontinental traffic.
Cost of services increased in 1997 because of the relatively high cost of
leased infrastructure and the accelerated rollout of European points of
presence. These costs are expected to decrease as a percentage of total revenue
as we continue our efforts to convert from leased to owned capacity. We
increased our private line circuits capacity by 311% and, as a result, the fixed
costs associated with our network costs for private line circuits increased from
approximately $4.1 million for 1996 (approximately 8.2% of total revenue) to
approximately $6.0 million for 1997 (approximately 8.2% of total revenue).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $32.9 million in 1996 to $36.1 million in
1997 and, as a percentage of total revenue, decreased from approximately 65.2%
in 1996 to approximately 49.4% in 1997. Much of these expenses
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are attributable to overhead costs associated with our headquarters, back office
and network operations as well as maintaining a physical presence in seventeen
different jurisdictions. Salaries and commissions, as a percentage of total
selling, general and administrative expenses, were approximately 49.0% and 51.6%
for 1996 and 1997, respectively.
EBITDA LOSS. EBITDA loss increased from $24.6 million for 1996 to $26.6
million for 1997. As a percentage of total revenue, EBITDA loss decreased from
approximately 48.7% in 1996 to approximately 36.4% in 1997. These losses
resulted from lower gross margins as a percentage of total revenue due to the
relatively high cost of intra-European leased lines which was compounded by the
impact on revenue of aggressive price reductions implemented by certain
incumbent telecommunications operators.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of our network, increased from approximately $4.8 million
in 1996 to approximately $7.7 million in 1997. The increase was due primarily to
the depreciation of equipment related to network expansion and fiber optic cable
systems placed in service during 1997.
INTEREST. Interest expense increased from approximately $10.8 million in
1996 to approximately $12.5 million in 1997 due to the accretion of non-cash
interest on the notes issued by us in 1994. Interest income increased from
approximately $1.9 million for 1996 to approximately $3.7 million in 1997,
primarily as a result of the investment of the net proceeds from our initial
public offering.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred losses from operating activities in each year of operations
since our inception and expect to continue to incur operating and net losses for
the next several years. Since inception, we have utilized cash provided by
financing activities to fund operating losses, interest expense and capital
expenditures. The sources of this cash have primarily been through private and
public equity and debt financings and, to a lesser extent, equipment-based
financing. As of September 30, 1999, we had $514.5 million of cash, cash
equivalents and cash securing letters of credit for network construction and
$168.9 million of restricted cash equivalents and other restricted marketable
securities, which primarily secure interest payments on our notes through April
2001.
On June 29, 1999, we completed an offering of 4,315,000 shares of our common
stock at $47.00 per share. The net proceeds of the offering were approximately
$192.2 million and will be used primarily to fund the further development of our
network as well as for working capital and general corporate purposes.
On May 13, 1999, our series A preferred stock and subordinated convertible
debentures converted into shares of our common stock. The conversion was based
upon maintenance of our common stock above a certain per share price for a
specified time period. The series A preferred stock and the subordinated
convertible debentures converted at a conversion price equal to $13.20 and
DM24.473, at the then applicable exchange rate, respectively. Accordingly, we
issued approximately 4.6 million shares of our common stock and paid cash for
any fractional shares due upon conversion. These transactions, and their
extinguishment of our related commitments, significantly strengthen our
financial position.
On March 19, 1999, we completed a high yield offering through which we
raised approximately $352.6 million of net proceeds in a combination of senior
dollar notes and senior Euro notes.
On April 8, 1998, we completed a high yield offering through which we raised
approximately $856.6 million of net proceeds. A portion of the proceeds from
this high yield offering were utilized by us to retire our 15% senior discount
notes due 2005 pursuant to a tender offer.
The proceeds of the 1999 and 1998 high yield offerings are being used to
construct the Circe Network. The Circe Network, when completed, will be one of
the largest cross-border fiber optic networks in the major metropolitan
telecommunications markets in Western Europe. This five-ring system is expected
to encompass approximately 8,700 route kilometers.
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On August 27, 1999, we agreed to acquire Destia through a merger of Destia
with one of our subsidiaries, and on December 8, 1999, we completed the merger.
Destia is a rapidly growing, facilities-based provider of domestic and
international long distance telecommunications services in Europe and North
America.
We believe that the net proceeds from the offerings discussed above together
with cash and marketable securities on hand and future sales of capacity on the
Circe Network, will provide sufficient funds for us to expand our business as
planned and to fund operating losses for at least the next 12 to 18 months.
However, the amount of our future capital requirements will depend on a number
of factors, including the success of our business, the start-up dates of each
ring of the Circe Network, the dates on which we further expand our network, the
types of services we offer, staffing levels, acquisitions and customer growth as
well as other factors that are not within our control, including an obligation
to fund Destia's repurchase offer obligation with respect to its 13.50% senior
notes that has been triggered by our acquisition of Destia, competitive
conditions, government regulatory developments and capital costs. In the event
that our plan or assumptions change or prove to be inaccurate, we are unable to
convert from leased to owned infrastructure or obtain interconnection in
accordance with our current plans or the net proceeds from our debt and equity
offerings, cash and investments on hand and the proceeds from the sale of
capacity on the Circe 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. In
the event we are required to seek additional financing, there can be no
assurance that such financing will be available on acceptable terms or at all.
See "--Capital Additions; Commitments."
CAPITAL ADDITIONS; COMMITMENTS
The development of our business has required substantial capital. Capital
additions consist of capital expenditures, the net increase in property and
equipment purchases payable, assets acquired under capital lease obligations and
capitalized interest during the period. During 1998, capital additions totaled
$220.9 million and consisted of capital expenditures of approximately $94.7
million, a net increase of $92.5 million in property and equipment purchases
payable, $30.4 million of assets acquired under capital lease obligations and
capitalized interest of $3.3 million. For the nine months ended September 30,
1999, we had capital additions of approximately $511.9 million, which consisted
of capital expenditures of approximately $391.7 million, a net increase of $99.5
million in property and equipment payable, $13.6 million of assets acquired
under capital lease obligations and capitalized interest of approximately $7.1
million. We have also entered into certain agreements associated with the Circe
Network, purchase commitments for network expansion and other items aggregating
in excess of $204.6 million at September 30, 1999. Additionally, we have minimum
volume commitments to purchase transmission capacity from various domestic and
foreign carriers aggregating approximately $13.2 million for all of 1999. We
expect to continue to have substantial capital expenditures in the future.
As a result of our acquisition of Destia, Destia is required to offer to
repurchase all of the outstanding Destia 13.50% senior notes due 2007 at a
purchase price equal to 101% of the outstanding principal amount, together with
accrued and unpaid interest. Destia launched this required offer to purchase on
December 22, 1999. As of September 30, 1999, the outstanding principal amount of
the Destia 13.50% senior notes was $150.7 million. Based on the current and
historical trading prices of the Destia 13.50% senior notes, we do not expect
that the holders of these notes will tender their notes for repurchase. However,
if there is a significant adverse change in the market for debt securities or an
adverse change with respect to either us or Destia, it is likely that some or
all of the Destia 13.50% notes will be tendered in the repurchase offer. If we
divert our available cash to fund the repurchase of all or a significant amount
of these Destia notes, our business plan, which is currently fully funded, could
be restricted.
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FOREIGN CURRENCY
We have exposure to fluctuations in foreign currencies relative to the U.S.
Dollar as a result of billing portions of our communications services revenue in
the local European currency in countries where the local currency is relatively
stable while many of our obligations, including a substantial portion of our
transmission costs, are denominated in U.S. dollars. In countries with less
stable currencies, such as Brazil, we bill in U.S. dollars. Debt service on
certain of the notes issued by us is currently payable in Euros. A substantial
portion of our capital expenditures is and will continue to be denominated in
various European currencies, including the Euro. Most of the European currencies
in which we do business converged effective January 1, 1999, with the exception
of the British Pound Sterling. See "--Euro."
With the continued expansion of our network, a substantial portion of the
costs associated with the network, such as local access and termination charges
and a portion of the leased line costs, as well as a majority of local selling
expenses and debt service related to the Euro denominated notes, will be charged
to us in the same currencies as revenue is billed. These developments create a
natural hedge against a portion of our foreign exchange exposure. To date, much
of the funding necessary to establish the local direct sales organizations has
been derived from communications services revenue that was billed in local
currencies. Consequently, our financial position as of September 30, 1999 and
our results of operations for the nine months ended September 30, 1999 were not
significantly impacted by fluctuations in the U.S. Dollar in relation to foreign
currencies.
YEAR 2000
The Year 2000 problem is the result of computer programs, microprocessors
and embedded date reliant systems using two digits rather than four to define
the applicable year. If these 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 internal systems,
which we have divided into two categories, business essential, or mission
critical, and support systems, or non-mission critical. As part of our Year 2000
program and as part of our overall procurement plan, we have sought to ensure
that fixed assets acquired were Year 2000 compliant. As part of this process, we
have inventoried and tested Year 2000 compliance of our mission critical systems
and believe that they are Year 2000 compliant. Our Nortel switches, a critical
component of our network backbone, are Year 2000 compliant. Our message
processing and billing systems, which are used to record and process millions of
call detail records, and our transmission equipment, which are our only other
mission critical systems, are also Year 2000 compliant. The majority of our
non-mission critical systems are Year 2000 compliant. We anticipate that most of
our non-mission critical systems will be Year 2000 compliant prior to
December 31, 1999. The total estimated cost of ensuring our preparation for Year
2000 is approximately $200,000, a portion of which has already been incurred and
expensed.
We continue to communicate formally 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 problems. Accordingly, during the
procurement process, we have taken steps to ensure that our vendors, carriers
and products purchased are Year 2000 compliant or are adequately addressing the
Year 2000 issues. We can provide no assurance 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 effect on our business,
financial condition and results of operations. As a contingency against any
possible disruptions in services provided by vendors, we have has sought to
diversify our vendor base. We believe that the diversity of our vendor base is
sufficient to mitigate Year 2000 related disruptions in service to our
customers. In addition, we believe that the fact that we
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conduct business in, and derive revenue from, multiple Western European
countries helps to mitigate the potential impact of Year 2000 related
disruptions.
In addition, disruptions in the economy generally resulting from the Year
2000 problems could also have a material adverse effect on us. We could be
subject to litigation resulting from any disruption in our services. The amount
of potential liability or lost revenue which would result from these disruptions
in service could have a material adverse effect on our business, financial
condition and results of operations.
EURO
On January 1, 1999, eleven of the fifteen member countries of the European
Union established irrevocable fixed conversion rates between their existing
sovereign currencies and a single currency called the Euro. The sovereign
currencies are scheduled to remain legal tender as denominations of the Euro
during a transition period from January 1, 1999 to January 1, 2002.
We have completed an internal analysis regarding business and systems issues
related to the Euro conversion and, as a result, made necessary modifications to
our business processes and software applications. Throughout most of 1999, we
have been able to conduct business in both the Euro and sovereign currencies on
a parallel basis, as required by the European Union.
We believe that the Euro conversion has not and will not have a significant
impact on our business in Europe. The costs to convert all systems to be Euro
compliant did not have a significant impact on our results of operations.
INFLATION
We do not believe that inflation has had a significant effect on our
operations to date.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS NO. 133 AND SFAS NO. 137. Statement of Financial Accounting Standards
No. 133 ("SFAS 133," "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. SFAS 133 standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring recognition of those instruments as assets and
liabilities and to measure them at fair value. In June 1999, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of SFAS 133," which amends SFAS 133
to delay the date by which all companies must comply with SFAS 133. Companies
must comply with SFAS 133 for all fiscal years beginning after June 15, 2000. We
have not completed our analysis of the impact of these statements on our
financial statements.
FASB INTERPRETATION NO. 43. On July 1, 1999, the Company applied FASB
Interpretation No. 43, "Real Estate Sales--an interpretation of FASB Statement
No. 66." This interpretation amended the standards for recognition of profit on
all real estate sales transactions including sales of real estate with property
improvements or integral equipment that cannot be removed and used separately
from the real estate without incurring significant costs. Therefore, it may
affect the way we account for revenues and expenses associated with capacity
sales.
MARKET RISK EXPOSURE
We are subject to foreign currency exchange rate risk relating to receipts
from customers, payments to suppliers and interest and principal payments on our
outstanding Euro denominated senior notes and senior discount notes. We do not
consider the market risk exposure relating to foreign currency exchange to be
material. See "--Liquidity and Capital Resources--Foreign Currency."
We have financial instruments that are subject to interest rate risk,
principally short-term investments and debt obligations issued at a fixed rate.
Historically, we have not experienced material gains or losses due to interest
rate changes when selling short-term investments and typically hold these
securities until maturity. Based on our current holdings of short-term
investments, our exposure to interest rate risk is not material.
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BUSINESS
OVERVIEW
We are a rapidly growing international communications company providing high
quality, competitively priced, long distance communication and data services to
end-users, carriers and resellers. Our revenue has grown from $32.3 million in
1995 to $210.4 million for the nine months ended September 30, 1999, and today
we have a direct sales force in 12 Western European cities and an indirect sales
force in more than 180 locations in Western Europe.
To capitalize on the opportunities presented by deregulation of the
telecommunications industry in Western Europe, we established an early presence
and sought aggressively to acquire licenses, interconnection and infrastructure.
Today, we have licenses in each of Belgium, France, Germany, Italy, The
Netherlands, Spain and the United Kingdom and interconnection agreements with
the incumbent telecommunications operator in each of these countries. We also
have a license in Switzerland.
We currently operate one of Europe's largest pan-European networks, with
points of interconnection in over 78 cities. We believe that control of network
infrastructure is critical to becoming a high quality, low-cost provider of
communications services because it will enable us to better manage service
offerings, quality of transmission and costs. Accordingly, we are currently in
the process of migrating from a network composed of international and domestic
leased circuits to a network composed primarily of owned circuits. To facilitate
this transition, in 1998 we commenced construction of a five-ring fiber optic
network in the largest telecommunications markets in Europe. These five rings,
which are expected to consist of approximately 8,700 route kilometers, comprise
our Circe Network. In March 1999, we completed construction of phase one of the
Circe Network, which connects four European countries and includes London,
Paris, Amiens, Brussels, Antwerp, Rotterdam and Amsterdam. In July 1999, we
completed construction of phase two of the Circe Network, which extends through
northern France, The Netherlands and into western Germany. The third phase,
which will extend through eastern Germany, currently is scheduled to be placed
into service during the first quarter of 2000. We currently anticipate that the
fourth and fifth phases of the Circe Network, which will extend into southern
France and Switzerland, will be completed during the third quarter of 2000.
We believe, and our experience to date has indicated, that demand from
end-users, carriers and other communications companies for high quality
transmission capacity in Europe will increase over the next several years due to
fundamental changes in the communications industry brought about by regulatory
and technical improvements. We also believe that cost effective transmission
capacity in Europe will allow new capacity intensive applications to be created
which will, in turn, fuel the need for capacity. Our network should allow us to
meet this increased demand by providing abundant transmission capacity for:
- continued growth in existing long distance voice service business;
- additional provision of wholesale services to the large base of resellers
that is developing as deregulation continues in Western Europe;
- Internet, electronic commerce, multi-media and video services and other
new technologies and applications; and
- asynchronous transfer mode, frame relay, Internet protocol and other high
speed data transmission services.
As part of our strategy to capture a share of the rapidly growing data
market, in the first quarter of 1999 we entered into an arrangement with Lucent
Technologies pursuant to which Lucent is installing asynchronous transfer mode
backbone network equipment on our Circe Network. This backbone equipment is
designed to enable us to provide packet switched voice, video conferencing,
private intranets and dedicated Internet protocol transport over an integrated
platform and to offer
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end-users high capacity, speed and reliability. Lucent has agreed to cooperate
with us in developing marketing strategies to promote data services, to train
our personnel and to assist us in achieving network-to-network interfaces with
certain specified carriers. We expect our data network to be commercially
operable in the second quarter of 2000.
SERVICES
We currently provide competitively priced long distance services with
value-added features that typically have not been provided by the respective
international telecommunications operator in many of the countries in which we
operate. The products and services include switched and dedicated long distance,
800 services, calling cards, domestic and international private line, debit
cards, conference calling, advanced billing systems, enhanced fax and data
connections and management. We are actively exploring the provision of new
services, including Internet access, web hosting, asynchronous transfer mode and
frame relay services, the provision and management of intranets and virtual
private networks and video conferencing. We have an arrangement with Lucent to
facilitate the provision of these services in the future.
Our principal services include:
VIADIRECT--permits domestic and international calling to more than 230
countries and territories through interconnect switched access. This service is
currently marketed exclusively in Belgium, France, Germany, The Netherlands and
the United Kingdom where we have full interconnection and a national operator's
license. In addition, carrier preselection, eliminating the requirement to dial
carrier selection codes, is available in Germany.
VIADIRECT PLUS--provides dedicated access via a leased line from the
customer to our network, permitting calling without dialing access or location
codes.
VIACALL EXPRESS--provides a paid (local) access or toll free number
programmed to dial an existing phone number or system, generally in another
country, without the need for special circuits or modifications.
VIACALL--enables virtual private network calling to a pre-defined group of
locations within a closed user group that can be modified as required, subject
to regulatory limitations.
VIACONNECT--provides "anywhere to anywhere" international callback access
through manual, automatic or Internet initiated callback. These services are
also offered with international toll-free access, subject to pricing
considerations.
VIAGLOBE--provides calling card access from more than 50 countries. In
addition to offering savings over the calling cards of AT&T, MCI and other
providers of credit-based international calling cards, VIAGLOBE provides 24-hour
operator assistance and speed dialing.
VIACARD--is a prepaid international debit card which provides many of the
same features as VIAGLOBE on a prepaid basis.
VIALINK--is an audio conference service, allowing automatic, manual or
operator assisted establishment of conference calls 24 hours a day, seven days a
week.
VIA0800--is a personal 0800 number permitting users to call the sponsor at
no cost.
In October 1999, we announced our offering of the "One World, One Rate"
Club, which is available to business and residential customers in Belgium,
Canada, France, Germany, The Netherlands, Switzerland, the United Kingdom and
the United States. Club members will be able to make domestic and international
long distance calls within these eight countries--24 hours a day, seven days a
week--for only five cents per minute. Club subscribers will be able to choose
from three levels
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of membership which will entitle the member to a specified number of minutes at
the club rate. The club rate is scheduled to be rolled-out on January 1, 2000.
The "One World, One Rate" Club is a joint product offering with Destia. In
addition, in late October, we announced the launch of our CITYCONNEX Service, an
offering to bypass local loop connections of the incumbent operators through
wireless connectivity.
DATA SERVICES
The data communications industry is expected to grow in the near term. To
efficiently handle this growth, the industry has been shifting away from circuit
switching, where a route is maintained for the duration of an entire call, to
packet switching, where digital packets of information for various destinations
are routed over a frame relay, asynchronous transfer mode or Internet protocol
network in an efficient and cost-effective manner.
As part of our strategy to capture a share of the rapidly growing data
business market, in the first quarter of 1999 we entered into an arrangement
with Lucent pursuant to which Lucent is installing asynchronous transfer mode
backbone network equipment on our Circe Network. This backbone equipment is
designed to enable us to provide packet switched voice, video conferencing,
private intranets and dedicated Internet protocol transport over an integrated
platform and offer end-users high capacity, speed and reliability. Lucent has
agreed to cooperate with us in developing marketing strategies to promote our
data services, to train our personnel and to assist us in achieving network-to-
network interfaces with certain specified carriers. We believe that our data
network will be commercially operable in the second quarter of 2000.
We have no direct experience in offering data services. See "Risk
Factors--We May Not Be Able to Provide Data Transmission Services Effectively."
THE VIATEL NETWORK
We currently operate one of Europe's largest pan-European networks, with
international gateway switching centers in New York, New York; Somerset, New
Jersey; and London, England; points of interconnection in over 78 Western
European cities, including switches in Amsterdam (The Netherlands), Barcelona
and Madrid (Spain), Brussels (Belgium), Frankfurt (Germany), Milan and Rome
(Italy) and Paris (France), and our Circe Network. Additional points of
interconnection are placed to enhance network use and as required by the various
interconnection agreements to which we are a party. We intend to install
additional points of presence in cities with both significant calling activity
directed to our switched-based cities and significant potential for originating
and terminating international and domestic long distance traffic.
Access to our services is obtained either through "indirect access" or
"dedicated access." Currently, substantially all of our business end-users use
one or more forms of indirect access. Indirect access requires the end-user to
use (1) carrier selection codes (E.G., "1623" in The Netherlands, Belgium and
France; "01079" in Germany), which require us to pay a regulated tariff for
using the incumbent telecommunications operator's network to originate the
calls; (2) national or international toll-free, which accesses a Viatel switch
by direct dial; or (3) call reorigination, which enables the end-user to receive
a return call providing a dial tone originated from one of our U.S. switching
centers. End-users using dedicated access are connected to one of our switches
or points of presence by a private leased line connected to the end-user's
premises. Carrier selection and dedicated access are our access methods of
choice. As the regulatory environment permits, we expect more customers will
pre-select us as their long distance provider. As our service offering broadens,
we anticipate the percentage of our customers who utilize dedicated access will
increase. We currently have interconnection agreements with Belgacom (Belgium),
British Telecom (United Kingdom), Deutsche Telekom (Germany), France Telecom
(France), KPN (The Netherlands), Telecom Italia (Italy), and Telefonica de
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Espana (Spain). We also have interconnection agreements with Cable & Wireless
(United Kingdom) and Infostrada (Italy). We are currently negotiating an
interconnection agreement with Swisscom (Switzerland). We can provide no
assurance that we will be successful in securing such interconnection agreement
in a satisfactory or timely manner.
Our ownership of transmission infrastructure and switches reduces our
reliance on other carriers, enables routing of telecommunications traffic over
multiple transmission paths, aids in controlling costs and permits the
compilation of call record data and other customer information.
THE EUROPEAN PORTION OF VIATEL'S NETWORK
Our network in Europe currently consists of an international gateway
switching center in London, switches in the Western European cities mentioned
above and our Circe Network. The cities in which our switches are located were
chosen due to the substantial number of international calls originating from
these locations. To date, our European network has been primarily used for call
origination. We anticipate increasing use of our European network to transport
calls in Western Europe. See "--Carrier Contracts."
CIRCE NETWORK
Our Circe Network is a series of state-of-the-art, high quality, high
capacity, self-healing rings, utilizing advanced synchronous digital hierarchy,
the current international standard for digital transmission, and dense wave
division multiplexing technology.
As currently planned, the Circe Network will be comprised of five
interlocking, bi-directional rings, consisting of approximately 8,700 route
kilometers of fiber optic cable. The first phase of the Circe Network,
consisting of approximately 1,850 route kilometers (including 312 route
kilometers of undersea fiber optic cable) was placed into operation during the
first half of March 1999. The second phase, which extends through northern
France, The Netherlands and into western Germany, was placed into service on
July 29, 1999. The third phase, which will extend through eastern Germany,
currently is scheduled to be placed into service during the first quarter of
2000. We currently anticipate that the fourth and fifth phases of the Circe
Network, which will extend into southern France and Switzerland, will be
completed during the third quarter of 2000.
The Circe Network offers incumbent telecommunications operators and new
entrants a compelling, cost-effective, high quality alternative for the
transport of European cross-border telecommunications traffic. Under the
traditional system of carrying cross-border telecommunications traffic in
Europe, the incumbent telecommunications operator did not develop end-to-end
cross-border circuits, but rather connected their national networks with other
carriers at the border. The Circe Network's cross-border transport will offer
consistently high transmission quality at reduced cost.
Key characteristics of the Circe Network include:
STATE-OF-THE-ART-TECHNOLOGY. The Circe Network uses a laser-generated light
to transmit information bi-directionally over fiber optic glass strands with an
initial capacity of 20 gigabits per second. In addition, the Circe Network
employs dense wave division multiplexing technology. This technology allows more
discrete wavelengths of light to be transmitted through fiber, thereby
permitting the transfer of greater amounts of information at a lower cost than
was achievable with prior fiber optic technology.
UNIFORM NETWORK ARCHITECTURE. The entire Circe Network will consist of a
single uniform configuration of Northern Telecom's optronics and Lucent's fiber
optic cable, thereby enhancing service quality while improving efficiency and
lowering costs.
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SECURE AND RELIABLE. The Circe Network is being designed to provide high
security and reliability, employing such features as:
- two redundant network operating centers monitoring the network 24 hours a
day, seven days a week;
- a self-healing architecture to allow for instantaneous restoration in the
event of a single fiber cut;
- fiber optic cable generally installed in high-density polyethylene
conduits on terrestrial portions of the system; and
- advanced cable armoring techniques on the submarine portions of the
system.
SCALABLE AND FLEXIBLE. The Circe Network's high density network
architecture may be upgraded, without service interruptions, to at least 320
gigabits per second per fiber pair through the use of dense wave division
multiplexing technology, to support demand for bandwidth intensive data
applications. We anticipate that each ring of the Circe Network will contain
multiple conduits containing at least 48 fibers. These conduits will have excess
space through which additional fibers may be run without the necessity for any
further material civil works.
PRIVATE LINE CIRCUITS
While some of our nine switches in Western Europe are currently still
connected to our international gateway switching center in London by private
line circuits, these switches will be connected by the Circe Network as the
various rings are constructed and placed into commercial operation. Private line
circuits are permanent point-to-point connections for voice and data
transmissions and, when certain levels of volume are reached, are less expensive
for us than purchasing minutes of use on another carrier's network. The private
line circuits connecting our switches to the international gateway switching
center in London are leased directly, or indirectly through third parties, from
the incumbent telecommunications operator in the countries in which these calls
originate.
DIGITAL FIBER OPTIC CABLE OWNERSHIP
As part of our concerted effort to convert leased capacity to owned capacity
for the purpose of improving operating margins, we have continued to purchase
indefeasible rights-of-use or minimum investment units in digital fiber optic
cable systems, including indefeasible rights-of-use in (i) CANUS-1/CANTAT-3
(8.192 megabits per second), a transatlantic cable originating in the United
States, Canada and the United Kingdom, (ii) TAT-12/13 (8.192 megabits per
second), a transatlantic cable originating in the United States, the United
Kingdom and France, (iii) Atlantic Crossing-1 (1,555.0 megabits per second), a
transatlantic cable originating in the United States and the United Kingdom, and
(iv) Gemini (44.736 megabits per second), a transatlantic cable originating in
the United States and the United Kingdom, and minimum investment units in
(i) FLAG (2.048 megabits per second), a cable connecting Europe with multiple
locations in the Middle East and south and eastern Asia, (ii) TAT-14 (311.0
megabits per second) and (iii) JUS-1 (155.5 megabits per second). We also intend
to acquire additional interests in digital fiber optic cable originating from
our owned infrastructure and connected to certain European Union member states
in which we have a physical presence. These cables will be used for transmission
of traffic between the United States and Europe and within Europe, resulting in
improved service quality at lower cost. By combining international gateway
switching centers in New York and London with our transatlantic fiber optic
cable capacity, we believe that we will be able to provide customers with
improved quality, while lowering our transmission costs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
discussion of the effect of bringing traffic on-net.
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SWITCHING PLATFORMS
Our entire network utilizes "intelligent switches" which incorporate
software designed to achieve least cost routing, the process by which we enhance
the routing of calls over the network for more than 230 countries and
territories. Least cost routing is designed to allow calls that are not routed
over our network to be routed directly from our switches to carriers that offer
call completion at the lowest rate for each particular route at any given time.
Our network uses high capacity digital switching platforms designed to
provide services quickly and cost-effectively. The switches are modular and
scalable and incorporate some of the most advanced technologies such as
self-diagnosis, integrated services, digital network hierarchical, call control
and dynamic network management software. The backbone switches are primarily
Nortel Telecom DMS switches. As our network continues to evolve, the installed
base of switches can be augmented or upgraded to create a cost-effective,
scalable network.
INTERNATIONAL NETWORK OPERATIONS CENTERS
We currently monitor the activity of our network from international network
operations centers in Egham, England and Somerset, New Jersey. These
international network operations centers have been fitted with sophisticated
surveillance and control capability, fraud detection and real time transmission
quality enhancements. Our Omaha, Nebraska site houses back office systems
supporting the international network operations centers and our network. Each
international network operations center is capable of acting as a full backup to
the other and allows full monitoring capability and remote diagnostics and
testing on key elements of our network.
The international network operations centers utilize a portfolio of
telecommunications network management operations support systems from Lucent.
The Lucent systems are expected to be functionally integrated into one platform
supporting multi-vendor network elements. Service activation provides workflow
management from order entry through network provisioning and into billing.
Service assurance includes trouble receipt, trouble management, and switch
surveillance to include both traffic management and fault monitoring. Network
management includes inventory management, design and network performance. The
Lucent operations support systems provide us with state-of-the-art service
activation, service assurance and network management capabilities.
SALES AND MARKETING; CUSTOMERS
The Circe Network is designed to allow end-users, carriers and resellers to
integrate high quality, cross-border capacity into their end-user offerings.
Prior to bringing the Circe Network into service, we were limited in our ability
to provide high capacity services to other carriers and thus, focused our
business on selling to end-users and selling switched minutes to carriers and
resellers in order to help use the fixed capacity of leased lines. With the high
quality, low cost transmission capacity to be provided by the Circe Network, we
will be well positioned to offer large capacity services to the additional
market segments listed below. We are targeting the following seven major market
segments:
- RESELLERS. Resellers are carriers that do not own transmission facilities
but obtain communications services from another carrier for resale to the
public. Resellers are a growing portion of the market and are expected to
increase in conjunction with the liberalization of the European
telecommunications market.
- INCUMBENT TELECOMMUNICATIONS OPERATORS. These customers consist of the
incumbent telecommunications operators that have historically employed
bilateral agreements with other incumbents for cross-border connectivity
but are now selling their own transborder connectivity by leasing capacity
on alternative networks.
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- INTERNATIONAL CARRIERS. These customers consist of non-European carriers
with traffic between European and other international gateways. We can
provide these customers a pan-European distribution network to gather and
deliver traffic to and from their own networks and other hubs.
- END-USERS. Small- to large-sized enterprises need inexpensive voice and
data services. The Circe Network should allow us to satisfy this need and
provide bundled services. We expect that additional demand for alternative
service providers will come from increased usage of dedicated circuits for
Internet access, private lines for the deployment of wide-area networks by
large enterprises, "single source" local and long distance services by
small and medium-sized enterprises and emerging high capacity applications
like cable TV programming distribution, other than broadcast, to the
end-user.
- ALTERNATIVE CARRIERS. These customers consist of new entrant carriers,
cable TV and mobile carriers and competitive access providers. These new
carriers have chosen to compete with the incumbent telecommunications
operators in their respective countries.
- INTERNET SERVICE PROVIDERS. Internet service providers are emerging
rapidly and are expected to generate significant requirements for the
services which we offer. As capacity becomes available in Europe, Internet
usage also is expected to grow. These networks require large capacity
international connectivity services between Internet nodes, points of
interconnection among multiple local Internet service providers, in all
local European markets.
- VALUE ADDED NETWORKS AND OTHER SERVICE PROVIDERS. Value added networks are
data communications systems in which special service features enhance the
basic data transmission facilities offered to customers. Many of these
networks are targeted to the data transfer requirements of specific
international customer segments, such as financial institutions. Many
value added networks' basic network transmission requirement is to connect
data switches or processors. Value added networks' providers purchase
their own international circuits and build additional resiliency into
their network infrastructure. We will allow them to meet these needs
cost-effectively, and to extend their services to new markets or customers
while minimizing capital investment. This market segment is expected to
experience substantial growth over the next several years.
During 1998, one customer, LD Exchange.com, accounted for 10.6% of our
revenues.
From 1991 to 1994, our sales and marketing efforts were conducted by
independent sales representatives in each of our markets. In late 1994, we began
establishing our own direct sales forces in certain Western European markets to
take greater control over the sales and marketing functions and to provide a
higher level of customer service. Currently, we have a direct sales force in 12
cities in Western Europe and have established indirect sales offices, through
arrangements with independent sales representatives and telemarketing agents, in
more than 180 locations in Western Europe. We have sales professionals dedicated
to marketing and maintaining relationships with our wholesale customers in the
United States and in the United Kingdom. In Europe, our sales and marketing
staff is currently divided into two categories: direct sales representatives and
indirect sales representatives. Direct sales representatives are responsible for
face-to-face sales efforts to larger accounts and indirect sales representatives
are responsible for telesales to smaller accounts.
Our direct sales personnel are currently compensated on a salary and
commission basis, with potential commissions being paid on the basis of revenues
generated by new customers solely during their first three months as a customer.
After this three month period, the customer is turned over to proactive account
managers who manage the account and are compensated based on the monthly growth
of such account above certain minimum requirements. We believe that this
compensation
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structure provides maximum incentive to our direct sales force to continue to
grow our customer base and revenue.
Our independent sales representatives are retained on a
non-exclusive/commission-only basis, with commissions being subject to
charge-back for revenues not collectible by us. We believe that our relationship
with our independent sales representatives is good.
INFORMATION SYSTEMS
We believe that integrated and reliable billing and information systems are
key elements for growth and success in the telecommunications industry.
Accordingly, we have made significant investments to acquire and implement
sophisticated information systems which are designed to enable us to:
- monitor and respond to customer needs by developing new and customized
services,
- manage least cost routing,
- provide customized billing information,
- provide high quality customer service,
- detect and control fraud,
- verify payables to suppliers and
- rapidly integrate new customers.
We believe that our network intelligence, billing and financial reporting
systems enhance our ability to competitively meet the increasingly complex and
demanding requirements of the international and national long distance markets.
While we believe that these systems are currently sufficient for our operations,
these systems will require routine upgrades and ongoing investments.
We currently have a turnaround time of approximately 48 hours for new
account entry, subject to credit approval. However, commencement of service can
take substantially longer. Our billing system provides multicurrency billing,
itemized call detail, city level detail for destination reporting and electronic
output for select accounts. Customers are provided with several payment options,
including automated credit card processing and automated direct debiting.
We have developed software to provide telecommunications services and render
customer support. Each switch has a call detail recording function which is
designed to enable us to: (1) achieve accelerated collection of call records;
(2) detect fraud and unauthorized usage; and (3) permit rapid call detail record
analysis.
We also use software to assist in analyzing traffic patterns and determining
network usage and busy hour percentage, originating traffic by switching center,
terminating traffic by supplier and originating traffic by customer. This data
is utilized to provide least cost routing, which may result in call traffic
being transmitted over our transmission facilities, other carriers' transmission
facilities or a combination of such facilities. If traffic cannot be handled
over the least cost route due to overflow, the least cost routing system is
designed to transmit the traffic over the next least cost route. The least cost
routing system chooses among the several variables to minimize the cost of a
long distance call over more than 15 different suppliers and multiple choices of
terminating carrier per country. The performance of the least cost routing
system is verified based on a daily overflow report generated by our network
traffic management and a weekly/monthly average termination cost report
generated by our billing system.
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CARRIER CONTRACTS
We have entered into contracts to purchase switched minute capacity from
various domestic and foreign carriers and currently depend on such contracts for
origination and termination of traffic on our network as well as for resale of
this capacity to others. Carrier costs currently constitute a significant
portion of our variable costs. Pursuant to these contracts, we obtain guaranteed
rates, which are generally more favorable than otherwise would be available, by
committing to purchase minimum amounts of switched minutes from such carriers.
If we fail to meet our switched minute minimum requirements under a carrier
contract, we would still be required to pay our minimum monthly commitment as a
penalty. We do not believe that the loss of any one supplier or contract would
have a material adverse impact on our business, financial condition or results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
COMPETITION
Our competitors include the incumbent telecommunications operator in each
country in which we operate, global alliances among some of the world's largest
telecommunications carriers and new entrants, such as alternative carriers,
Internet backbone networks and other service providers. Two other broadband
European networks are currently operational--KPN/Qwest and GTS/Esprit, and other
broadband networks in Europe are expected to be operational in the next ten to
twelve months. These include networks being constructed by Global Crossing and
Interoute and Concert, the joint venture between British Telecom and AT&T. In
addition, Colt Telecom Group and Level 3 Communications are sharing the costs of
constructing two networks--one to link the German cities of Berlin, Koln,
Dusseldorf, Frankfurt, Hamburg, Munich and Stuttgart and the other linking
Paris, Frankfurt, Amsterdam, Brussels and London. Other potential competitors
include:
- Internet service providers,
- 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 in both billable minutes and capacity has
increased over the past several years, and we believe that competition will
continue to intensify, particularly in Western Europe, as other providers obtain
connectivity.
We are aware that certain long distance carriers are expanding their
capacity and believe that other long distance carriers and data service
providers, as well as potential new entrants to the industry, will construct new
fiber optic and other long distance transmission networks. Since the cost of the
actual fiber is a relatively small portion of the cost 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.
In addition, our sales or leases of capacity on the Circe Network to other
carriers may result in competitors having capacity on routes along the Circe
Network, which may in turn result in pricing pressures with respect to traffic
carried along these routes. If capacity expansion in the telecommunications
industry results in capacity that exceeds overall demand in general or along any
of our routes, severe additional pricing pressure
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could develop. In addition, strategic alliances or similar transactions could
result in additional competitive pressure on us and could have a material
adverse effect on us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
Many of our current and potential competitors have substantially greater
financial, marketing and other resources than we do. If our competitors devote
significant additional resources to the provision of international or national
long distance telecommunications services to our target customer base, this
action could have a material adverse effect on our business, financial condition
and results of operations and we cannot make any assurance that we will be able
to compete successfully.
Because all of our current and intended European markets (other than the
United Kingdom) have only liberalized the provision of switched voice telephony
within the past two years or still are in the process of liberalizing, customers
in most of the markets are not accustomed to obtaining services from competitors
to incumbent telecommunications operators and may be reluctant to use emerging
telecommunications providers such as us. In particular, our targeted customer
base 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 are currently
offering.
Competition for customers in the telecommunications industry is primarily
based on price and quality of services offered. We price our services primarily
by offering discounts to the prices charged by incumbent telecommunications
operators and other major competitors. However, over the past few years, prices
for long distance calls have decreased substantially in the markets in which we
currently maintain operations and 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. Incumbent telecommunications operators in several Western
European countries are responding to deregulation far 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 carriers will continue to improve their product offerings.
The improvement in product offering and customer service by the incumbent
telecommunications operators could have a material adverse effect on our
competitiveness to the extent that 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 that 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,
numerous carriers currently offer or 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.
Incumbent telecommunications operators generally have certain competitive
advantages that we and other competitors do not have due to their control over
local connections. We rely on the incumbent telecommunications operator for
access to the public switched telephone network and the provision of leased
lines, and the failure of the incumbent telecommunications operators to provide
this kind of 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 grant regulatory approvals, provide operative interconnection and enforce
access to these operators' networks and essential facilities could have a
material adverse effect on our competitive position. We cannot provide any
assurance that we would be able to compete effectively in any of our current or
proposed markets. The Circe Network will reduce our dependence on incumbent
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telecommunications operators for leased long-haul lines, but it will not reduce
dependence on such carriers to "last mile" access to the vast majority of our
end-user customers.
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
these laws and regulations varies and could limit our ability to provide certain
telecommunications services in certain markets. We cannot provide any assurance
that future regulatory, judicial and legislative changes will not have a
material adverse effect on us, that domestic or international regulators or
third parties will not raise material issues with regard to our compliance 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 ("WTO") Agreement, concluded on
February 15, 1997, 69 countries 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 pro-competitive
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 provide any assurance 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-member countries.
International carriers serving the United States, including Viatel, are
subject to the Federal Communications Commission's international settlements
policy which, as discussed below, has been substantially relaxed. 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. Historically,
international settlement rates have vastly exceeded the cost of terminating
telecommunications traffic. The Federal Communications Commission's
international settlements policy requires: (1) the equal division of the
accounting rate between the U.S. and foreign carrier, (2) nondiscriminatory
treatment of U.S. carriers, and (3) proportionate return of inbound traffic. To
enforce the international settlements policy, the Federal Communications
Commission has required carriers to file publicly available copies of their
international settlement arrangements.
The Federal Communications Commission adopted rules regarding specific rate
levels for international settlements rates, which became effective on
January 1, 1998 and which were substantially affirmed by the Federal
Communications Commission on reconsideration on June 11, 1999. Many parties
appealed the International Settlement Rates Order to the U.S. Court of Appeals
for the D.C. Circuit. 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 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
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Commission-established benchmark prices. In addition, the International
Settlement Rates Order imposed new conditions upon certain carriers, including
us. First, as amended on reconsideration, the Federal Communications Commission
conditioned facilities-based authorizations for service on a route on which a
carrier has a foreign affiliate with market power upon the foreign affiliate
offering all other U.S. carriers a settlement rate at or below the relevant
benchmark. None of our foreign affiliates have market power. 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, also known as international simple resale, 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 an affiliated
carrier that has not been found by the Federal Communications Commission to lack
market power.
In new rules released on May 6, 1999, and which became effective on
July 29, 1999, the Federal Communications Commission removed the international
settlements policy for: (1) all settlement arrangements between U.S. carriers
and foreign carriers that lack market power, and (2) all settlement arrangements
on routes where U.S. carriers are able to terminate at least 50 percent of their
traffic in the foreign market at rates that are at least 25 percent below the
applicable benchmark settlement rate. In this international settlement policy
order, the Federal Communications Commission also eliminated the requirement
that carriers file the settlement arrangements where the international
settlements policy has been eliminated. Finally, the international settlement
policy order expanded its rules to permit carriers to provide international
simple resale on any route where the resale carrier exchanges switched traffic
with a foreign carrier that lacks market power. Accordingly, we will have more
flexibility in negotiating settlement arrangements with many carriers on many
routes, which we expect will lower costs of terminating international traffic,
although our competitors will benefit from these new rules in the same way.
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 its
facilities in the U.K., 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 were sufficiently severe, it is possible that the Federal
Communications Commission could impose sanctions and penalties upon us.
REGULATORY STATUS
A summary discussion of the regulatory environment in certain geographic
regions in which we operate or have targeted for penetration is set forth below.
EUROPEAN UNION. The European Union consists of the following member states:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom. The
European Union was established by the Treaty of Rome
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and subsequent treaties. European Union member states are required to implement
directives issued by the European Commission and the European Council by passing
national legislation. If a European Union member state fails to effect such
directives with national (or, as the case may be, regional, community or local)
legislation and/or fails to render the provisions of such directives effective
within its territory, the European Commission may take action against the
European Union member state, including in proceedings before the European Court
of Justice, to enforce the directives. Private parties may also bring actions
against European Union member states for failures to implement such legislation.
In an effort to promote competition and efficiency in the European Union
telecommunications market, the European Commission and European Council have
issued a number of key directives establishing basic principles for the
liberalization of the European Union telecommunications market. The general
framework for this liberalized environment has been set out in the European
Commission's Services Directive and its subsequent amendments, including, in
particular, the Full Competition Directive, adopted in March 1996. These
directives require most European Union member states to permit competition in
all telecommunications services and had set January 1, 1998 as the date by which
all restrictions on the provision of telecommunications services and
telecommunications infrastructure were to be removed, except in member states
receiving special derogations. These directives have been supplemented by
various harmonizing directives, which include the Open Network Provision
Directives, as well as two additional directives adopted in 1997, the Licensing
Directive and the Interconnection Directive.
The Licensing Directive established a framework for the granting of national
authorizations and licenses related to telecommunications services. It permits
European Union member states to establish different categories of licenses for
providers of infrastructure and services, but requires the overall scheme to be
transparent and non-discriminatory. The Interconnection Directive requires
member states to remove restrictions preventing negotiation of interconnection
agreements. The Interconnection Directive requires member states to remove
restrictions preventing negotiation of interconnection agreements. It imposes
certain rights and obligations on all operators deemed by the member state
regulator to be covered by the directive. It also imposes additional obligations
on operators deemed by the member state regulator to have significant market
power. These include obligations on fixed operators to offer cost oriented
interconnection charges on non-discriminatory and transparent terms to other
operators granted interconnection rights under the directive. The objective of
the directive is to ensure adequate and efficient interconnection for public
telecommunications networks and publicly available telecommunications services.
In October 1997, the European Commission issued a consultative document on
how the cost-orientation obligation on fixed operators with significant market
power should be interpreted. The Commission recommends that cost oriented
interconnection charges should be based on long running incremental costs. The
Commission published benchmark interconnection rates derived from some of the
long range incremental cost-based charges being offered at the time for example,
in the U.K. These rates were intended to be guidance to member states of what
should be considered an acceptable level of interconnection charging by fixed
operators with significant market power. They could be adopted in lieu of true
long range incremental cost based charges until such time as an SMP operator's
actual long range incremental costs could be established using adequate
accounting systems.
Several European Union member states have chosen to apply the provisions of
the Interconnection Directive within their jurisdictions in such ways as to give
more favorable treatment to infrastructure providers and network operators than
to carriers and resellers that have made no infrastructure investment. Such
distinctions must be objectively justified on the grounds of the type of
interconnection provided or because of relevant licensing conditions. The
Licensing Directive does not provide a clear definition of an infrastructure
investment, and many European Union member states have adopted inconsistent
approaches with respect to the level and type of infrastructure investment
required to
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justify differences in interconnection charges. While we believe that the
European Commission will seek to minimize these disparities in national
interconnection policies, there can be no assurance that these disparities will
be eliminated or significantly reduced or that any such differences in
regulatory treatment will not have a material adverse effect on us. To the
extent incumbent telecommunications operators deny or delay granting us
interconnection, even if only for a limited period of time, in any of the
countries in which we have or will have points of presence, we will be forced to
terminate traffic through refile or resale agreements with other carriers,
resulting in higher costs.
The current European Union rules are likely to remain in force until
2002/2003, at which time a revised European Union framework is likely to be
introduced which reflects the growth of competition since 1998. The European
Commision is currently considering what the new framework should look like. It
is too early to say what the impact might be on our activities.
Each European Union member state in which we currently conduct our business
has a different regulatory regime and such differences are expected to continue.
The requirements for us to obtain necessary approvals vary considerably from
country to country.
BELGIUM. In December 1997, the Belgian Federal Parliament provided for full
liberalization of the provision of telecommunications services. However, this
law and secondary legislation are not yet complete.
Under the existing licensing scheme, applicants seeking a network operator
license must commit to invest 400 million Belgian Francs or to deploy 500
kilometers of transmission infrastructure within three years of the date the
license is granted as well as investing an amount equal to 1% of annual turnover
in order to fund research and development and other initiatives. Notwithstanding
these stringent requirements (which may be modified by European Commission
intervention that has been formally commenced), we obtained a license for the
provision of voice telephony over the entire country on December 8, 1998, and a
license for the establishment and operation of a public telecommunications
network, which covers virtually the entire country, on February 1, 1999.
Belgium is one of the European Union member states which differentiates
between interconnection for infrastructure providers and network operators and
switch-based carriers and resellers. The interconnection tariffs of Belgacom
(Belgium's incumbent telecommunications operator), which have been officially
approved by the Belgian Institute for Postal Services and Telecommunications,
provides more favorable interconnection rates for infrastructure providers and
network operators than for switch-based carriers and resellers. As a result of
the construction of the Circe Network, we qualify for these more favorable
rates.
The modified Belgian Telecommunications Law also provides for the creation
of a Universal Service Fund, to be managed by the Belgian Institute for Postal
Services and Telecommunications, to which operators may be required to
contribute funds in proportion to their revenues from the Belgian
telecommunications market. However, the Universal Service Fund system will not
be activated before the year 2000, and then only insofar as: (i) Belgacom claims
a compensation for being the universal service provider, (ii) the Belgian
Institute for Postal Services and Telecommunications considers that universal
service provision represents a net cost, and (iii) the Belgian Federal
Government takes a formal decision to activate the Universal Service Fund. Since
1998, the Belgian Institute for Postal Services and Telecommunications has
"dry-run" the universal service costing model and kept operators informed of the
contributions that they may be required to make if and when the Universal
Service Fund is activated.
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FRANCE. In July 1996, legislation was enacted providing for the
liberalization of all telecommunications activities in France by January 1,
1998.
The establishment and operation of public telecommunications networks and
the provision of voice telephony services to the public are subject to
individual licenses granted by the Minister in charge of telecommunications upon
recommendation of France's independent regulatory authority, the Autorite de
Regulation des T elecommunications ("ART").
On June 5, 1998, we were granted a regional license to be a public
telecommunications network operator (under Article L33.1 of the French Code des
Postes et T elecommunications) and a national license to be a provider of voice
telephony services to the public (under Article L34.1 of the French Code des
Postes et T elecommunications). An extension of the network operator license has
been requested by us in order to obtain a nationwide license. The application
was sent to ART on June 21, 1999. On October 26, 1999, ART recommended that our
nationwide license be granted and in early December the Minister granted Viatel
a nationwide license. In September 1998, an interconnection agreement was signed
with France T elecom. However, this agreement became operational in the greater
Paris region only in March 1999 and in the Strasbourg and Amiens regions only in
August 1999.
We are subject to certain requirements in the operation of our public
telecommunications network, most notably in terms of non-discriminatory
treatment of customers and an obligation to accept reasonable requests for
interconnection from other carriers.
France is also one of the European Union member states which differentiates
between interconnection for public telecommunications network operators, holding
a L33.1 license, and voice telephony service providers, holding a L34.1 license.
The interconnection tariffs of France Telecom, which have been officially
approved by ART, provide substantially more favorable interconnection rates for
public telecommunications network operators than for voice telephony service
providers. As a result of the construction of the Circe Network, we qualify for
these more favorable rates.
GERMANY. The German Telecommunications Act of July 25, 1996 provided for
the liberalization of all telecommunications activities by January 1, 1998. The
German Telecommunications Act has been supplemented by several ordinances
concerning, among other things, license fees, rate regulation, interconnection,
universal service, frequencies and customer protection. The German
telecommunications sector is overseen by the Regulatory Authority for
Telecommunications and Post ("RegTP") that operates under the supervision of the
Ministry of Economics.
Under the German regulatory structure, licenses can be issued for different
types of infrastructure as well as for the provision of services based on
transmission lines provided by other service providers. We have been issued a
nationwide class 3 infrastructure license and a nationwide class 4 license for
the provision of voice telephony.
All existing interconnection agreements with Deutsche Telekom have been
terminated effective December 31, 1999, requiring all affected parties to seek
new interconnection with Deutsche Telekom. In a letter dated February 19, 1999,
the Federal Communications Commission expressed its concerns about the new
interconnection regime and argued that the action taken by Deutsche Telekom as
well as other actions taken by such carrier were designed to impede effective
and competitive market entry. We are currently in the process of negotiating a
new interconnection agreement with Deutsche Telekom and believe that it will be
possible to come to an agreement with Deutsche Telekom prior to December 31,
1999. However, we cannot provide any assurance that the new interconnection
arrangement will contain terms which are as favorable to us as those contained
in the current interconnection arrangement.
ITALY. In 1997, the Italian authorities enacted a legislative framework for
the full liberalization of telecommunications services by January 1, 1998. On
February 12, 1999, we received a license to provide voice telephony as well as
to own and operate infrastructure.
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On July 24, 1998, Telecom Italia published its Reference Interconnect Offer,
which was amended earlier this year due to decisions by the Italian regulator.
The offer allows interconnection at one point of interconnect and has brought
interconnection rates down to a level much closer to the European Union
benchmarks. We initiated interconnection negotiations towards the end of 1998
and obtained an interconnection agreement with Telecom Italia on April 30, 1999.
In Italy, providers of network infrastructure and switched voice services as
well as national mobile operators are generally required to contribute to a
universal service fund. This requirement took effect in 1999. However, no
contribution will be required for 1999 because competition has failed to impose
an "unfair burden" on Telecom Italia. Whether a contribution will be required in
2000 will depend upon whether Telecom Italia can demonstrate, on the basis of
audited reports, that its universal service obligations impose on it net losses.
Even in these circumstances, the Italian regulator can exempt new entrants from
an obligation to contribute to such a universal service fund.
THE NETHERLANDS. In the Netherlands the incumbent telecommunications
operator's monopoly regarding voice telephony was abolished effective July 1,
1997. Other European Union liberalization obligations, which took effect on
January 1, 1998, were implemented through the new Netherlands Telecommunications
Act as of December 15, 1998. With the exception of the use of radio frequencies
(e.g. for mobile telecommunications networks or services), all licensing
requirements have been abolished and replaced by mandatory registration
requirements with the Independent Post and Telecommunications Authority. In
principle, there are no barriers to registration, but there must be a public
offer of infrastructure or services which must be shown to the Independent Post
and Telecommunications Authority in order to qualify for registration.
Furthermore, registered parties must comply with all relevant obligations under
the Telecommunications Act. In February 1999, we obtained registrations to
provide a public telecommunications service and to install and provide a public
telecommunications network with the Independent Post and Telecommunications
Authority. In April 1999, we obtained registration to install and provide leased
lines.
SPAIN. Spain was required, under applicable European Union directives, to
implement full liberalization of public switched telephone services by
December 1, 1998. In accordance with this requirement, the liberalization
process began in April 1998 with the approval of the General Telecommunications
Act, and was completed by the December 1, 1998 deadline, with the approval of
subsequent regulations. Our subsidiary operating in Spain was granted a
nationwide infrastructure and voice telephony license in March 1999. In
September 1999, we signed an interconnection agreement with Telefonica de
Espana.
SWITZERLAND. A new Telecommunications Act was adopted by the Swiss
Parliament in April 1997 and came into effect on January 1, 1998, together with
certain ordinances containing more detailed regulations covering
telecommunications services, frequency management, numbering, terminal equipment
and license fees. The new Telecommunications Act provides for liberalization of
the Swiss telecommunications market as of January 1, 1998.
The Swiss telecommunications regulatory framework facilitates market entry
by: (i) applying a notification procedure for resellers, (ii) applying a
procedure for operators wishing to be granted a concession for the establishment
and operation of transmission facilities and (iii) providing rights-of-way,
subject to a procedure of authorization, over the public domain to
facilities-based carriers. Pro-competitive regulation is also applicable in the
area of numbering.
We have notified our activities as a provider of voice telephony services in
Switzerland but have not yet completed negotiation of an interconnection
agreement (in accordance with the notification procedure). On July 13, 1999,
OFCOM, the Swiss Office of Telecommunications, awarded us a concession to own
and operate our own telecommunications infrastructure in Switzerland. The
concession not only allows us to own and operate our own infrastructure in the
country, but also gives
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us the right to build on publicly-owned lands and to provide telecommunications
services to third parties.
Switzerland is not a member of the European Union and, accordingly,
directives do not apply. Switzerland is, however, a party to the WTO Agreement.
UNITED KINGDOM. The Telecommunications Act 1984 (the "U.K. Act") provides a
licensing and regulatory framework for telecommunications activities in the
United Kingdom. The U.K. began liberalizing its telecommunications market
beginning in 1984 and has continued to liberalize since that date. The Licensing
Directive, which was partially brought into force by the Telecommunications
(Licensing) Regulations 1997 (SI 1997/2930), required that all U.K. licenses
that existed before January 1, 1998 be in line with the Licensing Directive
prior to January 1, 1999 and that all new licenses granted after January 1, 1998
be immediately in compliance with the Directive. The Department of Trade and
Industry received a six month deferral relating to the January 1, 1999 date.
Full implementation took place in September 1999. This legislation converts all
existing licenses into new form licenses which are compliant with the directive.
The international facilities license will also be subsumed into a new standard
public telecommunications operator license which will include an authorization
for the provision of both domestic and international services. The new PTO
license will also authorize the provision of international simple voice resale
services on the basis that the licensee does not hold a registrable
international simple voice resale license already.
Viatel UK has been granted an international simple voice resale standard
license and an international facilities license with code powers which allow us
certain rights over land for the purpose of installing telecommunications
equipment and cabling under simplified planning procedures. In addition, Viatel
UK has interconnection agreements with Cable & Wireless and British
Telecommunications Plc.
OTHER EUROPEAN MARKETS. Our ability to expand into other countries will be
affected by the degree to which liberalization has been implemented in those
countries. If, for strategic reasons, we decide to build out infrastructure in a
particular market prior to full liberalization and liberalization is delayed or
not fully implemented, we could sustain a loss on our infrastructure investment.
LATIN AMERICA AND THE PACIFIC RIM. Outside of the European Union, we
provide our customers with access to our services through the use of call
reorigination. A substantial number of countries have prohibited certain forms
of call reorigination. There can be no assurance that certain of our services
and transmission methods will not be or will not become prohibited in certain
jurisdictions.
We are subject to a different regulatory regime in each country in Latin
America and the Pacific Rim in which we conduct business. Local regulations
determine issues significant to our business, including whether we can obtain
authorization to offer transmission of voice and voice band data directly or
through call reorigination. In general, competition is restricted in the
regions, with the result that our ability to offer service is limited.
Regulations governing enhanced services (such as facsimile, voice mail and data
transmission) tend to be more permissive than those covering voice telephony.
ARGENTINA. The telecommunications industry in Argentina was privatized in
1990, but opportunities for competitive entry in basic telephony services remain
restricted. The companies created at the time of privatization, Telecom and
Telefonica, respectively, were granted exclusive rights until 1997 to the
provision of domestic local and long distance fixed telephone service in the
northern and southern portions of Argentina, respectively. Telintar, a company
owned equally by Telecom and Telefonica, was given exclusive rights until 1997
for the provision of international telephony and data transmission services.
Value-added services may be competitively provided and are essentially
deregulated. Although a license must be obtained, such licenses are routinely
granted. Facilities for international value-added
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services must be obtained from Telintar. Currently, call reorigination is legal
in Argentina, although the established carriers have advocated strenuously
against it and the government's view has changed from time to time. Telecom and
Telefonica have instituted significant rate rebalancing measures which are
likely to lessen the attractiveness of call reorigination. The Supreme Court
ruled in favor of rate rebalancing, rejecting several challenges to it.
We have had a sales representative in Argentina since 1991 who has focused
on call reorigination, Internet-initiated international business-to-business
service and international calling card services. We do not currently hold any
licenses in Argentina.
BRAZIL. In Brazil, value-added services are not considered to be
telecommunications services and currently can be provided on a completely
unregulated basis, without the necessity of obtaining a permit or a concession.
However, the service provider must operate through a Brazilian company. Call
reorigination is not prohibited in Brazil. There are presently no foreign
ownership limits for limited services, including specialized limited services,
or value-added services. Under the 1997 "General Telecommunications Law," the
President retains the authority to impose foreign ownership limits on other
services, but by decree dated May 15, 1998, the President expressly decided not
to impose any such limits.
Our services in Brazil currently include call reorigination, international
calling cards and fax store and forward which are classified as value-added
services and therefore do not require a license. We plan to apply for licenses
to offer specialized limited services, including private line and data
transmission services.
COLOMBIA. Under the Constitution adopted in 1991, the possibility of
private provision of public services in Colombia was ratified. This paved the
way for both privatization of the state-owned long distance company, TELECOM, as
well as the competitive entry of other entities. Specific plans for the
privatization of TELECOM have faltered due to, among other things, labor union
resistance. However, the government mandated that competition be introduced in
1998. Two competitors to TELECOM have been licensed. A federal judicial body
with jurisdiction over public contracts has issued a writ declaring that the
issuance of licenses for any additional competition in long distance services
must be authorized by new legislation. The implications of this decision for us
are not clear.
In Colombia, there are in excess of 35 local operating companies, many
municipally owned. Under Colombian law, local service has been completely
deregulated and may be provided without a telecommunications concession or
license. Other telecommunications services require a concession or other
authorization.
Value-added services are competitive, but must be licensed. There is
currently intense competition for value-added services, and the market for data
communications is one of the most dynamic segments of the telecommunications
sector. Although Colombian law requires that all telecommunications services be
rendered by Colombian entities, foreign investment is not limited.
Most of our customers in Colombia access our network via international toll
free numbers. We have formed a Colombian subsidiary and have been awarded a
value-added services license. We are working on the establishment and operation
of a network to utilize the value-added services license.
VENEZUELA. Pursuant to the Telecommunications Law of 1940, all
telecommunications activities in Venezuela are reserved to the government,
although concessions or permits for the provision of such services may be
granted to third parties. The administration, inspection and monitoring of all
communications systems in Venezuela are carried out by the Ministry of
Transportation and Communications through the Comision Nacional de
Telecommunicaciones.
The national telephone company of Venezuela, Compania Anonima Nacional de
Telefonos de Venezuela, was privatized in 1991 and its concession grants a
monopoly in the provision of basic
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telecommunications services until the year 2000. The only exceptions to this
exclusivity are recently awarded concessions for the provision of basic services
to rural areas not reached by Compania Anonima Nacional de Telefonos de
Venezuela.
Other telecommunications services, such as cellular telephony and other
mobile radio services, private telecommunications networks, switched data
networks and value-added services (including e-mail, Internet, video text,
teletext, voicemail and fax service) are open to competition upon receipt of a
concession or permit, as applicable. Call reorigination is officially illegal in
Venezuela. The prohibition is supposed to be enforced by the Comision Nacional
de Telecommunicaciones with the unofficial aid of Compania Anonima Nacional de
Telefonos de Venezuela through termination of subscriber service, but in
practice the prohibition is widely evaded.
We do not have a local affiliate in Venezuela and do not hold any Venezuelan
concessions or authorizations. At present, our agents in Venezuela offer only
Internet-initiated international business-to-business services and international
calling cards in Venezuela. We do not believe that these services are
encompassed within the prohibition against call reorigination, but it is
possible that Venezuelan authorities may consider them to raise similar policy
concerns. If the call reorigination prohibition is deemed to apply, we may have
to discontinue Internet-initiated services in Venezuela.
UNITED STATES. Our provision of international services to, from and through
the United States generally is subject to regulation by the Federal
Communications Commission. Section 214 of the Communications Act requires a
company to make application to, and receive authorization from, the Federal
Communications Commission to provide such international telecommunications
services. In May 1994, the Federal Communications Commission authorized us
pursuant to Section 214 of the Communications Act to resell public switched
telecommunications services of other United States carriers. This authorization
requires that services be provided in a manner that is consistent with the laws
of countries in which we operate. We also have a license to resell international
private lines for the provision of switched services between the United States
and the United Kingdom and between the United States and Canada. Additionally,
in September 1996 we received final approval for another Section 214
authorization from the Federal Communications Commission to provide both
facilities-based services and resale services (including both the resale of
switched services and the resale of private lines for the provision of switched
services) to all permissible international points. Finally, in September 1996 we
also received final approval for another Section 214 authorization from the
Federal Communications Commission to provide facilities-based service between
the United States and the United Kingdom over the CANUS-1 and CANTAT-3 cable
systems. Through our acquisition of Flat Rate Communications, we also have a
Section 214 license to provide global facilities-based and global resale
services.
EMPLOYEES
As of September 30, 1999, we had 653 full-time employees, approximately 271
of whom were engaged in sales, marketing and customer service. None of our
employees are covered by a collective bargaining agreement. Our management
believes that our relationship with our employees is generally good.
PROPERTIES
Our tangible assets include a substantial investment in telecommunications
equipment. Our network and its component assets are the principal properties we
own. We own a significant portion of the telecommunications equipment required
for our business. Our network includes installed fiber optic cable consisting of
lighted (used) and dark (not used) fibers, which is either owned or leased and
is laid pursuant to various rights-of-way. Other fixed assets are located at
various locations in our service areas.
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We currently occupy two sites in New York City, one of which serves as our
principal executive office, while the other is one of our international gateway
switching centers. We also lease space in Somerset, New Jersey, which serves as
our U.S. Network Operations Center, Egham, England, which serves as our European
Network Operations Center, and Omaha, Nebraska, where our billing and operations
center is located. We lease locations pursuant to the terms of the respective
leases which expire at different times varying from May 2004 to March 2009.
We have European sales offices in the following locations: London, England;
Paris, France; Brussels, Belgium; Amsterdam, The Netherlands; Frankfurt, Berlin,
Munich and Dusseldorf, Germany; Milan and Rome, Italy; and Barcelona and Madrid,
Spain; all of which are leased. The lease terms for our sales offices range from
5 to 25 years.
We also maintain switching and transmission sites in numerous countries
throughout Europe. In general, these locations are leased for a minimum term of
20 years, including renewal options. We attempt to structure our leases of space
for our network switching centers and rights-of-way for our fiber optic networks
with initial terms and renewal options so that the risk of relocation is
minimized. We anticipate that prior to termination of any of the leases, we will
be able to renew such leases or make other suitable arrangements.
LEGAL PROCEEDINGS
We are involved from time to time in litigation incidental to the conduct of
our business. We believe that any potential adverse determination in any pending
action will not have a material adverse effect on our business, financial
condition or results of operations.
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DESCRIPTION OF THE EXCHANGE NOTES
The form and terms of the exchange notes are the same as the form and terms
of the existing notes, except that the exchange notes have been registered under
the Securities Act, will not bear legends restricting the transfer of the notes
and will not be entitled to registration rights under the registration rights
agreement entered into in connection with the sale of the existing notes. We
issued the existing notes and will issue the corresponding exchange notes under
an indenture, dated as of December 8, 1999, between us and The Bank of New York,
as trustee. The terms of the exchange notes will include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act. The exchange notes follow all those terms, and we refer you to
the indenture and the Trust Indenture Act for a statement of the terms.
Except as otherwise indicated, the following description relates both to the
existing notes and the exchange notes and is a summary of the material
provisions of the indenture. It does not restate the indenture in its entirety.
We urge you to read the indenture because it, and not this description, defines
your rights as a holder of the exchange notes. We have filed a copy of the
indenture as an exhibit to the registration statement which includes this
prospectus.
GENERAL
The notes are unsecured (except as described in "-- Security") senior
obligations of Viatel, and will mature on March 15, 2009. Interest on the notes
accrues at the rate of 11.50% per annum from December 8, 1999, payable
semi-annually (to holders of record at the close of business on the March 1 and
September 1 immediately preceding the applicable interest payment date) in cash
on March 15 and September 15 of each year, commencing March 15, 2000. Interest
is computed on the basis of a 360-day year of twelve 30-day months.
If, by June 8, 2000, we have not completed a registered exchange offer for
the existing notes or caused a shelf registration statement with respect to
resales of the existing notes to be declared effective, annual interest (in
addition to interest otherwise due on the existing notes) will accrue, at the
rate of 0.5% per annum of the principal amount and will be payable in cash
semi-annually on March 15 and September 15 of each year commencing
September 15, 2000, until the completion of a registered exchange offer or the
effectiveness of a shelf registration statement with respect to resales of the
existing notes. See "-- Registration Rights."
Principal of, premium, if any, and interest on the notes is payable, and the
notes may be exchanged or transferred, at our office or agency in the Borough of
Manhattan, the City of New York (which initially will be the corporate trust
office of the trustee in the City of New York); PROVIDED that, at our option,
payment of interest may be made by check mailed to the holders at their
addresses as they appear in the security register maintained for the notes.
The notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
No service charge will be made for any registration of transfer or exchange of
notes, but we may require payment of a sum sufficient to cover any transfer tax
or other similar governmental charge payable in connection with any transfer.
Subject to the covenants described below under "-- Covenants" and applicable
law, we may issue additional notes under the indenture. Any exchange notes
issued in the future and any additional notes issued in the future will be
treated as a single class for all purposes under the indenture.
OPTIONAL REDEMPTION
The notes are redeemable, at our option, in whole or in part, at any time or
from time to time, on or after March 15, 2004 and prior to maturity, upon not
less than 30 nor more than 60 days' prior notice mailed by first class mail to
each holder's last address as it appears in the security register
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maintained for the notes, at the redemption prices (expressed in percentages of
principal amount of the notes) set forth below, plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant regular record date that is on or prior to the redemption
date to receive interest due on an interest payment date), if redeemed during
the 12-month period commencing March 15 of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2004........................................................ 105.750%
2005........................................................ 103.833
2006........................................................ 101.917
2007 and thereafter......................................... 100.000
</TABLE>
In addition, at any time prior to March 15, 2002, we may, at our option,
redeem up to 35% of the principal amount of the notes with the net proceeds of
one or more public equity offerings, at any time or from time to time in part,
at a redemption price (expressed as a percentage of the principal amount) of
111.500% with respect to the notes; PROVIDED (i) that notes representing at
least 65% of the principal amount of the notes initially issued remain
outstanding immediately after each such redemption and (ii) that notice of each
such redemption is mailed within 60 days of each such public equity offering.
In the case of any partial redemption, selection of the notes for redemption
will be made by the trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the notes are listed or, if the
notes are not listed on a national securities exchange, by lot or by such other
method as the trustee in its sole discretion shall deem to be fair and
appropriate; PROVIDED that no note of $1,000 in principal amount or less shall
be redeemed in part. If any note is to be redeemed in part only, the notice of
redemption relating to such note shall state the portion of the principal amount
thereof to be redeemed. A new note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note. On and after the redemption date, interest
ceases to accrue on notes or the portion of the notes called for redemption.
SINKING FUND
There are no sinking fund payments for the notes.
REGISTRATION RIGHTS
We have agreed to use our best efforts, at our cost, to file and cause to
become effective a registration statement with respect to a registered exchange
offer to exchange the existing notes for an issue of our senior notes with terms
identical to the existing notes (except that the exchange notes will not bear
legends restricting the transfer thereof or be entitled to liquidated damages).
The registration statement of which this prospectus is a part constitutes the
registration statement required to be filed by us in satisfaction of these
registration obligations.
SECURITY
We have purchased and pledged to the trustee for the benefit of the holders
of the notes the Pledged Securities in an amount sufficient, upon receipt of
scheduled interest and principal payments on such securities, to provide for
payment in full of the first three scheduled interest payments due on the notes.
The Pledged Securities have been pledged by us to the trustee for the benefit of
the holders, pursuant to a pledge agreement and are being held by the trustee in
the Pledge Account. Pursuant to the pledge agreement, immediately prior to an
interest payment date on the notes, we may either deposit with the trustee from
funds otherwise available to us cash sufficient to pay the interest scheduled to
be paid on such date or we may direct the trustee to release from the Pledge
Account
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proceeds sufficient to pay interest then due on the notes. In the event that we
exercise the former option, we may thereafter direct the trustee to release to
us proceeds or Pledged Securities from the Pledge Account in like amount. A
failure to pay interest on the notes in a timely manner through the first three
scheduled interest payment dates will constitute an immediate Event of Default
under the indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient to provide for payment in full of the first
three scheduled interest payments due on the notes (or, in the event an interest
payment or payments have been made, an amount sufficient to provide for payment
in full of any interest payments remaining, up to and including the third
scheduled interest payment), the trustee will be permitted to release to us at
our request any such excess amount. The notes are secured by the Pledged
Securities and the related Pledge Account and, accordingly, the Pledged
Securities and the Pledge Account also secure repayment of the principal amount
of the notes to the extent of such security.
Under the pledge agreement, assuming that we make the first three scheduled
interest payments on the notes in a timely manner, all of the remaining Pledged
Securities will be released from the Pledge Account and thereafter the notes
will be unsecured.
RANKING
The notes are unsecured (except as described in "-- Security") senior
obligations of Viatel, ranking PARI PASSU in right of payment with all of our
existing and future unsubordinated obligations and will be senior in right of
payment to all of our existing and future subordinated indebtedness. After
giving PRO FORMA effect to the sale of $63.7 million of notes issued and sold in
the December 1999 private placement and the exchange of all the Destia discount
notes in the exchange offer, as of September 30, 1999, we had approximately
$1.7 billion of indebtedness, $14.9 million of which was secured. The notes are
effectively subordinated to all existing and future liabilities (including trade
payables) of our subsidiaries, including any outstanding Destia indebtedness. As
of September 30, 1999, the aggregate amount of obligations (including trade
payables) of our subsidiaries was approximately $279.4 million. On that date,
Destia and its subsidiaries had $478.3 million of obligations (including trade
payables and all the Destia notes). Destia and its subsidiaries are now our
subsidiaries.
BOOK-ENTRY; DELIVERY AND FORM
All certificates representing the notes will be issued in fully registered
form without interest coupons.
Notes issued to "qualified institutional buyers" as defined in Rule 144A
under the Securities Act will be represented by one or more permanent global
notes in definitive, fully registered form without interest coupons (each a
"Restricted Global Note") and will be deposited with the trustee as custodian
for, and registered in the name of a nominee of, The Depository Trust Company.
Each Restricted Global Note will be subject to certain restrictions on transfer
set forth therein, as described under "Transfer Restrictions."
Notes issued to institutional accredited investors who are not qualified
institutional buyers ("Non-Global Purchasers") will be in registered form
without interest coupons ("Certificated Notes"). Upon the transfer of
Certificated Notes issued to a Non-Global Purchaser to a qualified institutional
buyer, such Certificated Notes will, unless the relevant Global Note has
previously been exchanged in whole for Certificated Notes, be exchanged for an
interest in a Global Note.
Ownership of beneficial interests in a Restricted Global Note will be
limited to persons who have accounts with The Depository Trust Company
("participants"), or persons who hold interests through
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participants. Ownership of beneficial interests in a Restricted Global Note will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by The Depository Trust Company, or its nominee (with respect
to interests of participants) and the records of participants (with respect to
interests of persons other than participants). Qualified institutional buyers
may hold their interests in a Restricted Global Note, directly through The
Depository Trust Company, if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as The Depository Trust Company, or any nominee, is the registered
owner or holder of a Restricted Global Note, The Depository Trust Company, or
such nominee, as the case may be, will be considered the sole owner or holder of
the notes represented by such Restricted Global Note for all purposes under the
indenture. No beneficial owner of an interest in a Restricted Global Note will
be able to transfer that interest except in accordance with The Depository Trust
Company's applicable procedures, in addition to those provided for under the
indenture.
Payments made with respect to a Restricted Global Note will be made to The
Depository Trust Company, or its nominee, as the registered owner thereof.
Neither we, the trustee nor any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Restricted Global Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
We expect that The Depository Trust Company, or its nominee, upon receipt of
any payment in respect of a Global Note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
such Restricted Global Note as shown on their respective records. We also expect
that payments by participants to owners of beneficial interests in such Global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in the names of nominees for such customers.
Such payments will be the responsibility of such participants.
All amounts payable under the notes will be payable in U.S. dollars.
Payments will be subject in all cases to any fiscal or other laws and
regulations applicable thereto.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same-day funds. Transactions settled through The Depository Trust
Company will settle on a T+3 basis.
We expect that The Depository Trust Company will take any action permitted
to be taken by a holder of notes (including the presentation of notes for
exchange) only at the direction of one or more participants to whose account the
interest in a Restricted Global Note is credited and only in respect of such
portion of the securities as to which such participant or participants has or
have given such direction. However, if there is an event of default under the
notes, The Depository Trust Company will exchange the applicable Restricted
Global Notes for Certificated Notes which it will distribute to its participants
and which may be legended.
We understand that: The Depository Trust Company is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act. The Depository Trust
Company was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates and certain other
organizations. Indirect access to the The Depository Trust Company system is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
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Although The Depository Trust Company is expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Restricted Global
Note among participants of The Depository Trust Company, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of Viatel, the trustee or any
paying agent will have any responsibility for the performance by The Depository
Trust Company, or its respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If The Depository Trust Company is at any time unwilling or unable to
continue as a depositary for the Restricted Global Notes and a successor
depositary or clearing agency is not appointed by us within 90 days, we will
issue Certificated Notes, which will bear any required legend, in exchange for
the Restricted Global Notes. Holders of an interest in a Restricted Global Note
may receive Certificated Notes, which may bear any required legend in accordance
with The Depository Trust Company's rules and procedures in addition to those
provided for under the indenture.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the indenture. Reference is made to the
indenture for the definition of any other capitalized term used herein for which
no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by Viatel or a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of Viatel and its Restricted Subsidiaries for such period
determined in conformity with generally accepted accounting principles; PROVIDED
that the following items shall be excluded in computing Adjusted Consolidated
Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a Restricted
Subsidiary, except (x) with respect to net income, to the extent of the
amount of dividends or other distributions actually paid to Viatel or any of
its Restricted Subsidiaries by such Person during such period and (y) with
respect to net losses, to the extent of the amount of Investments made by
Viatel or any Restricted Subsidiary in such Person during such period;
(ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described below (and in
such case, except to the extent includable pursuant to clause (i) above),
the net income (or loss) of any Person accrued prior to the date it becomes
a Restricted Subsidiary or is merged into or consolidated with Viatel or any
of its Restricted Subsidiaries or all or substantially all of the property
and assets of such Person are acquired by Viatel or any of its Restricted
Subsidiaries;
(iii) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to such Restricted Subsidiary;
(iv) any gains or losses (on an after-tax basis) attributable to Asset
Sales and sales of capacity or dark fibers;
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(v) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any amount
paid or accrued as dividends on Preferred Stock of Viatel or any Restricted
Subsidiary owned by Persons other than Viatel and any of its Restricted
Subsidiaries;
(vi) all extraordinary gains and extraordinary losses; and
(vii) any compensation expense paid or payable solely with Capital Stock
(other than Disqualified Stock) of Viatel or any options, warrants or other
rights to acquire Capital Stock (other than Disqualified Stock) of Viatel.
"Adjusted Consolidated Net Tangible Assets" means the total amount of assets
of Viatel and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), except to the extent resulting from
write-ups of capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting therefrom (i) all
current liabilities of Viatel and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense and other like intangibles, all as set
forth on the most recent quarterly or annual consolidated balance sheet of
Viatel and its Restricted Subsidiaries, prepared in conformity with GAAP and
filed with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by Viatel or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with
Viatel or any of its Restricted Subsidiaries; PROVIDED that such Person's
primary business is related, ancillary or complementary to the businesses of
Viatel or any of its Restricted Subsidiaries on the date of such investment or
(ii) an acquisition by Viatel or any of its Restricted Subsidiaries of the
property and assets of any Person other than Viatel or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person; PROVIDED that the property and assets acquired are related,
ancillary or complementary to the businesses of Viatel or any of its Restricted
Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by Viatel or any of
its Restricted Subsidiaries (other than to Viatel or another Restricted
Subsidiary) of (i) all or substantially all of the Capital Stock of any
Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of Viatel or any of its Restricted
Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by Viatel or any of its Restricted Subsidiaries
to any Person other than Viatel or any of its Restricted Subsidiaries of (i) all
or any of the Capital Stock of any Restricted Subsidiary, (ii) all or
substantially all of the property and assets of a division or line of business
of Viatel or any of its Restricted Subsidiaries or (iii) any other property and
assets (other than the Capital Stock or other Investment in an Unrestricted
Subsidiary) of Viatel or any of its Restricted Subsidiaries outside the ordinary
course of business of Viatel or such Restricted Subsidiary and, in each case,
that is not governed by the provisions of the indenture applicable to mergers,
consolidations and sales of all or substantially all of the assets of Viatel;
PROVIDED that "Asset Sale" shall not include
(a) sales or other dispositions of inventory, receivables and other
current assets,
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(b) sales, transfers or other dispositions of assets constituting a
Restricted Payment permitted to be made under the "Limitation on Restricted
Payments" covenant,
(c) sales, transfers or other dispositions of assets with a fair market
value (as certified in an Officers' Certificate) not in excess of $1 million
in any transaction or series of related transactions,
(d) sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed of, to the
extent that the consideration received would constitute property or assets
of the kind described in clause (B) of the "Limitation on Asset Sales"
covenant,
(e) any liquidation of Temporary Cash Investments,
(f) a transfer, directly or indirectly, of receivables or other payment
rights arising from a transfer of indefeasible rights of use or dark fiber
which transfer of receivables or rights is to a special purpose entity
created for the purpose of issuing securities to be paid or redeemed from,
or beneficial interests in, the cash or revenues generated from the assets
transferred; PROVIDED that the consideration received by Viatel is a least
equal to the fair market value of the asset transferred and the proceeds are
used by Viatel,
(A) to repay unsubordinated Indebtedness of Viatel owed to a Person
other than Viatel or a Restricted Subsidiary,
(B) to invest in the manner described in clause (i)(B) of the
"Limitation on Asset Sales" covenant or
(C) for working capital purposes, or
(g) other transfers of capacity or dark fiber.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) a "person" or a "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act) of more than 50% of the total voting power of the
Voting Stock of Viatel on a fully diluted basis; or (ii) individuals who on the
Closing Date constitute the Board of Directors (together with any new directors
whose election by the Board of Directors or whose nomination to the Board of
Directors for election by Viatel's stockholders was approved by a vote of at
least two-thirds of the members of the Board of Directors then in office who
either were members of the Board of Directors on the Closing Date or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of the Board of Directors then in
office.
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"Closing Date" means March 19, 1999.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income,
(i) Consolidated Interest Expense,
(ii) income taxes,
(iii) depreciation expense,
(iv) amortization expense, and
(v) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), less all
non-cash items increasing Adjusted Consolidated Net Income, all as
determined on a consolidated basis for Viatel and its Restricted
Subsidiaries in conformity with GAAP; PROVIDED that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated
EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the percentage ownership interest in the
income of such Restricted Subsidiary not owned on the last day of such
period by Viatel or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
in respect of Indebtedness that is Guaranteed or secured by Viatel or any of its
Restricted Subsidiaries, and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by Viatel and its Restricted Subsidiaries during such periods).
"Consolidated Leverage Ratio" means, on any Transaction Date, the ratio of,
(i) the aggregate amount of Indebtedness of Viatel and its Restricted
Subsidiaries on a consolidated basis outstanding on such Transaction Date
to,
(ii) four times Consolidated EBITDA for the then most recent fiscal
quarter for which financial statements of Viatel have been filed with the
SEC or provided to the trustee pursuant to the "Commission Reports and
Reports to Holders" covenant described below; PROVIDED that, in making the
foregoing calculation,
(A) PRO FORMA effect shall be given to the Incurrence or repayment of
any Indebtedness to be Incurred or repaid on the Transaction Date;
(B) PRO FORMA effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving PRO FORMA effect to the application of
proceeds of any Asset Disposition) that occur from the beginning of the
then most recent four fiscal quarters through the Transaction Date (the
"Reference Period"), as if they had occurred and such proceeds had been
applied on the first day of such Reference Period; and
(C) PRO FORMA effect shall be given to asset dispositions and asset
acquisitions (including giving PRO FORMA effect to the application of
proceeds of any asset disposition) that have been made by any Person that
has become a Restricted Subsidiary or has been merged with or into
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Viatel or any Restricted Subsidiary during such Reference Period and that
would have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if
such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions that occurred on the first day of such Reference
Period;
PROVIDED that to the extent that clause (B) or (C) of this sentence requires
that PRO FORMA effect be given to an Asset Acquisition or Asset Disposition,
such PRO FORMA calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed of for which financial
information is available.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of Viatel and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
including, without limitation, the respective amounts reported on such balance
sheet attributable to Preferred Stock, less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of Viatel or any
of its Restricted Subsidiaries, each item to be determined in conformity with
GAAP (excluding the effects of foreign currency exchange adjustments under
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 52).
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is,
(i) required to be redeemed prior to the Stated Maturity of the notes,
(ii) redeemable at the option of the holder of such class or series of
Capital Stock at any time prior to the Stated Maturity of the notes, or
(iii) convertible into or exchangeable for Capital Stock referred to in
clause (i) or (ii) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the notes;
PROVIDED that any Capital Stock that would not constitute Disqualified Stock but
for provisions thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" occurring prior to the Stated Maturity of the notes
shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described below and such Capital Stock, or the agreements or instruments
governing the redemption rights thereof, specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior to
Viatel's repurchase of such notes as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants described below.
"Existing Stockholder Agreements" means the Stock Purchase Agreement, dated
as of September 30, 1993, between Viatel and S-C V-Tel, the Stock Purchase
Agreement dated as of April 5, 1994, between Viatel and COMSAT, the S-C V-Tel
Shareholders' Agreement and the COMSAT Shareholders' Agreement, in each case,
any amendments to such agreements.
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"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution; PROVIDED that for purposes of clause (viii) of
the second paragraph of the "Limitation on Indebtedness" covenant, (x) the fair
market value of any security registered under the Securities Exchange Act shall
be the average of the closing prices, regular way, of such security for the 20
consecutive trading days immediately preceding the sale of Capital Stock and (y)
in the event the aggregate fair market value of any other property (other than
cash or cash equivalents) received by Viatel exceeds $30 million, the fair
market value of such property shall be determined by a nationally recognized
investment banking firm or a nationally recognized firm having expertise in the
specific area which is the subject of such determination and set forth in their
written opinion which shall be delivered to the trustee.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the indenture shall be
made without giving effect to (i) the amortization or write off of any expenses
incurred in connection with the offering of the notes (ii) except as otherwise
provided, the amortization of any amounts required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17.
"Government Securities" means, in connection with the Pledged Securities,
the direct obligations of, obligations fully guaranteed by, or participations in
pools consisting solely of obligations of or obligations guaranteed by, the
United States of America for the payment of which guarantee or obligations the
full faith and credit of the United States of America is pledged and which are
not callable or redeemable at the option of the issuer thereof.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); PROVIDED that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; PROVIDED that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication),
(i) all indebtedness of such Person for borrowed money,
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(ii) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments,
(iii) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto, but excluding obligations with respect to letters of credit
(including trade letters of credit) securing obligations (other than
obligations described in (i) or (ii) above or (v), (vi) or
(vii) below) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if
drawn upon, to the extent such drawing is reimbursed no later than the
third Business Day following receipt by such Person of a demand for
reimbursement),
(iv) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except
Trade Payables,
(v) all Capitalized Lease Obligations of such Person,
(vi) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such
Person; PROVIDED that the amount of such Indebtedness shall be the
lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness,
(vii) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person, and
(viii) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations, as described above, and
the maximum liability at such time with respect to contingent obligations upon
the occurrence of the contingency giving rise to the obligation, which, in the
case of a Guarantee, shall be the outstanding balance of the Guaranteed
Indebtedness, PROVIDED
(A) that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity with
GAAP,
(B) that money borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" so long as such
money is held to secure the payment of such interest and
(C) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding extensions of credit to customers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of Viatel or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or
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services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
such Person and shall include,
(i) the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary, and
(ii) the fair market value of the Capital Stock (or any other Investment),
held by Viatel or any of its Restricted Subsidiaries, of (or in) any
Person that has ceased to be a Restricted Subsidiary, including without
limitation, by reason of any transaction permitted by clause,
(iii) of the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant; PROVIDED that the fair market value
of the Investment remaining in any Person that has ceased to be a
Restricted Subsidiary shall not exceed the aggregate amount of
Investments previously made in such Person valued at the time such
Investments were made less the net reduction of such Investments.
For purposes of the definition of "Unrestricted Subsidiary" and the "Limitation
on Restricted Payments" covenant described below, (i) "Investment" shall include
the fair market value of the assets (net of liabilities (other than liabilities
to Viatel or any of its Restricted Subsidiaries)) of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to Viatel or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to Viatel or any Restricted Subsidiary) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of,
(i) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset Sale,
(ii) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to
the consolidated results of operations of Viatel and its Restricted
Subsidiaries, taken as a whole,
(iii) payments made or required to be made to repay Indebtedness or any other
obligation outstanding at the time of such Asset Sale that either
(A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale,
(iv) payments made or required to be made to Persons having a beneficial
interests in the assets subject to the Asset Sale, and
(v) appropriate amounts to be provided by Viatel or any Restricted
Subsidiary as a reserve against any liabilities associated with such
Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in
conformity with GAAP and (b) with respect to any issuance or sale of
Capital Stock, the
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proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but not
interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold
with recourse to Viatel or any Restricted Subsidiary) and proceeds from
the conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase notes by Viatel from the
holders commenced by mailing a notice to the trustee and each holder stating:
(i) the covenant pursuant to which the offer is being made and that all
notes validly tendered will be accepted for payment on a PRO RATA basis;
(ii) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date");
(iii) that any note not tendered will continue to accrue interest pursuant to
its terms;
(iv) that, unless Viatel defaults in the payment of the purchase price, any
note accepted for payment pursuant to the Offer to Purchase shall cease
to accrue interest on and after the Payment Date;
(v) that holders electing to have a note purchased pursuant to the Offer to
Purchase will be required to surrender the note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of
the note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date;
(vi) that holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram,
facsimile transmission or letter setting forth the name of such holder,
the principal amount of notes delivered for purchase and a statement
that such holder is withdrawing his election to have such notes
purchased; and
(vii) that holders whose notes are being purchased only in part will be
issued new notes equal in principal amount to the unpurchased portion
of the notes surrendered; PROVIDED that each note purchased and each
new note issued shall be in a principal amount at maturity of $1,000 or
an integral multiple thereof. On the Payment Date, Viatel shall,
(A) accept for payment on a PRO RATA basis notes or portions thereof
tendered pursuant to an Offer to Purchase;
(B) deposit with the Paying Agent money sufficient to pay the purchase
price of all notes or portions thereof so accepted; and
(C) deliver, or cause to be delivered, to the trustee all notes or
portions thereof so accepted together with an Officers' Certificate
specifying the notes or portions thereof accepted for payment by
Viatel. The Paying Agent shall promptly mail to the holders of notes
so accepted payment in an amount equal to the purchase price, and
the trustee shall promptly authenticate and mail to such holders a
new note equal in principal amount to any unpurchased portion of the
note surrendered; PROVIDED that each note purchased and each new
note issued shall be in a principal amount at maturity of $1,000 or
an integral multiple thereof.
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Viatel will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The trustee shall act as the Paying Agent
for an Offer to Purchase. Viatel will comply with Rule 14e-1 under the
Securities Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable, in the event that Viatel
is required to repurchase notes pursuant to an Offer to Purchase.
"Permitted Investment" means:
(i) an Investment in Viatel or a Restricted Subsidiary or a Person which
will, upon the making of such Investment, become a Restricted Subsidiary
or be merged or consolidated with or into or transfer or convey all or
substantially all its assets to, Viatel or a Restricted Subsidiary;
PROVIDED that such person's primary business is related, ancillary or
complementary to the businesses of Viatel or any of its Restricted
Subsidiaries on the date of such Investment;
(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordance with GAAP;
(iv) Investments received in the bankruptcy or reorganization of a Person or
any exchange of such Investment with the issuer thereof or taken in
settlement of or other resolution of claims or disputes or acquired as
the result of foreclosure of any secured Investment, and, in each case,
extensions, modifications and renewal thereof;
(v) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance and
other similar deposits;
(vi) Interest Rate Agreements and Currency Agreements designed solely to
protect Viatel or its Restricted Subsidiaries against fluctuations in
interest rates or foreign currency exchange rates;
(vii) loans or advances to officers or employees of Viatel or any Restricted
Subsidiary that do not in the aggregate exceed $1 million at any time
outstanding;
(viii) investments consisting of securities issued by or beneficial interests
in a special purpose entity referred to in clause (f) of the definition
of "Asset Sale" and which are received in exchange for assets that are
transferred by Viatel or a Restricted Subsidiary to such special
purpose entity and used for the purpose referred to therein; and
(ix) Investments as a result of consideration received in connection with an
Asset Sale made in compliance with the "Limitation on Asset Sales"
covenant.
"Permitted Joint Venture" means any joint venture between Viatel or any
Restricted Subsidiary and (i) any Person other than a Subsidiary, engaged in the
provision or sale of telecommunications services or (ii) any Person engaged as
an independent sale representative of Viatel; PROVIDED that prior to making any
Investment in such a Person, Viatel's Board of Directors shall have determined
that such Investment fits Viatel's strategic plan and is on terms that are fair
and reasonable to Viatel.
"Permitted Liens" means:
(i) Liens for taxes, assessments, governmental charges or claims not yet
subject to penalty or that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made;
(ii) statutory and common law Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens
arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a
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reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(iv) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance
and return-of-money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations
for the payment of borrowed money);
(v) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of Viatel or
any of its Restricted Subsidiaries;
(vi) Liens (including extensions and renewals thereof) upon real or personal
(whether tangible or intangible) property acquired after the Closing
Date; PROVIDED that (a) such Lien is created solely for the purpose of
securing Indebtedness Incurred, in accordance with the "Limitation on
Indebtedness" covenant described below, to finance or refinance the
cost (including the cost of design, development, acquisition,
construction, installation, improvement, transportation or integration)
of the item or related group of items of property or assets subject
thereto or the business in which such property or assets are used and
such Lien is created prior to, at the time of or within eighteen months
after the later of the acquisition, the completion of (except in the
case of refinancing) construction or the commencement of full operation
of such property, (b) the principal amount of the Indebtedness secured
by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property or assets other than such
item or group of items of property or assets and any improvements on
such item;
(vii) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of Viatel and its Restricted
Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of Viatel or its Restricted
Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(xi) Liens on property of, or on shares of Capital Stock or Indebtedness of,
any Person existing at the time such Person becomes, or becomes a part
of, any Restricted Subsidiary; PROVIDED that such Liens do not extend
to or cover any property or assets of Viatel or any Restricted
Subsidiary other than the property or assets acquired;
(xii) Liens in favor of Viatel or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order against
Viatel or any Restricted Subsidiary that does not give rise to an Event
of Default;
(xiv) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
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(xv) Liens in favor of customs and revenue authorities arising as a matter of
law to secure payment of customs duties in connection with the
importation of goods;
(xvi) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed solely to
protect Viatel or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by Viatel or
any of its Restricted Subsidiaries in the ordinary course of business
in accordance with the past practices of Viatel and its Restricted
Subsidiaries prior to the Closing Date;
(xviii) Liens on or sales of receivables or other rights to payment;
(xix) Liens secured with assets that have a fair market value not in excess
of 15% of Adjusted Consolidated Net Tangible Assets when such Liens are
Incurred; and
(xx) any extension, renewal, or replacement (or successive extensions,
renewals, or replacements) in whole or in part, of Liens described in
clauses (i) through (xix) above.
"Permitted Wholesale Consortium" means any Person in which Viatel invests
for the principal purpose of leasing or otherwise acquiring transmission rights
with respect to long distance telecommunications; PROVIDED that prior to making
any Investment in such a Person, Viatel's Board of Directors shall have
determined that such Investment will afford Viatel greater economic benefits
than it could otherwise obtain from other sources of transmission rights.
"Pledge Account" means the account established with the trustee pursuant to
the terms of the Pledge Agreement for the deposit of the Pledged Securities
purchased by Viatel with a portion of the proceeds from the sale of the notes.
"Pledge Agreement" means the Collateral Pledge and Security Agreement, dated
as of the date of the indenture, to be made by Viatel in favor of the trustee,
governing the disbursement of funds from the Pledge Accounts, as such agreement
may be amended, restated, supplemented or otherwise modified from time to time.
"Pledged Securities" means the securities originally purchased by Viatel
with a portion of the proceeds from the sale of the notes, which shall consist
of Government Securities, to be deposited in the Pledge Account, all in
accordance with the terms of the Pledge Agreement.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of Viatel pursuant to an effective registration statement under the
Securities Act.
"Restricted Subsidiary" means any Subsidiary of Viatel other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any Restricted
Subsidiary that, together with its Subsidiaries, (i) for the most recent fiscal
year of Viatel, accounted for more than 10% of the consolidated revenues of
Viatel and its Restricted Subsidiaries or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of Viatel and
its Restricted Subsidiaries, all as set forth on the most recently available
consolidated financial statements of Viatel for such fiscal year.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Specified Date" means any Redemption Date, any Payment Date for an Offer to
Purchase or any date on which the notes first become due and payable after an
Event of Default.
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"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of Viatel Incurred
to finance the acquisition of a Person engaged in a business that is related,
ancillary or complementary to the business conducted by Viatel or any of its
Restricted Subsidiaries, which Indebtedness by its terms, or by the terms of any
agreement or instrument pursuant to which such Indebtedness is Incurred,
(i) is expressly made subordinate in right of payment to the notes, and
(ii) provides that no payment of principal, premium or interest on, or any
other payment with respect to, such Indebtedness may be made prior to
the payment in full of all of Viatel's obligations under the notes;
PROVIDED that such Indebtedness may provide for and be repaid at any
time from the proceeds of a capital contribution, the sale of Capital
Stock (other than Disqualified Stock) of Viatel, or other Strategic
Subordinated Indebtedness Incurred, after the Incurrence of such
Indebtedness.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following:
(i) direct obligations of the United States of America or any agency thereof
or obligations fully and unconditionally guaranteed by the United States
of America or any agency thereof,
(ii) time deposit accounts, eurodollar time deposits, bankers' acceptances,
certificates of deposit and money market deposits, in each case
maturing within one year of the date of acquisition thereof and issued
by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States of America, and which bank or trust
company has capital, surplus and undivided profits aggregating in
excess of $50 million (or the foreign currency equivalent thereof) and
has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act)
or any money-market fund sponsored by a registered broker dealer or
mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause
(ii) above,
(iv) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate of
Viatel) organized and in existence under the laws of the United States
of America, any state thereof or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-2" (or higher) according to Moody's or
"A-2" (or higher) according to S&P,
(v) securities with maturities of one year or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least
"A" by S&P or Moody's, and
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(vi) shares or other interests in an investment company the assets of which
consist solely of (A) securities of the type described in clauses
(i) through (v) above and (B) mortgage-backed securities rated AAA or
the equivalent by S&P, Moody's or Fitch Investor Services, Inc.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by Viatel or any of its Restricted Subsidiaries, the date such Indebtedness is
to be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of Viatel that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of Viatel)
to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock
of, or owns or holds any Lien on any property of, Viatel or any Restricted
Subsidiary; PROVIDED that
(A) any Guarantee by Viatel or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated shall be deemed an
"Incurrence" of such Indebtedness and an "Investment" by Viatel or such
Restricted Subsidiary (or both, if applicable) at the time of such
designation;
(B) either (I) the Subsidiary to be so designated has total assets of
$1,000 or less or (II) if such Subsidiary has assets greater than $1,000,
such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below; and
(C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under the
"Limitation on Indebtedness" and "Limitation on Restricted Payments"
covenants described below. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; PROVIDED that (i) no
Default or Event of Default shall have occurred and be continuing at the
time of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after
such designation would, if Incurred at such time, have been permitted to be
Incurred (and shall be deemed to have been Incurred) for all purposes of the
indenture. Any such designation by the Board of Directors shall be evidenced
to the trustee by promptly filing with the trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
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COVENANTS
LIMITATION ON INDEBTEDNESS
(a) Viatel will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness (other than the notes and Indebtedness existing on
the Closing Date); PROVIDED that Viatel may Incur Indebtedness if, after giving
effect to the Incurrence of such Indebtedness and the receipt and application of
the proceeds therefrom, the Consolidated Leverage Ratio would be greater than
zero and less than 6:1.
Notwithstanding the foregoing, Viatel and any Restricted Subsidiary (except
as specified below) may Incur each and all of the following:
(i) Indebtedness outstanding at any time in an aggregate principal amount
not to exceed $100 million of Indebtedness that is PARI PASSU with or
subordinated to the notes and $150 million of Indebtedness that is
subordinated to the notes, less any amount of such Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below;
(ii) Indebtedness owed (A) by any Restricted Subsidiary to Viatel or another
Restricted Subsidiary or (B) by Viatel to any Restricted Subsidiary;
PROVIDED that any event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to Viatel or another Restricted
Subsidiary) shall be deemed, in each case, to constitute an Incurrence
of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of which are
used to repay, redeem, defease, refinance, refund, extend, renew,
replace, discharge or otherwise retire any then outstanding
Indebtedness (other than Indebtedness Incurred under clause (i), (ii),
(iv), (vi), (viii), (xi) or (xii) of this paragraph) and any
refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, penalties, accrued interest,
fees and expenses); PROVIDED that Indebtedness the proceeds of which
are used to refinance or refund the notes or Indebtedness that is PARI
PASSU with, or subordinated in right of payment to, the notes shall
only be permitted under this clause (iii) if,
(A) in case the notes are refinanced in part or the Indebtedness to
be refinanced is PARI PASSU with the notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which
such new Indebtedness is outstanding, is expressly made PARI PASSU with,
or subordinate in right of payment to, the remaining notes,
(B) in case the Indebtedness to be refinanced is subordinated in
right of payment to the notes, such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the notes at least to the extent that
the Indebtedness to be refinanced is subordinated to the notes and
(C) such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of
the Indebtedness to be refinanced or refunded, and the Average Life of
such new Indebtedness is at least equal to the remaining Average Life of
the Indebtedness to be refinanced or refunded; and PROVIDED FURTHER that
in no event may Indebtedness of Viatel be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iii);
(iv) Indebtedness,
(A) in respect of performance, surety or appeal bonds provided in the
ordinary course of business;
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(B) under Currency Agreements and Interest Rate Agreements; PROVIDED
that such agreements (a) are designed solely to protect Viatel or any of
its Restricted Subsidiaries against fluctuations in foreign currency
exchange rates or interest rates and (b) do not increase the Indebtedness
of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder; and
(C) arising from agreements providing for indemnification, adjustment
of purchase price or similar obligations, or from Guarantees or letters
of credit, surety bonds or performance bonds securing any obligations of
Viatel or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business,
assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds
actually received by Viatel or any Restricted Subsidiary in connection
with such disposition;
(v) Indebtedness of Viatel, to the extent the net proceeds thereof are
promptly (A) used to purchase notes tendered in an Offer to Purchase
made as a result of a Change in Control or (B) deposited to defease the
notes as described below under "Defeasance";
(vi) Guarantees of the notes and Guarantees of Indebtedness of Viatel by any
Restricted Subsidiary provided the Guarantee of such Indebtedness is
permitted by and made in accordance with the "Limitation on Issuance of
Guarantees by Restricted Subsidiaries" covenant described below;
(vii) Indebtedness (including Guarantees) Incurred to finance the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to acquire
equipment, inventory or network assets (including acquisitions by way
of Capitalized Lease and acquisitions of the Capital Stock of a Person
that becomes a Restricted Subsidiary to the extent of the fair market
value of the equipment, inventory or network assets so acquired) by
Viatel or a Restricted Subsidiary after the Closing Date;
(viii) Indebtedness of Viatel not to exceed, at any one time outstanding, two
times,
(A) the Net Cash Proceeds received by Viatel after the Closing Date
as a capital contribution or from the issuance and sale of its Capital
Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of Viatel, to the extent (I) such capital contribution or Net
Cash Proceeds have not been used pursuant to clause (C)(2) of the first
paragraph or clause (iii), (iv), (vi) or (vii) of the second paragraph of
the "Limitation on Restricted Payments" covenant described below to make
a Restricted Payment and (II) if such capital contribution or Net Cash
Proceeds are used to consummate a transaction pursuant to which Viatel
Incurs Acquired Indebtedness, the amount of such Net Cash Proceeds
exceeds one-half of the amount of Acquired Indebtedness so Incurred, and
(B) 80% of the fair market value of property (other than cash and
cash equivalents) received by Viatel after the Closing Date from the sale
of its Capital Stock (other than Disqualified Stock) to a Person that is
not a Subsidiary of Viatel, to the extent (I) such capital contribution
or sale of Capital Stock has not been used pursuant to clause (iii),
(iv), (vi) or (vii) of the second paragraph of the "Limitation on
Restricted Payments" covenant described below to make a Restricted
Payment and (II) if such capital contribution or Capital Stock is used to
consummate a transaction pursuant to which Viatel Incurs Acquired
Indebtedness, 80% of the fair market value of the property received
exceeds one-half of the amount of Acquired Indebtedness so Incurred
PROVIDED that such Indebtedness does not mature prior to the Stated
Maturity of the notes and has an Average Life longer than the notes;
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(ix) Acquired Indebtedness;
(x) Strategic Subordinated Indebtedness;
(xi) Indebtedness in respect of bankers' acceptance and letters of credit,
all in the ordinary course of business, in an aggregate amount
outstanding at any time of up to $10 million;
(xii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, or similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in
the ordinary course of business, PROVIDED that such Indebtedness is
extinguished within three business days of Incurrence.
(b) Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that Viatel or a Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness" covenant
shall not be deemed to be exceeded, with respect to any outstanding Indebtedness
due solely to the result of fluctuations in the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, Viatel, in its sole discretion, shall classify, and from time to time
may reclassify, such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
Viatel will not, and will not permit any Restricted Subsidiary to, directly
or indirectly:
(i) (A) declare or pay any dividend or make any distribution on or with
respect to its Capital Stock (other than (1) dividends or distributions
payable solely in shares of its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to acquire shares of such
Capital Stock and (2) PRO RATA dividends or distributions on Common
Stock of Restricted Subsidiaries held by minority stockholders) held by
Persons other than Viatel or any of its Restricted Subsidiaries, or (B)
pay any cash interest on the Subordinated Convertible Debentures;
(ii) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of (A) Viatel or an Unrestricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital
Stock) held by any Person, or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of Capital
Stock) held by any Affiliate of Viatel (other than a Wholly Owned
Restricted Subsidiary) or any holder (or any Affiliate of such holder)
of 5% or more of the Capital Stock of Viatel;
(iii) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of Viatel that is subordinated in
right of payment to the notes; or
(iv) make any Investment (after the Closing Date), other than a Permitted
Investment, in any Person (such payments or any other actions described
in clauses (i) through (iv) above being collectively "Restricted
Payments") if, at the time of, and after giving effect to, the proposed
Restricted Payment,
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(A) a Default or Event of Default shall have occurred and be
continuing,
(B) Viatel could not Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant, or
(C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) made after the Closing Date shall exceed the sum of
(1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus
100% of the amount of such loss) (determined by excluding income
resulting from transfers of assets by Viatel or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing
Date and ending on the last day of the last fiscal quarter preceding
the Transaction Date for which reports have been filed with the
Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant, PLUS
(2) the aggregate Net Cash Proceeds received by Viatel after the
Closing Date as a capital contribution or from the issuance and sale
permitted by the indenture of its Capital Stock (other than
Disqualified Stock) to a Person who is not a Subsidiary of Viatel,
including an issuance or sale permitted by the indenture of
Indebtedness of Viatel for cash subsequent to the Closing Date upon
the conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of Viatel, or from the issuance to a Person who
is not a Subsidiary of Viatel of any options, warrants or other
rights to acquire Capital Stock of Viatel (in each case, exclusive of
any Disqualified Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the notes), in each case
except to the extent such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (viii) of the second paragraph under
the "Limitation on Indebtedness" covenant, PLUS
(3) an amount equal to the net reduction in Investments (other
than reductions in Permitted Investments) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to
Viatel or any Restricted Subsidiary or from the Net Cash Proceeds
from the return of capital, redemption, or sale of any such
Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), or from the release of any Guarantee
that constituted a Restricted Payment, to the extent of such release,
not to exceed, in each case, the amount of Investments previously
made by Viatel or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness
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Incurred under clause (iii) of the second paragraph of part (a) of the
"Limitation on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of Capital Stock of
Viatel or an Unrestricted Subsidiary (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the
proceeds of a capital contribution or a substantially concurrent
offering of, shares of Capital Stock (other than Disqualified Stock) of
Viatel (or options, warrants or other rights to acquire such Capital
Stock);
(iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness
of Viatel which is subordinated in right of payment to the notes in
exchange for, or out of the proceeds of a capital contribution or a
substantially concurrent offering of, shares of the Capital Stock
(other than Disqualified Stock) of Viatel (or options, warrants or
other rights to acquire such Capital Stock);
(v) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of Viatel;
(vi) Investments in any Person the primary business of which is related,
ancillary or complementary to the business of Viatel or any of its
Restricted Subsidiaries on the date of such Investments; PROVIDED that
the aggregate amount of Investments made pursuant to this clause
(vi) does not exceed $30 million at any one time outstanding;
(vii) Investments acquired in exchange for Capital Stock (other than
Disqualified Stock) of Viatel or the Net Cash Proceeds from the
issuance and sale of such Capital Stock PROVIDED that such proceeds are
so used within 180 days of the receipt thereof;
(viii) the redemption, repurchase, retirement, or other acquisition of any
Capital Stock of Viatel (or options, warrants, or other rights to
acquire such Capital Stock) from an employee or former employee of
Viatel or any of its Subsidiaries (or from such person's estate, heirs,
or representatives) in connection with such employee's death,
disability, or termination of employment, PROVIDED that the aggregate
amount expended pursuant to this clause does not exceed $1 million per
annum plus the cumulative amount of such per annum limit not used in
prior years and the cash proceeds from such Investments PROVIDED that
such proceeds are used within 180 days of the receipt thereof;
(ix) Investments in permitted Wholesale Consortiums and Permitted Joint
Ventures not exceeding, at the time of the Investment, the sum of
(A) 10% of the consolidated revenue of Viatel (excluding with respect
to Persons in whom an equity interest is owned by Persons other than
Viatel and its Restricted Subsidiaries, the pro rata share of such
revenue attributable to such other equity holders) accrued on a
cumulative basis during the period (taken as one accounting period)
beginning on the first day of the first full fiscal quarter immediately
following the Closing Date and ending on the last day of the last
fiscal quarter preceding the date of such Investment and (B) the Net
Cash Proceeds from the disposition of Viatel's interest in any such
Permitted Wholesale Consortium or Permitted Joint Venture;
(x) the repurchase of Subordinated Debentures upon a Change of Control
pursuant to an Offer to Purchase; PROVIDED that an Offer to Purchase is
consummated with respect to the notes prior to any repurchase of the
Subordinated Debentures; and
(xi) other Restricted Payments in an aggregate amount not to exceed
$10 million, increased by the amount of any Restricted Payment made
pursuant to this clause (xi) that is an Investment and is not
outstanding;
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PROVIDED that, except in the case of clauses (i) and (iii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (ii) thereof, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (iii) or
(iv) thereof and an Investment referred to in clause (vi) thereof), and the Net
Cash Proceeds from any capital contribution or any issuance of Capital Stock
referred to in clauses (iii), (iv) and (vi), shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this "Limitation
on Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of Viatel are used for the redemption, repurchase or other acquisition of the
notes, or Indebtedness that is PARI PASSU with the notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Any Restricted Payments made in other than cash shall be valued at fair
market value. The amount of any Investment "outstanding" at any time shall be
deemed to be equal to the amount of such Investment on the date made, less the
return of capital, repayment of loans, return on capital and release of
Guarantees, in each case of or to Viatel and its Restricted Subsidiaries with
respect to such Investment (up to the amount of such investment on the date
made).
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
Viatel will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to:
(i) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by Viatel
or any other Restricted Subsidiary,
(ii) pay any Indebtedness owed to Viatel or any other Restricted Subsidiary,
(iii) make loans or advances to Viatel or any other Restricted Subsidiary, or
(iv) transfer any of its property or assets to Viatel or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date in the indenture or any other agreements in
effect on the Closing Date, and any extensions, refinancings, renewals
or replacements of such agreements; PROVIDED that the encumbrances and
restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the
holders than those encumbrances or restrictions that are then in effect
and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or assets of such
Person acquired by Viatel or any Restricted Subsidiary, existing at the
time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or
the property or assets of any Person other than such Person or the
property or assets of such Person so acquired;
(iv) in the case of clause (iv) of the first paragraph of this "Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a
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lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of
Viatel or any Restricted Subsidiary not otherwise prohibited by the
indenture or (C) arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of property or
assets of Viatel or any Restricted Subsidiary in any manner material to
Viatel or any Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary;
(vi) contained in the terms of any Indebtedness or any agreement pursuant to
which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default
with respect to a financial covenant contained in such Indebtedness or
agreement, (B) the encumbrance or restriction is not materially more
disadvantageous to the holders of the notes than is customary in
comparable financings (as determined by Viatel) and (C) Viatel
determines that any such encumbrance or restriction will not materially
affect Viatel's ability to make principal or interest payments on the
notes; or
(vii) imposed in connection with a transaction described in clause (f) of the
proviso to the definition of "Asset Sale" and relating solely to a
Restricted Subsidiary that transfers assets to the special purpose
entity referred to therein; provided that Viatel determines that any
such encumbrance or restriction will not materially affect Viatel's
ability to make principal or interest payments on the notes. Nothing
contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
Viatel or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the
"Limitation on Liens" covenant or (2) restricting the sale or other
disposition of property or assets of Viatel or any of its Restricted
Subsidiaries that secure Indebtedness of Viatel or any of its
Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Viatel will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except:
(i) to Viatel or a Wholly Owned Restricted Subsidiary;
(ii) issuances of director's qualifying shares or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law;
(iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made
under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale;
(iv) a pledge or hypothecation of or Lien on any Capital Stock of a
Subsidiary to the extent not prohibited under the "Limitation on Liens"
covenant; or
(v) sales by Viatel or Restricted Subsidiaries of Common Stock of a
Restricted Subsidiary, PROVIDED that Viatel or such Restricted
Subsidiaries apply the Net Cash Proceeds, if any, of any such sale in
accordance with clause (A) or (B) of the "Limitation on Asset Sales"
covenant described below.
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LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
Viatel will not permit any Restricted Subsidiary, directly or indirectly, to
Guarantee any Indebtedness of Viatel which is PARI PASSU with or subordinate in
right of payment to the notes ("Guaranteed Indebtedness"), unless:
(i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a
"Subsidiary Guarantee") of payment of the notes by such Restricted
Subsidiary; and
(ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against Viatel or any
other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; PROVIDED that
this paragraph shall not be applicable to any Guarantee of any
Restricted Subsidiary that existed at the time such Person became a
Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary.
If the Guaranteed Indebtedness is (A) PARI PASSU with the notes, then the
Guarantee of such Guaranteed Indebtedness shall be PARI PASSU with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of Viatel, of all of Viatel's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all the assets of, such
Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the
Indenture) or (ii) the release or discharge of the Guarantee which resulted in
the creation of such Subsidiary Guarantee, except a discharge or release by or
as a result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Viatel will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
5% or more of any class of Capital Stock of Viatel or with any Affiliate of
Viatel or any Restricted Subsidiary, except upon fair and reasonable terms no
less favorable to Viatel or such Restricted Subsidiary than could be obtained,
at the time of such transaction or, if such transaction is pursuant to a written
agreement, at the time of the execution of the agreement providing therefor, in
a comparable arm's-length transaction with a Person that is not such a holder or
an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which Viatel or a Restricted
Subsidiary delivers to the trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair
to Viatel or such Restricted Subsidiary from a financial point of view;
(ii) any transaction solely between Viatel and any of its Restricted
Subsidiaries or solely between Restricted Subsidiaries;
(iii) the payment of reasonable and customary regular fees to directors of
Viatel who are not employees of Viatel;
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(iv) any payments or other transactions pursuant to any tax-sharing
agreement between Viatel and any other Person with which Viatel files a
consolidated tax return or with which Viatel is part of a consolidated
group for tax purposes;
(v) compensation, indemnification, and other benefits paid or made available
to officers, directors, and employees in the ordinary course of business
in connection with services actually rendered and consistent with past
practice;
(vi) transactions in accordance with the Existing Stockholder Agreements as
in effect on the Closing Date; or
(vii) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii) through
(v) of this paragraph, the aggregate amount of which exceeds $2.0 million in
value, must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above.
LIMITATION ON LIENS
Viatel will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or properties of
any character (including, without limitation, licenses), or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the notes and all other amounts due under the
indenture to be directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right of payment to
the notes, prior to) the obligation or liability secured by such Lien.
The foregoing limitation does not apply to:
(i) Liens existing on the Closing Date;
(ii) Liens granted after the Closing Date on any assets or Capital Stock of
Viatel or its Restricted Subsidiaries created in favor of the holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary granted by
such Restricted Subsidiary to Viatel or a Wholly Owned Restricted
Subsidiary to secure Indebtedness owing to Viatel or such other
Restricted Subsidiary;
(iv) Liens securing Indebtedness permitted to be Incurred under clause
(iii) of the second paragraph of the "Limitation on Indebtedness"
covenant which is Incurred to refinance secured Indebtedness; PROVIDED
that such Liens do not extend to or cover any property or assets of
Viatel or any Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced;
(v) Liens on the Capital Stock of, or any property or assets of, a
Restricted Subsidiary securing Indebtedness of such Restricted
Subsidiary permitted under the "Limitation on Indebtedness" covenant;
(vi) Liens on the Capital Stock of Restricted Subsidiaries that own a
substantial portion of assets financed with Indebtedness Incurred under
clause (vii) of the "Limitation on Indebtedness" covenant, if such
liens secure only such Indebtedness; or
(vii) Permitted Liens.
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LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Viatel will not, and will not permit any Restricted Subsidiary to, enter
into any sale-leaseback transaction involving any of its assets or properties
whether now owned or hereafter acquired, whereby Viatel or a Restricted
Subsidiary sells or transfers such assets or properties and then or thereafter
leases such assets or properties or any part thereof or any other assets or
properties which Viatel or such Restricted Subsidiary, as the case may be,
intends to use for substantially the same purpose or purposes as the assets or
properties sold or transferred; PROVIDED that a sale-leaseback transaction shall
not include any lease in connection with which Viatel or a Restricted Subsidiary
acquires assets or property in anticipation of the substantially contemporaneous
sale or transfer to the lessor under such lease.
The foregoing restriction does not apply to any sale-leaseback transaction
if:
(i) the lease is for a period, including renewal rights, of not in excess of
three years;
(ii) the lease secures or relates to industrial revenue or pollution control
bonds;
(iii) the transaction is solely between Viatel and any Restricted Subsidiary
or solely between Restricted Subsidiaries; or
(iv) Viatel or such Restricted Subsidiary, within 12 months after the sale
or transfer of any assets or properties is completed, applies an amount
not less than the net proceeds received from such sale in accordance
with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
LIMITATION ON ASSET SALES
Viatel will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by Viatel or
such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments. In the event and to the extent
that the Net Cash Proceeds received by Viatel or any of its Restricted
Subsidiaries from one or more Asset Sales occurring in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net Tangible Assets
(determined as of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of Viatel and its Subsidiaries has been
filed with the SEC pursuant to the "Commission Reports and Reports to Holders"
covenant), then Viatel shall or shall cause the relevant Restricted Subsidiary
to,
(i) within 12 months after the date Net Cash Proceeds so received exceed
10% of Adjusted Consolidated Net Tangible Assets,
(A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of Viatel, or any
Restricted Subsidiary providing a Subsidiary Guarantee pursuant to the
"Limitation on Issuances of Guarantees by Restricted Subsidiaries"
covenant described above or Indebtedness of any other Restricted
Subsidiary, in each case owing to a Person other than Viatel or any of
its Restricted Subsidiaries, or
(B) invest an equal amount, or the amount not so applied pursuant to
clause (A) (or enter into a definitive agreement committing to so invest
within 12 months after the date of such agreement), either in property or
assets (other than current assets) of a nature or type or that are used
in a business, or in a company having property and assets of a nature or
type, or engaged in a business, in either case similar or related to the
nature or type of the property and assets of, or the business of, Viatel
or any of its Restricted Subsidiaries existing on the date of such
investment (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution),
and
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(ii) apply (no later than the end of the 12-month period referred to in
clause (i)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause
(i) of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, Viatel must
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the holders on a PRO RATA basis an
aggregate principal amount of notes equal to the Excess Proceeds on such date,
at a purchase price equal to 101% of the principal amount of the notes on the
relevant Payment Date, plus, in each case, accrued interest (if any) to the
Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
We must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all notes then outstanding, at a
purchase price equal to 101% of the principal amount at maturity of the notes on
the Payment Date, plus accrued interest, if any, to the Payment Date.
There can be no assurance that we will have sufficient funds available at
the time of any Change of Control to make any debt payment, including
repurchases of notes, required by the foregoing covenant, as well as may be
contained in other of our securities of Viatel which might be outstanding at the
time. The above covenant requiring us to repurchase the notes will, unless
consents are obtained, require us to repay all indebtedness then outstanding
which by its terms would prohibit such note repurchase, either prior to or
concurrently with such note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
We must file with the SEC all such reports and other information as we are
or would be required to file with the SEC by Sections 13(a) or 15(d) under the
Securities Exchange Act if we were subject thereto. We shall supply the trustee
and each holder or shall supply to the trustee for forwarding to each such
holder, without cost to such holder, copies of such reports and other
information. In addition, at all times prior to the date of the commencement of
an exchange offer or the effectiveness of a Shelf Registration Statement (the
"Registration"), upon the request of any holder or any prospective purchaser of
the notes designated by a holder, we shall supply to such holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the indenture:
(a) default in the payment of principal of (or premium, if any, on) any note
when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise;
(b) default in the payment of interest on any note when the same becomes due
and payable, and such default continues for a period of 30 days;
PROVIDED that a failure to make any of the first three scheduled
interest payments on the notes in a timely manner will constitute an
Event of Default with no grace or cure period;
(c) default in the performance or breach of the provisions of the indenture
applicable to mergers, consolidations and transfers of all or
substantially all of the assets of Viatel or the failure to
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make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" or "Repurchase of Notes upon a Change of
Control" covenant;
(d) Viatel defaults in the performance of or breaches any other covenant or
agreement of Viatel in the indenture or under the notes (other than a
default specified in clause (a), (b) or (c) above) and such default or
breach continues for a period of 30 consecutive days after written
notice by the trustee or the holders of 25% or more in aggregate
principal amount of the notes;
(e) there occurs with respect to any issue or issues of Indebtedness of
Viatel or any Significant Subsidiary having an outstanding principal
amount of $10 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has caused the holder
thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (II) the failure to make a principal payment at
the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of
such payment default;
(f) any final judgment or order (not covered by insurance) for the payment
of money in excess of $10 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against
Viatel or any Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 60 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid
or discharged against all such Persons to exceed $10 million during
which a stay of enforcement of such final judgment or order, by reason
of a pending appeal or otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a decree or order
for,
(A) relief in respect of Viatel or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of Viatel or any Significant
Subsidiary or for all or substantially all of the property and assets of
Viatel or any Significant Subsidiary, or
(C) the winding up or liquidation of the affairs of Viatel or any
Significant Subsidiary and in each case, such decree or order shall
remain unstayed and in effect for a period of 60 consecutive days; or
(h) Viatel or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any such
law,
(B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of Viatel or any Significant Subsidiary or for all or
substantially all of the property and assets of Viatel or any Significant
Subsidiary, or
(C) effects any general assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to Viatel) occurs and is continuing
under the indenture, the trustee or the holders
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of at least 25% in aggregate principal amount of the notes then outstanding, by
written notice to Viatel (and to the trustee if such notice is given by the
holders), may, and the trustee at the request of such holders shall, declare the
principal amount of, premium, if any, and accrued interest on the notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
amount of, premium, if any, and accrued interest shall be immediately due and
payable. In the event of a declaration of acceleration because an Event of
Default set forth in clause (e) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
event of default triggering such Event of Default pursuant to clause (e) shall
be remedied or cured by Viatel or the relevant Significant Subsidiary or waived
by the holders of the Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(g) or (h) above occurs with respect to Viatel, the principal amount of,
premium, if any, and accrued interest on the notes then outstanding shall IPSO
FACTO become and be immediately due and payable without any declaration or other
act on the part of the trustee or any holder. The holders of at least a majority
in principal amount of the outstanding notes, by written notice to Viatel and to
the trustee, may waive all past defaults with respect to such notes and rescind
and annul a declaration of acceleration and its consequences if (i) all existing
Events of Default, other than the nonpayment of the principal of, premium, if
any, and interest on the notes that have become due solely by such declaration
of acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--Modification and Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee. However, the trustee may refuse to follow any
direction that conflicts with law or the indenture, that may involve the trustee
in personal liability, or that the trustee determines in good faith may be
unduly prejudicial to the rights of holders of the notes, not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from holders of the notes. A
holder may not pursue any remedy with respect to the indenture or the notes
unless:
(i) the holder gives the trustee written notice of a continuing Event of
Default;
(ii) the holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the trustee to pursue the
remedy;
(iii) such holder or holders offer the trustee indemnity satisfactory to the
trustee against any costs, liability or expense;
(iv) the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(v) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding notes do not give the trustee a
direction that is inconsistent with the request.
However, such limitations do not apply to the right of any holder of a note
to receive payment of the principal of, premium, if any, or interest on, such
note or to bring suit for the enforcement of any such payment, on or after the
due date expressed in the notes, which right shall not be impaired or affected
without the consent of the holder.
The indenture will require certain officers of Viatel to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of Viatel and its Restricted
Subsidiaries and Viatel's and its Restricted Subsidiaries' performance under the
indenture and that Viatel has fulfilled all obligations thereunder, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default and the nature and status thereof. Viatel
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will also be obligated to notify the trustee of any default or defaults in the
performance of any covenants or agreements under the indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Viatel will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into Viatel unless:
(i) Viatel shall be the continuing Person, or the Person (if other than
Viatel) formed by such consolidation or into which Viatel is merged or
that acquired or leased such property and assets of Viatel shall be a
corporation organized and validly existing under the laws of the United
States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the
trustee, all of the obligations of Viatel on all of the notes and under
the indenture;
(ii) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction on a pro forma
basis, Viatel or any Person becoming the successor obligor of the notes
shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Viatel immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma
basis Viatel, or any Person becoming the successor obligor of the
notes, as the case may be, could Incur at least $1.00 of Indebtedness
under the first paragraph of the "Limitation on Indebtedness" covenant;
PROVIDED that this clause (iv) shall not apply to
(1) a consolidation, merger or sale of all (but not less than
all) of the assets of Viatel if all Liens and Indebtedness of Viatel
or any Person becoming the successor obligor on the notes, as the
case may be, and its Restricted Subsidiaries outstanding immediately
after such transaction would, if Incurred at such time, have been
permitted to be Incurred (and all such Liens and Indebtedness, other
than Liens and Indebtedness of Viatel and its Restricted Subsidiaries
outstanding immediately prior to the transaction, shall be deemed to
have been Incurred) for all purposes of the indenture or
(2) a consolidation, merger or sale of all or substantially all
of the assets of Viatel if immediately after giving effect to such
transaction on a pro forma basis, Viatel or any Person becoming the
successor obligor of the notes shall have a Consolidated Leverage
Ratio equal to or less than the Consolidated Leverage Ratio of Viatel
immediately prior to such transaction; and
(v) Viatel delivers to the trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses
(iii) and (iv) above) and Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with;
PROVIDED, HOWEVER, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of Viatel, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of Viatel; and PROVIDED
FURTHER that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
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DEFEASANCE
DEFEASANCE AND DISCHARGE
The indenture provides that Viatel will be deemed to have paid and will be
discharged from any and all obligations in respect of the notes issued
thereunder on the 123rd day after the deposit referred to below, and the
provisions of the indenture will no longer be in effect with respect to such
notes (except for, among other matters, certain obligations to register the
transfer or exchange of such notes, to replace stolen, lost or mutilated notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things,
(A) Viatel has deposited with the trustee, in trust, money and/or U.S.
Government Obligations that through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued
interest on the notes on the Stated Maturity of such payments in accordance
with the terms of the indenture and the notes,
(B) Viatel has delivered to the relevant trustee (i) either,
(1) an Opinion of Counsel to the effect that holders will not
recognize income, gain or loss for federal income tax purposes as a
result of Viatel's exercise of its option under this "Defeasance"
provision and will be subject to federal income tax on the same amount
and in the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, which Opinion
of Counsel must be based upon (and accompanied by a copy of) a ruling of
the Internal Revenue Service to the same effect unless there has been a
change in applicable federal income tax law after the Closing Date such
that a ruling is no longer required, or
(2) a ruling directed to the relevant trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion
of Counsel, and
(ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and
after the passage of 123 days following the deposit, the trust fund will not
be subject to the effect of Section 547 of the United States Bankruptcy Code
or Section 15 of the New York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have occurred
and be continuing on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default under, any other
agreement or instrument to which Viatel or any of its Subsidiaries is a
party or by which Viatel or any of its Subsidiaries is bound, and
(D) if at such time the notes are listed on a national securities
exchange, Viatel has delivered to the trustee an Opinion of Counsel to the
effect that the notes will not be delisted as a result of such deposit,
defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
The indenture will provide that the provisions of the indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (c) under "Events of Default" with respect to such clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," clause
(d) under "Events of Default" with respect to such other covenants and clauses
(e) and (f) under "Events of Default" shall be deemed not to be Events of
Default upon, among other things, the deposit with the relevant trustee, in
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trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the notes on the Stated Maturity of such payments in
accordance with the terms of the indenture and the notes, the satisfaction of
the provisions described in clauses (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by Viatel to the trustee of an Opinion of Counsel to
the effect that, among other things, the holders will not recognize income, gain
or loss for federal income tax purposes as a result of such deposit and
defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
In the event Viatel exercises its option to omit compliance with certain
covenants and provisions of the indenture with respect to the notes as described
in the immediately preceding paragraph and such notes are declared due and
payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the trustee will be sufficient to pay amounts due on such notes at the time
of their Stated Maturity but may not be sufficient to pay amounts due on such
notes at the time of the acceleration resulting from such Event of Default.
However, Viatel will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by Viatel and the
trustee with the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding notes; PROVIDED, HOWEVER, that no such
modification or amendment may, without the consent of each holder affected
thereby,
(i) change the Stated Maturity of the principal of, or any installment of
interest on, any note,
(ii) reduce the principal amount of, or premium, if any, or interest on, any
note,
(iii) change the place or currency of payment of principal of, or premium, if
any, or interest on, any note,
(iv) impair the right to institute suit for the enforcement of any payment
on or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any note,
(v) reduce the above-stated percentage of outstanding notes, the consent of
whose holders is necessary to modify or amend the indenture,
(vi) waive a default in the payment of principal of, premium, if any, or
interest on the notes or
(vii) reduce the percentage or aggregate principal amount of outstanding
notes the consent of whose holders is necessary for waiver of
compliance with certain provisions of the indenture or for waiver of
certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The indenture provides that no recourse for the payment of the principal of,
premium, if any, or interest on any of the notes or for any claim based thereon
or otherwise in respect thereof, and no recourse under or upon any obligation,
covenant or agreement of Viatel in the indenture, or in the notes or because of
the creation of any Indebtedness represented thereby, shall be had against any
incorporator, stockholder, officer, director, employee or controlling person of
Viatel or of any successor Person thereof. Each holder, by accepting the notes,
waives and releases all such liability.
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CONCERNING THE TRUSTEE
The indenture provides that, except during the continuance of a Default, the
trustee will not be liable, except for the performance of such duties as are
specifically set forth in the indenture. If an Event of Default has occurred and
is continuing, the trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the trustee, should it
become a creditor of Viatel, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims, as
security or otherwise. The trustee is permitted to engage in other transactions;
PROVIDED, HOWEVER, that if it acquires any conflicting interest, it must
eliminate such conflict or resign.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary sets forth the opinion of Kelley Drye & Warren LLP,
counsel to Viatel, as to the material U.S. federal income tax consequences, as
of the date hereof, of an investment in the notes. This summary is based on
current provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), applicable regulations of the U.S. Department of the
Treasury ("Treasury Regulations"), judicial authority and current administrative
rulings and pronouncements of the Internal Revenue Service, all of which are
subject to change, possibly with retroactive effect. There can be no assurance
that the Internal Revenue Service will not take views contrary to those
summarized below, and no ruling from the Internal Revenue Service has been or
will be sought by Viatel.
This summary does not purport to deal with all aspects of taxation that may
be relevant to particular holders of the notes in light of their personal
investment or tax circumstances, or to certain types of investors subject to
special treatment under the U.S. federal income tax laws (including individual
retirement and other tax deferred accounts, insurance companies, financial
institutions, broker-dealers, tax-exempt organizations, holders holding the
notes as part of a hedge, straddle or conversion transaction or holders whose
functional currency is not the U.S. dollar). In addition, except as otherwise
discussed, this summary deals only with notes acquired by investors at their
initial issue price in this offering, as defined herein and held as capital
assets within the meaning of Section 1221 of the Internal Revenue Code.
For purposes of this discussion, the term "U.S. Holder" means a beneficial
owner of a note that is a citizen or resident of the United States, a
corporation or other entity taxable as a corporation created or organized in the
United States or under the laws of the United States or any political
subdivision thereof, an estate the income of which is includible in gross income
for U.S. federal income tax purposes regardless of its source, or a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons has the authority to
control all substantial decisions of the trust. The term "Non-U.S. Holder" means
any person other than a U.S. Holder. If an entity treated as a partnership for
U.S. federal income tax purposes purchases a note, the tax treatment of a
partner will generally depend upon the status of the partner and upon the
activities of the partnership. Partners of partnerships purchasing notes should
consult their tax advisors.
THE FOLLOWING DISCUSSION IS FOR GENERAL INFORMATION ONLY. THE TAX TREATMENT
MAY VARY DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT
THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CONSEQUENCES TO U.S. HOLDERS OF OWNING THE NOTES
THE EXCHANGE. The exchange of existing notes for exchange notes pursuant to
this exchange offer will not be a taxable event for U.S. federal income tax
purposes. As a result, there will not be any material U.S. federal income tax
consequences to a holder exchanging existing notes pursuant to this exchange
offer. Because each exchange note is a continuation of the corresponding
existing note, the remainder of this discussion of certain U.S. federal income
tax consequences generally refers only to "notes."
CHARACTERIZATION OF THE NOTES. We intend to treat the notes as debt for
U.S. federal income tax purposes. However, it is possible that the Internal
Revenue Service will contend that the notes should be treated as an equity
interest in, rather than debt of, Viatel, in which case the tax consequences to
holders of the notes will be different from those described herein, including,
in the case of Non-U.S.
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Holders, ineligibility for the portfolio interest exception from U.S.
withholding tax. Holders are urged to consult their own tax advisors with
respect to the possibility that the notes will be determined to be equity rather
than debt, and the potential consequences of any such determination. The
remainder of this summary assumes that the notes will constitute debt of Viatel
for such tax purposes.
PAYMENTS OF STATED INTEREST ON THE NOTES. Payments of interest on a note
that constitute "qualified stated interest" (as defined below) will generally be
taxable to a holder as ordinary interest income at the time it accrues or is
received, in accordance with the holder's regular method of accounting for
federal income tax purposes.
ISSUE PRICE. For U.S. federal tax purposes, the issue price of the notes
will be the first price at which a substantial amount of the notes is sold to
the public (excluding sales to bond houses, brokers or similar persons acting as
underwriters, placement agents or wholesalers), provided that the notes issued
in connection with this offering constitute a "substantial amount" of the
aggregate amount of notes issued in connection with this offering and the
exchange offer. There is no authority directly on point as to what constitutes a
"substantial amount" in this context, although in a related context, the term
has been defined to mean ten percent. The notes issued in this offering will
represent more than ten percent of the aggregate amount of the notes issued in
this offering and the exchange offer.
ORIGINAL ISSUE DISCOUNT. Because the "issue price" of the notes will be
less than their "stated redemption price at maturity," the notes will be treated
as issued with OID, and, subject to the discussion regarding "de minimis OID,"
below, each holder will be required to include in income (regardless of whether
such holder is a cash or accrual basis taxpayer) in each taxable year, in
advance of the receipt of corresponding cash payments on such notes, that
portion of the OID, computed on a constant yield basis as described below,
attributable to each day during such year on which the holder held the notes.
The amount of OID with respect to each note will be equal to the excess of
(i) its "stated redemption price at maturity" over (ii) its issue price. Under
applicable Treasury Regulations, the stated redemption price at maturity of each
note will include all payments to be made in respect thereof, including payments
of the principal amount and any stated interest payments other than payments of
"qualified stated interest." Payments of qualified stated interest are payments
of interest which are unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually at a qualifying rate,
including a single fixed rate over the entire term of a note.
A holder of a debt instrument issued with OID generally is required to
include in gross income for U.S. federal income tax purposes an amount equal to
the sum of the "daily portions" of such OID for all days during the taxable year
on which the holder holds the debt instrument. However, if the amount of OID
determined as described above is "DE MINIMIS OID," then the notes will be
treated as if there is no OID. The notes will have DE MINIMIS OID if the total
amount thereof is less than the product of (a) 0.25%, (b) the number of full
years from the issue date to the maturity date of the note and (c) the stated
redemption price at maturity. Holders of notes issued with "DE MINIMIS OID"
generally must include the DE MINIMIS OID in income at the time payments (other
than qualified stated interest) on the notes are made in proportion to the
amount paid. Any amount of DE MINIMIS OID included in income will generally be
treated as capital gain.
The daily portions of OID required to be included in a holder's gross income
in a taxable year will be determined upon a constant-yield basis by allocating
to each day during the taxable year on which the holder holds the debt
instrument a pro-rata portion of the OID on such debt instrument which is
attributable to the "accrual period" in which such day is included. An accrual
period with respect to a note may be any length and may vary in length over the
term of the note as long as (i) no accrual period is longer than one year and
(ii) each scheduled payment of interest or principal on the note occurs on
either the final or first day of an accrual period. The amount of the OID
attributable to any "accrual period" will be an amount equal to the excess, if
any, of (a) the product of the "adjusted issue price" of the note at the
beginning of such accrual period and the "yield to maturity" of the debt
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instrument (stated in a manner appropriately taking into account the length of
the accrual period) over (b) the amount of any qualified stated interest
allocable to the accrual period. The "yield to maturity" is the discount rate
that, when used in computing the present value of all payments to be made under
the notes, produces an amount equal to the issue price of the notes. The
"adjusted issue price" of a debt instrument at the beginning of an accrual
period is defined generally as the issue price of a debt instrument plus the
aggregate amount of OID that accrued in all prior accrual periods, less any cash
payments on the debt instrument other than payments of qualified stated
interest. Accordingly, a holder of a note will be required to include OID in
gross income for U.S. federal income tax purposes in advance of the receipt of
cash in respect of such income. In general, payments on a note issued with OID,
other than payments of qualified stated interest, will be treated first as a
payment of accrued but previously unpaid OID, to the extent thereof, and then as
payment of principal. A holder's tax basis in the notes will be increased by any
amounts of OID included in income by such holder, and will be decreased by any
payments received by such holder with respect to the notes, other than payments
of qualified stated interest. The amount of OID allocable to an initial short
accrual period may be computed using any reasonable method if all other accrual
periods, other than a final short accrual period, are of equal length. The
amount of OID allocable to the final accrual period at maturity of the note will
be the difference between (i) the amount payable at maturity of the note, and
(ii) the note's adjusted issue price as of the beginning of the final accrual
period.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS. If the yield to maturity on the
notes equals or exceeds the sum of (x) the AFR (as determined under
Section 1274(d) of the Internal Revenue Code) in effect for the month in which
the notes are issued and (y) five percent, and the OID on the notes is
"significant," the notes will be considered "applicable high yield discount
obligations" ("AHYDOs"). A debt instrument generally has "significant" OID if,
as of the close of any accrual period ending more than five years after the date
of issue, the excess of the interest (including OID) that has accrued on the
obligation over the interest (including OID) that is required to be paid
thereunder exceeds the product of the issue price of the instrument and its
yield to maturity. If the notes are AHYDOs, we will not be entitled to a
deduction for OID accrued on such notes for U.S. federal income tax purposes
until such time as we actually pay the accrued OID. In addition, if the yield to
maturity on the notes exceeds the sum of (x) the AFR and (y) six percent (such
excess referred to as the "disqualified yield"), the deduction for OID accrued
on the notes will be permanently disallowed to the extent such OID is
attributable to disqualified yield on the notes ("dividend-equivalent
interest"). Solely for purposes of the dividends-received deduction (and not for
purposes of determining the amount includible in income), such
dividend-equivalent interest will be treated as a dividend to the extent it is
deemed to have been paid out of our current or accumulated earnings and profits,
if any. Accordingly, a holder that is a corporation may be entitled to a
dividends-received deduction with respect to any dividend-equivalent interest
received by such corporate holder in respect of the notes.
MARKET DISCOUNT, ACQUISITION PREMIUM
If a holder acquires a note for an amount that is less than its revised
issue price (generally, adjusted issue price at the time of acquisition), the
amount of the difference will be treated as "market discount," unless such
difference is less than a specified de minimis amount. Under the market discount
rules of the Internal Revenue Code, a holder will be required to treat any
principal payment on, or any gain on the sale, exchange, retirement or other
disposition (including a gift) of, a note as ordinary income to the extent of
any accrued market discount that has not previously been included in income.
Market discount generally accrues on a straight-line basis over the remaining
term of the note unless the holder elects to accrue market discount on a
constant yield method based on compounding interest. A holder may not be allowed
to deduct immediately all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or to carry such note.
A holder may elect to include market discount in income currently as it
accrues (either on a straight-line basis or, if the holder so elects, on a
constant-yield basis), in which case the interest
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deferral rule set forth in the preceding paragraph will not apply. Such an
election will apply to all market discount bonds acquired by the holder on or
after the first day of the first taxable year to which such election applies and
may be revoked only with the consent of the Internal Revenue Service.
A holder that acquires a note for an amount that is greater than the
adjusted issue price of such note, but equal to or less than the sum of all
amounts payable on such note after the purchase date (other than payments of
qualified stated interest), will be considered to have purchased such note at an
"acquisition premium." Under the acquisition premium rules of the Internal
Revenue Code and the Treasury Regulations issued under such rules, the daily
portion of OID which such holder must include in its gross income with respect
to such note for any taxable year will be reduced by an amount equal to the OID
multiplied by a fraction, the numerator of which is the amount of such
acquisition premium and the denominator of which is the OID remaining for the
period from the date the note was purchased to its maturity date.
AMORTIZATION OF BOND PREMIUM
A holder that purchases a note for an amount in excess of the sum of all
remaining payments due on the note after the purchase date (other than payments
of qualified stated interest) will be considered to have purchased the note at a
premium. Such holder may elect to amortize such premium (as an offset to
interest income), using a constant-yield method, over the remaining term of the
note, subject to special rules for early redemption provisions. Such election,
once made, generally applies to all debt instruments held or subsequently
acquired by the holder on or after the first day of the first taxable year to
which such election applies and may be revoked only with the consent of the
Internal Revenue Service. A holder that elects to amortize such premium must
reduce its tax basis in the note by the amount of the premium amortized during
its holding period. If a holder does not elect to amortize bond premium, the
amount of such premium will be included in the holder's tax basis for purposes
of computing gain or loss in connection with a taxable disposition of the note.
ADDITIONAL INTEREST. Because the notes provide for the payment of
additional interest if we fail to consummate the registered exchange offer or to
cause the shelf registration statement to be declared effective as described
above under "Description of the Notes," the notes could be subject to Treasury
Regulations that apply to debt instruments that provide for one or more
contingent payments. Under those Treasury Regulations, however, a payment is not
a contingent payment merely because it is subject to a contingency that, as of
the issue date, is either "remote" or "incidental." We believe that the
likelihood of the payment of additional interest is remote and do not intend to
treat the possibility of a change in the interest rate as affecting the yield to
maturity on the notes. Our determination that such payments are a remote
contingency for these purposes is binding on a holder unless the holder
discloses in the proper manner to the Internal Revenue Service that it is taking
a different position. If, however, the interest rate was increased because of a
failure to consummate the registered exchange offer or to cause the shelf
registration statement to be declared effective, a holder would be required to
include in gross income any increased amount of interest, possibly in advance of
the receipt of cash relating thereto. Prospective investors should consult their
tax advisors as to the tax considerations relating to the payment of additional
interest, in particular in connection with the Treasury Regulations relating to
contingent payment instruments.
MANDATORY AND OPTIONAL REDEMPTIONS. We may redeem the notes or may become
obligated to offer to redeem the notes, in whole or in part, at certain times
and under certain circumstances described elsewhere herein. The Treasury
Regulations issued under the provisions of the Internal Revenue Code relating to
OID contain rules for determining the yield and maturity of debt instruments
that are subject to certain options or other contingent payments. Pursuant to
those regulations, we believe that neither we nor any holders of notes should be
deemed to exercise any of the options described in this offering memorandum, and
thus, the existence of these options should not affect the calculation of the
yield and maturity of the notes.
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SALE OR OTHER DISPOSITION. In general, upon the sale, exchange or
redemption of a note, a holder will recognize taxable gain or loss equal to the
difference between (i) the amount of cash proceeds and the fair market value of
any property received on the sale, exchange or redemption (not including any
amount attributable to accrued but unpaid qualified stated interest, which will
be taxable as described above) and (ii) the holder's adjusted tax basis in the
note. A holder's adjusted tax basis in a note generally will equal the cost of
the note to such holder, increased by the amount of any market discount and OID
previously taken into income by the holder and reduced by the amount of any
amortized bond premium and all payments received by the holder (other than
payments of qualified stated interest).
Except with respect to accrued market discount on the notes, if any, as
described above, gain or loss recognized on the sale, exchange or redemption of
a note generally will be capital gain or loss, and will be long-term capital
gain or loss if the note is held for more than one year, or short-term capital
gain or loss if the note is held for one year or less.
CONSEQUENCES TO NON-U.S. HOLDERS
NON-U.S. HOLDERS. In general, payments of principal or interest (including
OID) on the notes by us or any paying agent to a beneficial owner of a note that
is a Non-U.S. Holder will not be subject to U.S. withholding tax, provided that,
in the case of interest or accrued OID, (i) such Non-U.S. Holder does not own,
actually or constructively, 10% or more of the total combined voting power of
all classes of our stock entitled to vote, within the meaning of
Section 871(h)(3) of the Internal Revenue Code, (ii) such Non-U.S. Holder is not
a controlled foreign corporation that is related, directly or indirectly, to
Viatel through stock ownership, (iii) such Non-U.S. Holder is not a bank
receiving interest described in Section 881(c)(3)(A) of the Internal Revenue
Code, and (iv) the certification requirements under Section 871(h) or
Section 881(c) of the Internal Revenue Code and the Treasury Regulations
thereunder (summarized below) are satisfied.
A Non-U.S. Holder of a note will not be subject to U.S. federal income tax
on gains realized on the sale, exchange or other disposition of such note (other
than amounts attributable to accrued but unpaid qualified stated interest or
OID, which may be subject to the rules regarding interest described above)
unless (i) the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of the sale, exchange or other
disposition, and certain conditions are met, (ii) the gain is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business in the
United States or, if certain tax treaties apply, is attributable to a U.S.
permanent establishment maintained by the Non-U.S. Holder, or (iii) the Non-U.S.
Holder is subject to Internal Revenue Code provisions applicable to certain U.S.
expatriates.
A note held by an individual who is not a citizen or resident of the United
States at the time of his death will not be subject to U.S. estate tax as a
result of the individual's death, provided that, at the time of such
individual's death, the individual does not own, actually or constructively, 10%
or more of the total, combined voting power of all classes of our stock entitled
to vote and payments with respect to such note would not have been effectively
connected with the conduct by such individual of a trade or business in the
United States.
To satisfy the certification requirements noted above, (i) the beneficial
owner of a note must certify, under penalties of perjury, to us or our paying
agent that the owner is a Non-U.S. Holder and must provide the owner's name and
address, and U.S. taxpayer identification number ("TIN"), if any, which
certification may be made on IRS Form W-8BEN, or (ii) a securities clearing
organization, bank or other financial institution that holds customer securities
in the ordinary course of its trade or business (a "Financial Institution") and
holds the note on behalf of the beneficial owner must certify, under penalties
of perjury, to us or our paying agent that such certificate has been received
from the beneficial owner and must furnish the payor with a copy thereof.
114
<PAGE>
For payments made after December 31, 2000, in the case of notes held by a
foreign partnership that is not a withholding foreign partnership, the
partnership, in addition to providing an IRS Form W-8IMY, must attach an IRS
Form W-8BEN received from each partner.
If a Non-U.S. Holder of a note is engaged in a trade or business in the
United States, and if interest, including OID, on the note or gain realized on
the sale, exchange or other disposition of the note is effectively connected
with the conduct of the trade or business (or, if a tax treaty applies, is
attributable to a U.S. permanent establishment maintained by the Non-U.S.
Holder), the Non-U.S. Holder, although exempt from U.S. federal withholding tax
(provided that certification requirements are met), will generally be subject to
U.S. federal income tax on the interest, including OID, or gain in the same
manner as if it were a U.S. Holder. In lieu of the certificate described above
(with respect to non-effectively connected interest), the Non-U.S. Holder will
be required to provide us or our paying agent with a properly executed IRS
Form 4224 (or, after December 31, 2000, a Form W-8ECI) in order to claim an
exemption from withholding tax. In addition, if the Non-U.S. Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding at a rate of 31% may apply to payments made in respect
of, and gross proceeds from the sale, exchange or disposition of, a note to a
holder that is not an "exempt recipient" and that fails to provide certain
identifying information (such as the holder's TIN) in the manner required.
Generally, individuals are not exempt recipients, whereas corporations and
certain other entities are exempt recipients. Payments made in respect of a note
must be reported to the Internal Revenue Service, unless the holder is an exempt
recipient or otherwise establishes an exemption.
In the case of payments to a Non-U.S. Holder of interest on a note, backup
withholding and information reporting will not apply if the Non-U.S. Holder
furnishes a certificate of foreign status on IRS Form W-8BEN, W-8ECI or W-8IMY
or otherwise establishes an exemption (provided that neither we nor our paying
agent have actual knowledge, or after December 31, 2000, reason to know, that
the holder is a U.S. Holder or that the conditions of any other exemption are
not in fact satisfied).
Payments of the proceeds of a sale of a note to or through a foreign office
of a broker that is (i) a U.S. person, (ii) a controlled foreign corporation,
(iii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding the
payment was effectively connected with the conduct of a trade or business within
the United States or (iv) with respect to payments made after December 31, 2000,
a foreign partnership with certain connections to the United States, are
currently subject to certain information reporting requirements, but not back-up
withholding, unless the payee is an exempt recipient or the broker has evidence
in its records that the payee is a Non-U.S. Holder and no actual knowledge or,
after December 31, 2000, reason to know that such evidence is false and certain
other conditions are met. Payments of the proceeds of a sale of a note to or
through the U.S. office of a broker will be subject to information reporting and
backup withholding unless the payee certifies under penalties of perjury as to
his or her status as a Non-U.S. Holder and satisfies certain other
qualifications (and no agent or broker who is responsible for receiving or
reviewing such statement has actual knowledge or, after December 31, 2000,
reason to know, that it is incorrect) and provides his or her name and address
or the payee otherwise establishes an exemption.
Non-U.S. Holders should consult their tax advisors regarding the application
of information reporting and backup withholding in their particular situations,
the availability of an exemption therefrom, and the procedure for obtaining such
an exemption, if available. Any amounts withheld under the backup withholding
rules from a payment to a holder of a note will be allowed as a refund or credit
against the holder's U.S. federal income tax, if the required information is
furnished to the Internal Revenue Service.
115
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offers must acknowledge that it will deliver a copy of this
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for existing notes where such existing notes were acquired by such
broker-dealer for its own account as a result of market-making activities or
other trading activities. For a period of 180 days after the closing of the
exchange offers, we will use our best efforts to maintain the effectiveness of
the registration statement of which this prospectus forms a part and to amend
and supplement this prospectus in order to permit this prospectus to be lawfully
delivered by any broker-dealer for use in connection with any such resale. In
addition, until June 8, 2000, all dealers effecting transactions in notes may be
required to deliver a prospectus.
We will not receive any proceeds from the exchange of existing notes for
exchange notes or from the sale of exchange notes by any broker-dealer or any
other person. Exchange notes received by broker-dealers for their own account
pursuant to this exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, and at market prices prevailing at the time of resale, or at the prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker or dealer and/or the purchasers of any exchange notes. Any broker or
dealer that resells exchange notes that were received by it for its own account
pursuant to this exchange offer and any person that participates in the
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit from any such resale of
exchange notes or any commissions or concessions received by any such person may
be deemed to be underwriting compensation under the Securities Act. Each letter
of transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offers other
than commissions or concessions of any broker-dealer and will indemnify holders
of the existing notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Kelley Drye
& Warren LLP, Stamford, Connecticut. James P. Prenetta, Vice President, General
Counsel and Secretary of Viatel, is Of Counsel to Kelley Drye & Warren LLP.
EXPERTS
The consolidated financial statements and schedule of Viatel, Inc. and
subsidiaries as of December 31, 1997 and 1998 and for each of the years in the
three-year period ended December 31, 1998, have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of Destia Communications, Inc. and
subsidiaries as of December 31, 1997 and 1998 and for the three years ended
December 31, 1998, included herein and in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
116
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT US AND DESTIA
We are subject to the informational requirements of the Securities Exchange
Act and in accordance therewith file annual, quarterly and special reports,
proxy statements and other information with the SEC. The registration statement
filed by us with the SEC with respect to the exchange notes and the exhibits
thereto, as well as reports, statements and other information filed or to be
filed by us with the SEC, may be read and copied, at the SEC's public reference
rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please
call 1-800-SEC-0330 for further information on the public reference rooms. Our
filings and the filings of Destia are also available to the public from
commercial document retrieval services and at the web site maintained by the SEC
at "http://www.sec.gov."
We have filed a registration statement on Form S-4 to register with the SEC
the exchange notes to be issued in exchange for the existing notes. This
prospectus is part of that registration statement. As allowed by the SEC's
rules, this prospectus does not contain all of the information you can find in
the registration statement or the exhibits to the registration statement.
You may request a copy of our and Destia's annual, quarterly and special
reports, proxy statements and other information, at no cost, by writing or
telephoning us at the following address:
Viatel, Inc.
Attention: Investor Relations
685 Third Avenue
New York, NY 10017
Telephone: (212) 350-9200
You can get more information by visiting Viatel's web site at
www.viatel.com. Web site materials are not part of this prospectus.
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different from what is contained or incorporated by
reference in this prospectus. You should not assume that the information
contained in this prospectus is accurate as of any date other than the date
hereof.
INCORPORATION OF DOCUMENTS BY REFERENCE
We are incorporating certain information about ourselves into this
prospectus by reference. This means that we can disclose important information
to you by referencing you to a document filed with the SEC. The information
incorporated by reference is considered to be part of this prospectus, except
for any information that is superseded by information that is included in a
subsequently filed document or directly in this document.
This prospectus includes the document (or sections thereof) listed below
that we have previously filed with the SEC and that is not included in or
delivered with this document.
- The "Viatel's Management" and "Principal Stockholders of Viatel" sections
of the Joint Proxy Statement/Prospectus for our 1999 Special Meeting of
Stockholders.
You can obtain copies of the documents incorporated by reference herein
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference into this document. You can also obtain
documents incorporated by reference in this prospectus by requesting them in
writing or by telephone to the address set forth above.
We are also incorporating certain information regarding Destia into this
prospectus by reference. This means that we can disclose information to you
about Destia's historical operations by referring
117
<PAGE>
you to a document Destia filed with the SEC. The information incorporated by
reference is considered to be part of this prospectus, except for any
information that is superseded by information that is included in a subsequently
filed document or directly in this document. YOU SHOULD NOTE THAT THESE
INCORPORATED DOCUMENTS REFLECT DESTIA'S OPERATIONS PRIOR TO OUR ACQUISITION OF
DESTIA. THESE DOCUMENTS DO NOT REFLECT WHAT WILL HAPPEN TO DESTIA'S BUSINESS NOW
THAT IT HAS BEEN ACQUIRED BY US.
This prospectus includes the documents (or sections thereof) listed below
that Destia has previously filed with the SEC and that are not included in or
delivered with this document.
- Destia's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
- Destia's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999;
- Destia's Current Reports on Form 8-K filed on February 2, 1999,
February 18, 1999, April 20, 1999 and August 31, 1999; and
- The "Destia's Management", "Destia Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Destia's Business"
sections of the Joint Proxy Statement/Prospectus for Destia's 1999 Special
Meeting of Stockholders relating to approval of the merger with Viatel.
You can obtain copies of the documents incorporated by reference herein
without charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference into this document. You can also obtain
documents incorporated by reference in this prospectus by requesting them in
writing or by telephone to the Viatel address set forth above.
118
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------------------
<S> <C>
VIATEL, INC. AND SUBSIDIARIES
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-4
Consolidated Statements of Comprehensive Loss for the Years
Ended
December 31, 1996, 1997 and 1998.......................... F-5
Consolidated Statements of Stockholders' Equity (Deficiency)
for the
Years Ended December 31, 1996, 1997 and 1998.............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998.......................... F-7
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1996, 1997 and 1998.................... F-8
Condensed Consolidated Balance Sheets as of September 30,
1999 (Unaudited).......................................... F-22
Condensed Consolidated Statements of Operations for the Nine
Months Ended
September 30, 1998 and September 30, 1999 (Unaudited)..... F-23
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended
September 30, 1998 and September 30, 1999 (Unaudited)..... F-24
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-25
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Viatel, Inc.:
We have audited the accompanying consolidated balance sheets of Viatel, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the related consolidated
statements of operations, comprehensive loss, stockholders' equity (deficiency),
and cash flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Viatel, Inc. and subsidiaries as of December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
New York, New York
February 26, 1999
F-2
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1997 1998
--------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 21,096 $ 329,511
Restricted cash equivalents............................... -- 10,310
Restricted marketable securities, current................. -- 50,870
Marketable securities, current............................ 3,500 171,771
Trade accounts receivable, net of allowance for doubtful
accounts of $1,041 and $3,093, respectively............. 10,981 28,517
Other receivables......................................... 6,505 13,404
Prepaid expenses.......................................... 1,348 2,417
--------- ----------
Total current assets.................................... 43,430 606,800
--------- ----------
Restricted marketable securities, non-current............... -- 83,343
Marketable securities, non-current.......................... 22,547 --
Property and equipment, net................................. 54,094 266,256
Intangible assets, net...................................... 4,338 46,968
Other assets................................................ 2,400 5,744
--------- ----------
$ 126,809 $1,009,111
========= ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accrued telecommunications costs.......................... $ 16,898 $ 26,518
Accounts payable and other accrued expenses............... 10,753 23,656
Property and equipment purchases payable.................. 4,739 97,288
Accrued interest.......................................... -- 12,240
Liability under joint construction agreement.............. -- 9,523
Current installments of notes payable and obligations
under capital leases.................................... 3,373 8,918
--------- ----------
Total current liabilities............................... 35,763 178,143
--------- ----------
Long term liabilities:
Long term debt............................................ 89,855 896,503
Notes payable and obligations under capital leases,
excluding current installments.......................... 8,255 24,636
Equipment purchase obligation............................. 1,500 --
--------- ----------
Total long term liabilities............................. 99,610 921,139
--------- ----------
Series A Redeemable Convertible Preferred Stock, $.01 par
value; Authorized 718,042 Shares; issued and outstanding
no shares and 461,258, respectively....................... -- 47,121
--------- ----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value. Authorized 1,281,958
shares, no shares issued and outstanding................ -- --
Common Stock, $.01 par value. Authorized 150,000,000
shares, issued and outstanding 22,635,267 and 23,184,465
shares, respectively.................................... 226 232
Additional paid-in capital................................ 125,661 128,357
Unearned compensation..................................... (65) --
Accumulated other comprehensive loss...................... (5,356) (6,246)
Accumulated deficit....................................... (129,030) (259,635)
--------- ----------
Total stockholders' deficiency.......................... (8,564) (137,292)
--------- ----------
$ 126,809 $1,009,111
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Communication services revenue.............................. $ 50,419 $ 73,018 $ 135,188
-------- -------- ---------
Operating expenses:
Cost of communication services............................ 42,130 63,504 122,109
Selling, general and administrative expenses.............. 32,866 36,077 44,893
Depreciation and amortization............................. 4,802 7,717 16,268
-------- -------- ---------
Total operating expenses................................ 79,798 107,298 183,270
-------- -------- ---------
Other income (expenses):
Interest income........................................... 1,852 3,686 28,259
Interest expense.......................................... (10,848) (12,450) (79,177)
-------- -------- ---------
Loss before extraordinary loss.............................. (38,375) (43,044) (99,000)
Extraordinary loss on debt prepayment..................... -- -- (28,304)
-------- -------- ---------
Net loss.................................................... (38,375) (43,044) (127,304)
Dividends on redeemable convertible preferred stock....... -- -- (3,301)
-------- -------- ---------
Net loss attributable to common stockholders................ $(38,375) $(43,044) $(130,605)
======== ======== =========
Loss per common share, basic and diluted:
Before extraordinary item............................... $ (2.47) $ (1.90) $ (4.44)
From extraordinary item................................. $ -- $ -- $ (1.23)
-------- -------- ---------
Net loss attributable to common stockholders............ $ (2.47) $ (1.90) $ (5.67)
======== ======== =========
Weighted average common shares outstanding................ 15,514 22,620 23,054
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Net loss.................................................... $(38,375) $(43,044) $(127,304)
Foreign currency translation adjustments.................. (698) (4,494) (890)
-------- -------- ---------
Comprehensive loss.......................................... $(39,073) $(47,538) $(128,194)
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF CLASS A ACCUMULATED
COMMON COMMON CLASS A ADDITIONAL OTHER
STOCK STOCK COMMON COMMON PAID-IN UNEARNED COMPREHENSIVE
SHARES SHARES STOCK STOCK CAPITAL COMPENSATION LOSS
------------------- ---------- -------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................ 10,736,135 2,904,846 $107 $ 29 $ 30,099 $ (78) $ (164)
Issuance of restricted
common stock........ 66,666 -- 1 -- 389 (52) --
Issuance of common
stock, net of
$9,541,954 issue
costs............... 8,667,000 -- 87 -- 94,375 -- --
Conversion of Class A
common stock to
common stock........ 2,904,846 (2,904,846) 29 (29) -- -- --
Stock options
exercised........... 138,579 -- 1 -- 373 -- --
Foreign currency
translation
adjustment.......... -- -- -- -- -- -- (698)
Net loss.............. -- -- -- -- -- -- --
------------------- ---------- ---- ---- -------- ----- ---------
Balance at December
31, 1996............ 22,513,226 -- 225 -- 125,236 (130) (862)
Stock options
exercised........... 122,041 -- 1 -- 425 -- --
Earned compensation... -- -- -- -- -- 65 --
Foreign currency
translation
adjustment.......... -- -- -- -- -- -- (4,494)
Net loss.............. -- -- -- -- -- -- --
------------------- ---------- ---- ---- -------- ----- ---------
Balance at December
31, 1997............ 22,635,267 -- 226 -- 125,661 (65) (5,356)
Stock options
exercised........... 174,198 -- 2 -- 945 -- --
Issuance costs of
Series A Redeemable
Convertible
Preferred Stock..... -- -- -- -- (1,620) -- --
Issuance of common
stock related to
business purchase... 375,000 -- 4 -- 3,371 -- --
Earned compensation... -- -- -- -- -- 65 --
Foreign currency
translation
adjustment.......... -- -- -- -- -- -- (890)
Dividends on
redeemable
convertible
preferred stock..... -- -- -- -- -- -- --
Net loss.............. -- -- -- -- -- -- --
------------------- ---------- ---- ---- -------- ----- ---------
Balance at December
31, 1998............ 23,184,465 -- $232 $ -- $128,357 $-- $ (6,246)
=================== ========== ==== ==== ======== ===== =========
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
------------ ------------
<S> <C> <C>
Balance at January 1,
1996................ $ (47,611) $ (17,618)
Issuance of restricted
common stock........ -- 338
Issuance of common
stock, net of
$9,541,954 issue
costs............... -- 94,462
Conversion of Class A
common stock to
common stock........ -- --
Stock options
exercised........... -- 374
Foreign currency
translation
adjustment.......... -- (698)
Net loss.............. (38,375) (38,375)
------------ ------------
Balance at December
31, 1996............ (85,986) 38,483
Stock options
exercised........... -- 426
Earned compensation... -- 65
Foreign currency
translation
adjustment.......... -- (4,494)
Net loss.............. (43,044) (43,044)
------------ ------------
Balance at December
31, 1997............ (129,030) (8,564)
Stock options
exercised........... -- 947
Issuance costs of
Series A Redeemable
Convertible
Preferred Stock..... -- (1,620)
Issuance of common
stock related to
business purchase... -- 3,375
Earned compensation... -- 65
Foreign currency
translation
adjustment.......... -- (890)
Dividends on
redeemable
convertible
preferred stock..... (3,301) (3,301)
Net loss.............. (127,304) (127,304)
------------ ------------
Balance at December
31, 1998............ $ (259,635) $ (137,292)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (38,375) $ (43,044) $(127,304)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 4,802 7,717 16,268
Accreted interest expense on long term debt............. 10,783 12,479 35,417
Provision for losses on accounts receivable............. 2,225 2,733 4,225
Extraordinary loss on debt repayment.................... -- -- 28,304
Earned compensation..................................... 338 65 65
Changes in assets and liabilities:
Increase in accounts receivable......................... (6,058) (6,221) (20,302)
Increase in accrued interest expense on Senior Notes.... -- -- 11,969
Increase in prepaid expenses and other receivables...... (1,384) (3,482) (8,291)
Increase in other assets and intangible assets.......... (315) (1,022) (12,625)
Increase in accrued telecommunications costs, accounts
payable, and other accrued expenses................... 1,653 8,250 11,956
--------- --------- ---------
Net cash used in operating activities................. (26,331) (22,525) (60,318)
--------- --------- ---------
Cash flows from investing activities:
Purchase of property, equipment and software............ (9,423) (34,190) (94,674)
Payment for business acquired excluding cash acquired of
$364.................................................. -- -- (5,000)
Purchase of marketable securities....................... (30,571) (49,098) (310,625)
Proceeds from maturity of marketable securities......... 38,807 40,124 60,307
Investment in affiliate................................. (102) -- --
Issuance of notes receivable............................ (303) -- --
--------- --------- ---------
Net cash used in investing activities................... (1,592) (43,164) (349,992)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long term debt................ -- -- 845,752
Proceeds from issuance of redeemable convertible
preferred stock....................................... -- -- 42,198
Prepayment of senior discount notes..................... -- -- (119,282)
Deferred financing costs................................ -- -- (31,547)
Proceeds from issuance of Common Stock.................. 94,836 426 947
Borrowings on notes payable............................. -- 11,121 --
Payments under capital leases........................... (64) (525) (5,480)
Repayment of notes payable and bank credit line......... -- (336) (3,553)
Borrowings under bank credit line....................... -- 600 --
--------- --------- ---------
Net cash provided by financing activities............... 94,772 11,286 729,035
--------- --------- ---------
Effects of exchange rate changes on cash.................... 12 (297) --
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents........ 66,861 (54,700) 318,725
Cash and cash equivalents at beginning of year.............. 8,935 75,796 21,096
--------- --------- ---------
Cash and cash equivalents at end of year.................... $ 75,796 $ 21,096 $ 339,821
========= ========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 65 $ 134 $ 31,560
========= ========= =========
Assets acquired under capital lease obligations........... $ 310 $ 1,122 $ 30,359
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Viatel, Inc. (the "Company") is an international facilities-based global
provider of communications services offering international and domestic long
distance telecommunications services, primarily to small and medium-sized
businesses, carriers and resellers. The Company operates a pan-European
communication network with international gateway switching centers in New York
and London and network points of presence throughout Western Europe. The Company
is constructing a fiber optic ring which will connect five European countries
(the "Circe Network").
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation. Investments in affiliates in
which the Company has significant influence but does not exercise control are
accounted for under the equity method.
(C) CASH AND CASH EQUIVALENTS
The Company's policy is to maintain its uninvested cash at minimum levels.
Unrestricted cash equivalents, which include highly liquid debt instruments
purchased with a maturity of three months or less, were $8.2 million and $278.9
million at December 31, 1997 and 1998, respectively.
(D) REVENUE
The Company records communication services revenue as earned, at the time
services are provided. Network capacity sales are recorded at the time the
capacity is provided to the customer.
(E) PROPERTY AND EQUIPMENT
Property and equipment consist principally of telecommunications related
equipment such as switches, fiber optic cable systems, remote nodes and related
computer software and is stated at cost. Assets acquired under capital leases
are stated at the present value of the future minimum lease payments.
Maintenance and repairs are expensed as incurred.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized over
the life of the lease or useful life of the improvement, whichever is shorter.
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Communications systems...................................... 5 to 7 years
Fiber optic cable systems................................... 15 years
Leasehold improvements...................................... 2 to 5 years
Furniture, equipment and other.............................. 5 years
</TABLE>
(F) INTANGIBLE ASSETS
Deferred financing and registration fees represent costs incurred to issue
and register debt and are being amortized over the term of the related debt.
F-8
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Licenses issued by governing bodies are being amortized over the lesser of
25 years or the term of the license.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefitted, five to seven years.
Acquired employee base and sales force in place represents the intangible
assets associated with the acquisition of independent sales organizations and is
being amortized over three years.
The costs of all other intangible assets are being amortized over their
useful lives, ranging from three to seven years.
(G) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income or expense in the period it occurs.
(H) FOREIGN CURRENCY TRANSLATION
Foreign currency assets and liabilities are translated using the exchange
rates in effect at the balance sheet date. Results of operations are translated
using the average exchange rates prevailing throughout the year. The effects of
exchange rate fluctuations on translating foreign currency assets and
liabilities into U.S. dollars are accumulated as part of the foreign currency
translation adjustment in stockholders' equity. Gains and losses from foreign
currency transactions are included in selling, general and administrative
expenses in the period in which they occur. For the years ending December 31,
1996, 1997 and 1998, the Company experienced no material exchange transaction
gains or losses.
(I) NET LOSS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income or loss
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from the exercise or conversion of securities into common stock.
Net loss and weighted average shares outstanding used for computing diluted
loss per common share were the same as that used for computing basic loss per
common share for each of the years ended December 31, 1996, 1997 and 1998.
The Company had potentially dilutive common stock equivalents of 1.0
million, 1.1 million and 7.2 million for the years ended December 31, 1996, 1997
and 1998, respectively. These common stock equivalents were not included in the
computation of diluted net loss per common share because they were antidilutive
for the periods presented.
F-9
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(J) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and trade
receivables. The Company restricts investment of temporary cash investments to
financial institutions with high credit standing. The Company does not believe
there is any concentration of credit risk on trade receivables as a result of
the large and diverse nature of the Company's worldwide customer base.
During 1998, one customer, LD Exchange.com, accounted for 10.6% of the
Company's revenues.
(K) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation.
(L) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(M) ADDITIONAL ACCOUNTING POLICIES
Additional accounting policies are incorporated into the notes herein.
(N) STOCK OPTION PLAN
The Company accounts for its stock option plan in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 123 which allows entities to
continue to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method, as defined in SFAS No. 123, had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosure required by SFAS No. 123. See Note 12.
(O) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-10
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(2) INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and classifies them as held to maturity
or available for sale. These investments are diversified among high credit
quality securities in accordance with the Company's investment policy. Debt
securities that the Company has both the intent and ability to hold to maturity
are carried at amortized cost. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as available for
sale. Securities available for sale are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The Company does not invest in securities for the purpose
of trading and as such does not classify any securities as trading.
The cost of debt securities classified as held to maturity are adjusted for
amortization of premiums and accretion of discounts to maturity over the
estimated life of the security. Such amortization and accretion are included in
interest income. There were no securities classified as held to maturity as of
December 31, 1997 and no securities classified as available for sale as of
December 31, 1998.
The following is a summary of the amortized cost, which approximates fair
value of restricted securities held to maturity at December 31, 1998 (in
thousands):
<TABLE>
<S> <C>
U.S. Treasury obligations................................... $105,508
German government obligations............................... 28,705
--------
Total................................................... $134,213
========
</TABLE>
The following is a summary of the amortized cost, which approximates fair
value of securities held to maturity at December 31, 1998 (in thousands):
<TABLE>
<S> <C>
European corporate debt securities.......................... $122,299
U.S. corporate debt securities.............................. 49,472
--------
Total................................................... $171,771
========
</TABLE>
The following is a summary of the fair value of securities available for
sale at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
U.S. Treasury obligations................................... $ 2,028
Corporate debt securities................................... 13,482
Federal agencies obligations................................ 10,537
-------
Total................................................... $26,047
=======
</TABLE>
Unrealized gains or losses on securities classified as available for sale
are not material at December 31, 1997.
F-11
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(2) INVESTMENTS IN DEBT SECURITIES (CONTINUED)
The amortized cost, which approximates fair value, of restricted securities
held to maturity at December 31, 1998 are shown below (in thousands):
<TABLE>
<S> <C>
Due within one year......................................... $ 50,870
Due after one year through two years........................ 54,328
Due after two years......................................... 29,015
--------
Total................................................... $134,213
========
</TABLE>
There were no changes in the classification of any securities held to
maturity or securities available for sale from the time of purchase to the time
of maturity or sale.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Communications system....................................... $ 43,322 $ 70,971
Construction in progress.................................... 10,094 172,630
Fiber optic cable systems................................... 1,432 25,222
Furniture, equipment and other.............................. 8,924 16,450
Leasehold improvements...................................... 3,254 6,651
-------- --------
67,026 291,924
Less accumulated depreciation and amortization.............. 12,932 25,668
-------- --------
$ 54,094 $266,256
======== ========
</TABLE>
At December 31, 1997, construction in progress represents a portion of the
expansion of the Company's European network. At December 31, 1998, construction
in progress represents construction of the Circe Network. For the years ended
December 31, 1996, 1997 and 1998, $0.1 million, $0.2 million and $3.3 million of
interest was capitalized.
The Company trades indefeasible rights-of-use or capacity on the Circe
Network for indefeasible rights-of-use or capacity on other cable systems. These
trades of indefeasible rights-of-use or capacity are accounted for as
non-monetary exchanges and did not have a material effect on the Company's
statement of operations.
At December 31, 1998, the Company has entered into a letter of intent with
Metromedia Fiber Networks, Inc. and Carrier 1, Inc. to jointly construct the
civil works associated with a national communications networks being constructed
by each party in Germany. As part of the letter of intent, Metromedia Fiber
Networks, Inc. and Carrier 1, Inc. were required to place in escrow with the
Company an amount of $9.3 million which is included in restricted cash
equivalents in the accompanying consolidated balance sheets. In February 1999,
the parties entered into a definitive agreement which required each party to
supply a standby letter of credit to cover the construction costs related to
their portion of the network.
F-12
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(4) INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred financing and registration costs................... $ 3,789 $31,547
Licenses, trademarks and servicemarks....................... 464 10,031
Goodwill.................................................... 474 8,744
Purchased software.......................................... 1,494 1,859
Acquired employee base and sales force in place............. 1,607 --
Other....................................................... 385 206
------- -------
8,213 52,387
Less accumulated amortization............................... 3,875 5,419
------- -------
$ 4,338 $46,968
======= =======
</TABLE>
(5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following as of
December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Accounts payable............................................ $ 6,231 $ 5,566
Accrued expenses............................................ 3,253 16,224
Accrued compensation and benefits........................... 1,269 1,866
------- -------
$10,753 $23,656
======= =======
</TABLE>
(6) LINE OF CREDIT AND LETTERS OF CREDIT
The Company has a revolving line of credit agreement which provides for
secured borrowings of up to $11.2 million. Borrowings under this line of credit
agreement can be made under either of the following interest rate formulas:
(i) the lending institution's prime rate or (ii) the LIBOR rate plus two hundred
basis points. The Company had $0.6 million in borrowings under the line of
credit agreement at December 31, 1997 and no borrowings under the line of credit
agreement at December 31, 1998. The terms of the line of credit agreement
include, among other provisions, requirements for maintaining defined levels of
securities and other liquid collateral. At December 31, 1998, standby letters of
credit of approximately $3.3 million have been issued under this line of credit
agreement.
In connection with the Company's joint construction of the civil works
associated with national communications networks being constructed by each party
in Germany, in February 1999 the Company was required to obtain a letter of
credit of approximately $123 million (DM219.1 million) in support of its
obligations.
The weighted-average interest rate on short-term borrowings under the line
of credit agreement at December 31, 1997 was 8.0%.
F-13
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(7) LONG -TERM LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(A) LONG TERM DEBT AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
On April 8, 1998, the Company completed an offering of units (the "Units
Offering") consisting of senior notes or senior discount notes due 2008 and
shares of 10% Series A Redeemable Convertible Preferred Stock due 2010
("Series A Preferred"), $.01 par value per share, of the Company and units
consisting of senior notes or senior discount notes due 2008 and subordinated
convertible debentures due 2011 (the "Subordinated Debentures") through which it
raised approximately $889.6 million of gross proceeds ($856.6 million of net
proceeds). The Company utilized $118.9 million of the proceeds from the Units
Offering to retire its 15% Senior Discount Notes due 2005 resulting in an
extraordinary loss of $28.3 million. Additionally, a portion of the proceeds
from the Units Offering were used to purchase approximately $122.8 million of
U.S. government securities which were pledged as security for the first six
interest payments on the U.S. dollar denominated senior notes and approximately
$30.6 million of German government obligations which were pledged as security
for the first six interest payments on the Deutsche Mark denominated senior
notes issued in the Units Offering. The senior discount notes accrete through
April 15, 2003 and interest becomes payable in cash in semi-annual installments
thereafter. The interest on the senior notes is payable in semi-annual
installments. The Series A Preferred and the subordinated convertible debentures
require quarterly payments which are paid in additional securities, cash or any
combination thereof through April 15, 2003 and payable in cash thereafter. The
Series A Preferred and the subordinated convertible debentures are mandatorily
convertible in the event the closing price of the Company's common stock exceeds
certain predetermined annual price targets. The Series A Preferred and the
Subordinated Debentures conversion rates are $13.20 and DM24.473 ($14.58),
respectively. In addition, the terms of the Series A Preferred and Subordinated
Debentures provide for special dividends and special interest payments,
respectively, under certain conditions.
The indentures pursuant to which the senior notes and the senior discount
notes were issued contain certain covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay dividends or make
certain other distributions, enter into transactions with stockholders and
affiliates and create liens on its assets. In addition, upon a change of
control, the Company is required to make an offer to purchase the senior notes
and the senior discount notes at a purchase price equal to 101% of the principal
amount, in the case of the senior notes, and 101% of the accreted value of the
notes, in the case of the senior discount notes. The indenture pursuant to which
the subordinated convertible debentures were issued also requires that the
Company offer to repurchase the debentures at 101% of the principal amount in
the event of a change of control.
On September 30, 1998, the Company consummated an offer to exchange senior
notes and senior discount notes due 2008 which have been registered under the
Securities Act of 1933, as amended, for outstanding notes of each such series
which were not registered under the Securities Act of 1933, as amended.
F-14
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(7) LONG -TERM LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
(CONTINUED)
Long term debt consists of the following as of December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
11.25% Senior Notes......................................... $ -- $400,000
11.15% Senior Notes (DM178,000)............................. -- 106,015
12.50% Senior Discount Notes, less discount of $202,716..... -- 297,284
12.40% Senior Discount Notes (DM134,916), less discount of
$54,249
(DM91,084)................................................ -- 80,355
10% Subordinated Convertible Debentures (DM21,573).......... -- 12,849
15% Senior Discount Notes, less discount of $30,845......... 89,855 --
------- --------
$89,855 $896,503
======= ========
</TABLE>
(B) EQUIPMENT FINANCING
In November and December 1997, the Company entered into Loan and Security
Agreements, as amended, with Charter Financial, Inc. ("Charter") pursuant to
which the Company borrowed an aggregate of $11.1 million, of which $7.8 million
was outstanding as of December 31, 1998. Repayment of these loans commenced in
December 1997 and January 1998 and are repayable in thirty-two or thirty-six
successive monthly installments respectively. Under the terms of these
arrangements, the Company is required to satisfy certain EBITDA and unrestricted
cash requirements. As of December 31, 1998, the Company was either in compliance
with, or had received waivers to, these covenants. Obligations under these Loan
and Security Agreements are secured by the grant to Charter of a security
interest in certain designated telecommunications equipment. A portion of the
payment obligations under these borrowing arrangements are also secured by
letters of credit.
(8) STOCKHOLDERS' EQUITY
On October 23, 1996, the Company completed an initial public offering
("IPO") of its Common Stock, through which it sold 8,667,000 shares of Common
Stock at $12 a share and raised approximately $104 million of gross proceeds
($94.5 million of net proceeds).
In connection with the IPO, all shares of then Class A Common Stock were
converted into shares of Common Stock at a ratio of one-to-one and all then
outstanding shares of Common Stock were subject to a reverse stock split at a
ratio of 3-to-2. In addition, the Company's stockholders approved an amendment
to the Company's Certificate of Incorporation which (i) authorized the Board of
Directors to issue up to two million shares of Preferred Stock, $.01 par value
per share, of which no shares were issued and outstanding at December 31, 1996,
in one or more series and to fix the powers, voting rights, designations and
preferences of each series and (ii) eliminated the Class A Common Stock.
All earnings per share and share data presented herein reflect the
conversion of the Class A Common Stock into Common Stock and the reverse stock
split of all then outstanding shares of Common Stock.
(9) ACQUISITION
On February 27, 1998, the Company acquired Flat Rate Communications, Inc.
("Flat Rate"), a long distance telecommunications reseller, for $5.0 million of
cash, 375,000 shares of Common Stock
F-15
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(9) ACQUISITION (CONTINUED)
and a contingent payment based upon key operating performance targets for the
twelve month period ending February 28, 1999 which will range from zero to
$21.0 million in cash and zero to 1.0 million shares of Common Stock. The
Company recorded the acquisition under the purchase method of accounting. The
purchase price has been allocated to the assets acquired and liabilities
assumed, based upon the estimated fair values at the date of acquisition. The
excess purchase price was $8.3 million and will be amortized on a straight line
basis over a five-year period. If the acquisition had occurred on January 1,
1996 (i) communication services revenue for the years 1996, 1997 and 1998 would
have been $53.4 million, $101.8 million and $138.5 million, respectively,
(ii) loss before extraordinary loss for 1998 would have been $(98.9) million,
(iii) net loss attributable to common stockholders for the years 1996, 1997 and
1998 would have been $(38.5) million, $(42.8) million and $(130.5) million,
respectively and (iv) net loss per common share for the years 1996, 1997 and
1998 would have been $(2.43), $(1.86) and $(5.65), respectively.
(10) INCOME TAXES
The statutory Federal tax rates for the years ended December 31, 1996, 1997
and 1998 were 35%. The effective tax rates were zero for the years ended
December 31, 1996, 1997 and 1998 due to the Company incurring net operating
losses for which no tax benefit was recorded.
For Federal and foreign income tax purposes, the Company has unused net
operating loss carryforwards of approximately $218.8 million expiring in 2007
through 2018. The availability of the net operating loss carryforwards to offset
income in future years is restricted as a result of the Company's issuance of
its Common Stock and may be further restricted as a result of future sales of
Company stock and other events.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Accounts receivable principally due to
allowance for doubtful accounts....................... $ 587 $ 1,506
OID Interest not deductible in current period........... 11,149 11,125
Federal net operating loss carryforwards................ 29,093 68,579
Foreign net operating loss carryforwards................ 3,777 7,989
-------- --------
Total gross deferred tax assets................... 44,606 89,199
Less valuation allowance................................ (44,606) (89,199)
-------- --------
Net deferred tax assets........................... $ -- $ --
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning in making these assessments. During 1997 and 1998, the
valuation allowance increased by $14.7 million and $44.6 million, respectively.
F-16
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(11) SEGMENT AND GEOGRAPHIC DATA
All of the Company's operations are in a single industry segment,
communications services. While the Company's chief decision maker monitors the
revenue streams of the various products and geographic locations, operations are
managed and financial performance is evaluated based on the delivery of
multiple, integrated services to customers over a single network. As a result,
there are many shared expenses generated by the various revenue streams and
management believes that any allocation of the expenses incurred to multiple
revenue streams or geographic locations would be impractical and arbitrary.
Management does not currently make such allocations internally.
The Company groups its products and services by two customers types,
wholesale and retail. The information below summarizes communication services
revenue by customer type (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Wholesale................................................... $ 9,516 $20,397 $ 78,777
Retail...................................................... 40,903 52,621 56,411
------- ------- --------
Consolidated................................................ $50,419 $73,018 $135,188
======= ======= ========
</TABLE>
The information below summarizes communication services revenue by
geographic area (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Western Europe.............................................. $ 19,917 $32,647 $ 62,946
North America............................................... 9,516 15,936 56,172
Latin America............................................... 14,402 16,240 14,653
Asia/Pacific Rim and other.................................. 6,584 8,195 1,417
-------- ------- --------
Consolidated.............................................. $ 50,419 $73,018 $135,188
======== ======= ========
</TABLE>
The information below summarizes long lived assets by geographic area (in
thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Western Europe.............................................. $32,640 $237,443
North America............................................... 25,626 75,492
Latin America............................................... 166 289
------- --------
Consolidated................................................ $58,432 $313,224
======= ========
</TABLE>
(12) STOCK OPTION PLAN
During 1993, the Board of Directors approved the 1993 Flexible Stock
Incentive Plan, as amended (the "Stock Incentive Plan") under which
"non-qualified" stock options ("NQSOs") to acquire shares of Common Stock may be
granted to employees, directors and consultants of the Company and "incentive"
stock options ("ISOs") to acquire shares of Common Stock may be granted to
employees, including non-employee directors. The Stock Incentive Plan also
provides for the grant of stock appreciation rights ("SARs") and shares of
restricted stock to the Company's employees, directors and consultants.
The Stock Incentive Plan provides for the issuance of up to a maximum of
4,166,666 shares of Common Stock and is currently administered by the
Compensation Committee of the Board of Directors. Under the Stock Incentive
Plan, the option price of any ISO may not be less than the fair
F-17
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(12) STOCK OPTION PLAN (CONTINUED)
market value of a share of Common Stock on the date on which the option is
granted. The option price of an NQSO may be less than the fair market value on
the date the NQSO is granted if the Board of Directors so determines. An ISO may
not be granted to a "ten percent stockholder" (as such term is defined in
Section 422A of the Internal Revenue Code) unless the exercise price is at least
110% of the fair market value of the Common Stock and the term of the option may
not exceed five years from the date of grant. Common Stock subject to a
restricted stock purchase or bonus agreement is transferable only as provided in
such agreement. The maximum term of each stock option granted to persons other
than ten percent stockholders is ten years from the date of grant.
The per share weighted average fair value of stock options granted during
1996, 1997 and 1998 was $2.29, $5.99 and $6.40, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
assumptions: (1) a risk free interest rate of 5.5% in 1996 and 1997 and 5.0% in
1998, (2) an expected life of 10 years for all years, (3) volatility of
approximately 35.9% for 1996, 52.2% for 1997 and 92.7% for 1998 and (4) an
annual dividend yield of 0% for all years.
The Company applies the provisions of APB Opinion No. 25 in accounting for
its Stock Incentive Plan and, accordingly, no compensation cost has been
recognized for its stock options in the financial statements since the exercise
price was equal to or greater than the fair market value at the date of grant.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Net loss, as reported (in thousands).......... $(38,375) $(43,044) $(130,605)
Net loss, pro forma (in thousands)............ (38,986) (44,171) (135,458)
Net loss per common share, as reported........ (2.47) (1.90) (5.67)
Net loss per common share, pro forma.......... (2.51) (1.95) (5.88)
</TABLE>
Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts because
compensation cost is reflected over the options' vesting period of three years
and compensation cost for options granted prior to January 1, 1995 is not
considered.
F-18
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(12) STOCK OPTION PLAN (CONTINUED)
Stock option activity under the Stock Incentive Plan is shown below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER OF
EXERCISE SHARES
PRICES (IN THOUSANDS)
-------- --------------
<S> <C> <C>
Outstanding at January 1, 1996.............................. 4.01 474
Granted..................................................... 6.75 823
Forfeited................................................... 5.77 (188)
Exercised................................................... 2.70 (139)
----- ------
Outstanding at December 31, 1996............................ 6.18 970
Granted..................................................... 8.61 428
Forfeited................................................... 6.68 (197)
Expired..................................................... 5.46 (27)
Exercised................................................... 3.49 (122)
----- ------
Outstanding at December 31, 1997............................ 7.40 1,052
Granted..................................................... 7.19 1,794
Forfeited................................................... 7.14 (64)
Expired..................................................... 5.05 (14)
Exercised................................................... 5.44 (174)
----- ------
Outstanding at December 31, 1998............................ 7.41 2,594
===== ======
</TABLE>
The following table summarizes weighted-average option exercise price
information:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
NUMBER ----------------------------
OUTSTANDING AT WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF DECEMBER 31, AVERAGE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE 1998 REMAINING EXERCISE DECEMBER 31, 1998 EXERCISE
PRICES (IN THOUSANDS) LIFE PRICE (IN THOUSANDS) PRICE
-------------------------- -------------- --------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$0.75 - $3.50 2 5 Years 0.75 2 0.75
3.51 - 5.75 999 9 Years 5.22 19 3.74
5.76 - 8.75 552 8 Years 6.17 291 5.90
8.76 - 12.00 1,041 9 Years 10.13 148 10.22
----- ----- --- -----
2,594 7.41 460 7.18
===== ===== === =====
</TABLE>
Prior to the adoption of the Stock Incentive Plan, 5,913 options were
granted. These options were exercised at $0.75 per share during the year ended
December 31, 1996.
The exercise price of all options approximates the fair market value of the
Common Stock on the date of grant.
In addition, prior to the adoption of the Stock Incentive Plan, the Board of
Directors authorized the issuance of up to 233,333 shares of Common Stock as
compensation to employees and consultants of the Company of which 219,639 are
available for issuance at December 31, 1998.
F-19
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(13) COMMITMENTS AND CONTINGENCIES
(A) LEASES
At December 31, 1998, the Company was committed under non-cancelable
operating and capital leases for the rental of office space, network locations
and for fiber optic cable systems.
The Company's future minimum capital and operating lease payments are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ---------
<S> <C> <C>
1999..................................................... $ 6,890 $ 3,917
2000..................................................... 6,952 4,277
2001..................................................... 4,372 4,206
2002..................................................... 1,635 4,263
2003..................................................... 1,635 4,231
Thereafter............................................... 32,692 28,853
------- -------
54,176 $49,747
=======
Less interest costs...................................... 28,453
-------
$25,723
=======
</TABLE>
Total rent expense amounted to $1.5 million, $1.3 million and $1.8 million
for the years ended December 31, 1996, 1997 and 1998, respectively.
(B) CARRIER CONTRACTS
The Company has entered into contracts to purchase transmission capacity
from various domestic and foreign carriers. By committing to purchase minimum
volumes of transmission capacity from carriers, the Company is able to obtain
guaranteed rates which are more favorable than those generally offered in the
marketplace. The minimum volume commitments are approximately $13.2 million for
the year ending December 31, 1999. The Company is involved in disputes with
carriers arising in the ordinary course of business. The Company believes the
outcome of all current disputes will not have a material effect on the Company's
financial position or results of operations.
(C) PURCHASE COMMITMENTS
The Company is continually upgrading and expanding its network and its
switching facilities. In connection therewith, the Company has entered into
purchase commitments to expend approximately $38.2 million.
The Company is developing a fiber-optic ring which will connect over 30
cities in Western Europe (the "Circe Network"). In connection with the Circe
Network, the Company has entered into purchase commitments to expend
approximately $130.6 million.
(D) EMPLOYMENT CONTRACTS
The Company has employment contracts with certain officers at amounts
generally equal to such officers' current levels of compensation. The Company's
remaining commitments at December 31, 1998 for the next three years under such
contracts aggregates approximately $1.4 million.
F-20
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
(E) LITIGATION
From time to time, the Company is subject to litigation in the normal course
of business. The Company believes that any adverse outcome from litigation would
not have a material adverse effect on its financial position or results of
operations.
(14) REGULATORY MATTERS
The Company is subject to regulation in countries in which it does business.
The Company believes that an adverse determination as to the permissibility of
the Company's services under the laws and regulations of any such country would
not have a material adverse long-term effect on its business.
(15) RELATED PARTY TRANSACTIONS
During 1998, the Company entered into an agreement with Cignal Global
Communications, Inc. ("Cignal"), pursuant to which the Company sold
transatlantic capacity. Consideration received was in the form of
650,000 shares of Cignal's common stock. The Company recognized $3.25 million of
revenue, the fair value of the transatlantic capacity. In addition, the Company
agreed to sell capacity on the Circe Network in exchange for an additional
350,000 shares of Cignal's common stock. Pending delivery of the capacity to
Cignal, these 350,000 shares are being held in escrow. The Company's Chairman
and Chief Executive Officer is a director of Cignal.
On June 3, 1998, the Company entered into a Mutual Cooperation Agreement
with Martin Varsavsky, a greater than ten percent stockholder of the Company,
and Jazz Telecom S.A. pursuant to which the parties made certain agreements
including the following: (1) subject to Jazz Telecom S.A. completing a high
yield offering with net proceeds to Jazz Telecom S.A. of at least $100 million
(the "Offering Condition"), the Company and Jazz Telecom S.A. agreed to use
commercially reasonable efforts to execute and deliver a construction agreement
no later than January 1, 1999 to construct a fiber optic submarine cable system
between Spain and the United Kingdom, (2) subject to the Offering Condition the
Company agreed to purchase $6.0 million of Jazz Telecom S.A. common stock,
(3) the Company and Jazz Telecom S.A. agreed to the purchase from the other
international switched minutes and to transmit at least one-third of our Spanish
domestic switched minute traffic over Jazz Telecom S.A.'s network, assuming the
prices charged by Jazz Telecom S. A. are competitive, (4) the Company and Jazz
Telecom S.A. agreed to sell capacity to each other for fixed prices,
(5) Mr. Varsavsky agreed to lock-up his Viatel shares for a specified period,
(6) the Company agreed to release any past claims which the Company had against
either Jazz Telecom S.A. and Mr. Varsavsky in exchange for their respective
release of any claims against the Company and (7) Mr. Varsavsky agreed to pay
the Company liquidated damages in the event that he violates certain provisions
of the agreement. The Company and Jazz Telecom S.A. are currently in discussions
to certain modifications to the terms of the Mutual Corporation Agreement.
On November 13, 1998, Mr. Varsavsky entered into an additional lock-up
agreement with us pursuant to which Mr. Varsavsky agreed that he would not sell,
contract to sell, announce an intention to sell, pledge or otherwise dispose of
his shares of our common stock, either directly or indirectly, without the prior
written consent of the Company until after August 12, 1999.
F-21
<PAGE>
VIATEL , INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 434,936
Restricted cash equivalents............................... 5,447
Restricted marketable securities, current................. 66,569
Trade accounts receivable, net of allowance for doubtful
accounts of $6,013...................................... 60,995
Other receivables......................................... 42,610
Prepaid expenses.......................................... 10,277
----------
Total current assets.................................... 620,834
----------
Restricted marketable securities, non-current............... 96,848
Property and equipment, net................................. 715,483
Cash securing letters of credit for network construction.... 79,537
Intangible assets, net...................................... 66,506
Other assets................................................ 15,193
----------
$1,594,401
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accrued telecommunications costs.......................... $ 34,896
Accounts payable and other accrued expenses............... 64,051
Property and equipment purchases payable.................. 196,814
Accrued interest.......................................... 28,500
Current installments of notes payable and obligations
under capital leases.................................... 12,259
----------
Total current liabilities............................... 336,520
----------
Long-term liabilities:
Long- term debt........................................... 1,262,491
Notes payable and obligations under capital leases,
excluding current installments.......................... 28,109
----------
Total long-term liabilities............................. 1,290,600
----------
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value. Authorized 150,000,000
shares, issued and outstanding 32,627,144 shares........ 326
Additional paid-in capital................................ 389,845
Unearned compensation..................................... (6,115)
Accumulated other comprehensive loss...................... (24,968)
Accumulated deficit....................................... (391,807)
----------
Total stockholders' (deficiency)........................ (32,719)
----------
$1,594,401
==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-22
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1998 1999
-------- ---------
<S> <C> <C>
Revenue:
Communication services revenue.............................. $ 86,133 $ 151,204
Capacity sales.............................................. -- 59,173
-------- ---------
Total revenue......................................... 86,133 210,377
-------- ---------
Operating expenses:
Cost of services and sales................................ 77,624 162,858
Selling, general and administrative....................... 31,057 63,380
Depreciation and amortization............................. 10,706 39,039
-------- ---------
Total operating expenses.............................. 119,387 265,277
-------- ---------
Other income (expense):
Interest income........................................... 19,906 21,413
Interest expense.......................................... (52,715) (97,344)
-------- ---------
Loss before extraordinary loss.............................. (66,063) (130,831)
Extraordinary loss on debt prepayment..................... (28,304) --
-------- ---------
Net loss.................................................... (94,367) (130,831)
Dividend on redeemable convertible preferred stock........ (2,131) (1,341)
-------- ---------
Net loss attributable to common stockholders................ $(96,498) $(132,172)
======== =========
Loss per common share, basic and diluted:
Before extraordinary item................................. $ (2.96) $ (4.85)
From extraordinary item................................... (1.23) --
-------- ---------
Net loss attributable to common stockholders................ $ (4.19) $ (4.85)
======== =========
Weighted average common shares outstanding, basic and
diluted................................................... 23,013 27,250
======== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-23
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (94,367) $(130,831)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 10,706 39,039
Accreted interest expense on long term debt............. 24,016 28,449
Provision for losses on accounts receivable............. 3,149 6,076
Extraordinary loss on debt prepayment................... 28,304 --
Earned compensation..................................... 49 436
Changes in assets and liabilities:
Increase in accounts receivable and accrued interest.... (17,505) (37,962)
Increase in accrued interest expense on Senior Notes.... 27,312 16,261
(Increase) decrease in prepaid expenses and other
receivables........................................... (4,952) (41,077)
Increase in other assets and intangible assets.......... (364) (2,000)
Increase in accrued telecommunication costs, accounts
payable and other accrued expenses.................... 10,151 56,596
--------- ---------
Net cash used in operating activities................. (13,501) (65,013)
--------- ---------
Cash flows from investing activities:
Purchase of property, equipment and software.............. (33,994) (372,305)
Payment for business acquired, net of cash acquired....... (5,000) (12,000)
Purchase of marketable securities......................... (144,458) (224,210)
Proceeds from maturity of marketable securities........... 34,776 322,425
Cash securing letters of credit........................... -- (79,537)
Issuance of notes receivable.............................. -- (7,711)
--------- ---------
Net cash used in investing activities................. (148,676) (373,338)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of senior notes and senior discount
notes................................................... 845,752 365,471
Proceeds from issuance of convertible debentures and
convertible preferred stock............................. 42,198 --
Repayment of senior discount notes........................ (119,282) --
Deferred financing costs.................................. (31,547) (12,887)
Proceeds from issuance of Common Stock.................... 898 194,241
Repayment of notes payable and bank credit line........... (2,781) (2,459)
Payments under capital leases............................. (4,612) (4,840)
--------- ---------
Net cash provided by financing activities............. 730,626 539,526
--------- ---------
Effects of exchange rate changes on cash.................... 649 (613)
--------- ---------
Net increase in cash and cash equivalents................... 569,098 100,562
Cash and cash equivalents at beginning of period............ 21,096 339,821
--------- ---------
Cash and cash equivalents at end of period.................. $ 590,194 $ 440,383
========= =========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 1,705 $ 81,084
========= =========
Assets acquired under capital lease obligations........... 16,000 $ 13,550
========= =========
Conversion of preferred stock and convertible
debentures.............................................. -- $ 60,791
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-24
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS
Viatel Inc. and subsidiaries (collectively, the "Company") is a global
integrated services provider of long distance communication and data services to
end users, carriers and resellers. The Company operates a pan-European network
with points of presence in over 78 cities, direct sales forces in twelve Western
European cities and an indirect sales force in more than 180 locations in
Western Europe. The Company is currently constructing a series of interconnected
state-of-the-art, high quality, high capacity, self-healing fiber optic rings
utilizing the synchronous digital hierarchy standard for digital transmission
which will connect major cities in six European countries (the "Circe Network").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements as of September 30, 1999 and for the
nine-month periods ended September 30, 1998 and 1999, respectively, have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the consolidated financial position, results of operations
and cash flows for each period presented have been made on a consistent basis.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and regulations
although management believes that the disclosures herein are adequate to make
the information presented not misleading. It is suggested that these financial
statements be read in conjunction with the Company's annual consolidated
financial statements. Certain reclassifications have been made to the prior
years' condensed consolidated financial statements to conform to the current
year's presentation. Operating results for the nine months ended September 30,
1999 may not be indicative of the results that may be expected for the full
year.
CAPACITY SALES
Customers of the Company can purchase capacity on the Company's network.
Revenue from capacity sales that qualify under generally accepted accounting
principles to be treated as sales are recognized under a line item titled
"Capacity sales". Such capacity sales are recognized as revenue when the
purchaser obtains the right to use the capacity. The related cost of capacity is
reported in the same period.
Cost of capacity sales in any period is determined based upon the ratio of
total capacity sold and total anticipated capacity to be utilized multiplied by
the related total costs of the relevant portion of the Company's network.
NEW PRONOUNCEMENTS
On January 1, 1999, the Company adopted Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-Up Activities," issued by the American
Institute of Certified Public Accountants. SOP 98-5 requires that certain
start-up expenditures and organization costs previously capitalized must
F-25
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
now be expensed. The adoption of this statement did not have a material effect
on the consolidated financial statements.
On July 1, 1999, the Company applied FASB Interpretation No. 43, "Real
Estate Sales--an interpretation of FASB Statement No. 66." This interpretation
amended the standards for recognition of profit on all real estate sales
transactions including sales of real estate with property improvements or
integral equipment that cannot be removed and used separately from the real
estate without incurring significant costs. Therefore, it may affect the way the
Company accounts for revenues and expenses associated with capacity sales.
(3) INVESTMENTS IN DEBT SECURITIES
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and classifies them as held to maturity
or available for sale. These investments are diversified among high credit
quality securities in accordance with the Company's investment policy. Debt
securities that the Company has both the intent and ability to hold to maturity
are carried at amortized cost. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as available for
sale. Securities available for sale are carried at fair value, with the
unrealized gains and losses, net of tax, reported in a separate component of
stockholders' equity. The Company does not invest in securities for the purpose
of trading and therefore does not classify any securities as trading.
Debt securities classified as held to maturity are adjusted for amortization
of premiums and accretion of discounts to maturity over the estimated life of
the security. Such amortization and interest are included in interest income.
There were no securities classified as available for sale as of September 30,
1999.
The following is a summary of the amortized cost, which approximates fair
value, of restricted securities held to maturity at September 30, 1999 (in
thousands):
<TABLE>
<S> <C>
U.S. Treasury obligations................................... $119,682
German corporate obligations................................ 43,735
--------
Total................................................... $163,417
========
</TABLE>
The amortized cost, which approximates fair value, of restricted securities
held to maturity at September 30, 1999 are shown below (in thousands):
<TABLE>
<S> <C>
Due within one year......................................... $ 66,569
Due after one through two years............................. 96,848
--------
Total................................................... $163,417
========
</TABLE>
There were no changes in the classification of any securities held to
maturity or securities available for sale from the time of purchase to the time
of maturity or sale.
F-26
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Communication system........................................ $660,311
Construction in progress.................................... 79,736
Furniture, equipment and other.............................. 17,577
Leasehold improvements...................................... 12,482
--------
770,106
Less accumulated depreciation and amortization.............. 54,623
--------
$715,483
========
</TABLE>
At September 30, 1999, construction in progress primarily represents
construction of the Circe Network. For the nine month periods ended
September 30, 1998 and 1999, $1.5 million and $7.1 million, respectively, of
interest was capitalized.
In connection with the Company's joint construction of the civil works
associated with a national communications network being constructed in Germany
during 1999, the Company was required to obtain a letter of credit in support of
its obligation. At September 30, 1999, the total amount outstanding relating to
this letter of credit was approximately $79.5 million (DM146.0 million).
(5) INTANGIBLE ASSETS
Intangible assets consist of the following as of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Deferred financing and registration fees.................... $44,434
Licenses, trademarks, and servicemarks...................... 9,963
Goodwill.................................................... 20,270
Purchased software.......................................... 4,379
-------
79,046
Less accumulated amortization............................... 12,540
-------
$66,506
=======
</TABLE>
During the first nine months of 1999, the Company recognized and paid its
obligation for contingent consideration for its 1998 acquisition of Flat Rate
based upon key operating performance targets being met during the period ended
March 31, 1999. Such contingent consideration has been recorded as goodwill.
F-27
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(6) LONG-TERM DEBT AND CONVERTIBLE SECURITIES
At September 30, 1999, the Company has aggregate long term debt consisting
of senior notes due 2008 and senior discount notes due 2009 which totals
$1.3 billion. A portion of the proceeds from the senior notes were used to
purchase U.S. and German government securities which were pledged as security
for the first six and four interest payments on the senior notes due 2008 and
2009, respectively. The amount of restricted securities remaining pledged as
security for these notes is $163.4 million. The senior discount notes accrete
through April 15, 2003 and interest becomes payable in cash in semi-annual
installments thereafter. The interest on the senior notes is payable in
semi-annual installments. The indentures pursuant to which the senior notes and
the senior discount notes were issued contain certain covenants that, among
other things, limit the ability of the Company to incur additional indebtedness,
pay dividends or make certain other distributions, enter into transactions with
stockholders and affiliates and create liens on its assets. In addition, upon a
change of control, the Company is required to make an offer to purchase the
senior notes and the senior discount notes at a purchase price equal to 101% of
the principal amount, in the case of the senior notes, and 101% of the accreted
value of the notes, in the case of the senior discount notes.
Long term debt consists of the following as of (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
11.25% Senior Notes......................................... $ 400,000
11.15% Senior Notes (E91,010)............................... 96,912
11.50% Senior Notes......................................... 200,000
11.50% Senior Notes (E150,000).............................. 159,727
12.50% Senior Discount Notes, less discount of $174,514..... 325,486
12.40% Senior Discount Notes, (E115,552), less discount of
$42,680 (E40,081)........................................... 80,366
----------
$1,262,491
==========
</TABLE>
The Company's 10% Series A Preferred Stock and the Subordinated Convertible
Debentures issued in connection with the Company's 1998 high yield offering were
mandatorily convertible in the event the closing price of the Company's common
stock exceeded certain predetermined annual price targets. On May 13, 1999, the
conditions for mandatory conversion were met for both the Series A Preferred
Stock and the Subordinated Convertible Debentures. The conversion rates for the
Series A Preferred Stock and Subordinated Convertible Debentures were $13.20 and
DM24.473, at the then applicable exchange rates, respectively. Accordingly, the
Company issued approximately 4.6 million shares of its common stock and paid
cash for any fractional shares due upon conversion.
During 1997, the Company entered into Loan and Security Agreements pursuant
to which the Company borrowed an aggregate of $11.1 million. Under the terms of
these agreements, the Company is required to satisfy certain covenants and
restrictions. As of September 30, 1999, the Company was either in compliance
with, or had received waivers to, these covenants. Obligations under these Loan
and Security Agreements are secured by the grant of a security interest in
certain telecommunications equipment as well as a portion of the payment
obligations also being secured by letters of credit.
F-28
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(7) STOCK INCENTIVE PLAN
The Amended Stock Incentive Plan (the "Stock Incentive Plan") allows for the
issuance of approximately 5.3 million shares of the Company's common stock, of
which approximately 1.7 million shares are available for future grants as of
September 30, 1999.
Stock option activity for the nine months ended September 30, 1999 under the
Stock Incentive Plan is shown below (in thousands):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OF
EXERCISE PRICES SHARES
---------------- ---------
<S> <C> <C>
Outstanding at December 31, 1998................... $ 7.41 2,594
Granted............................................ 26.57 703
Exercised.......................................... 6.08 (360)
Forfeited.......................................... 5.85 (1)
------ -----
Outstanding at September 30, 1999.................. $12.10 2,936
====== =====
</TABLE>
As of September 30, 1999, approximately 0.8 million options were exercisable
under the Stock Incentive Plan.
(8) COMPREHENSIVE LOSS
The Company's comprehensive loss is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1999
-------- ---------
<S> <C> <C>
Net loss............................................... $(94,367) $(130,831)
Foreign currency translation adjustment................ 1,155 (18,722)
-------- ---------
Comprehensive loss..................................... $(93,212) $(149,553)
======== =========
</TABLE>
(9) SEGMENT AND GEOGRAPHIC DATA
While the Company's chief decision maker monitors revenue streams of the
various products and geographic locations, operations are managed and financial
performance is evaluated based on the delivery of multiple, integrated services
to customers over a single network. As a result, there are many shared expenses
generated by the various revenue streams and management believes that any
allocation of the expenses incurred to multiple revenue streams or geographic
locations would be impractical and arbitrary. Management does not currently make
such allocations internally.
F-29
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(9) SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
The Company groups its products and services by wholesale, retail, and
capacity. The information below summarizes revenue by customer type for the nine
months ended September 30, 1998 and 1999, respectively (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Retail................................................... $38,885 $ 78,799
Wholesale................................................ 47,248 72,405
Capacity................................................. -- 59,173
------- --------
Consolidated............................................. $86,133 $210,377
======= ========
</TABLE>
The information below summarizes revenue by geographic area for the nine
months ended September 30, 1998 and 1999, respectively (in thousands):
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Western Europe........................................... $40,817 $152,361
North America............................................ 32,721 50,581
Latin America............................................ 11,237 7,332
Asia/Pacific Rim and other............................... 1,358 103
------- --------
Consolidated............................................. $86,133 $210,377
======= ========
</TABLE>
The information below summarizes long lived assets by geographic area as of
September 30, 1999 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
-------------
<S> <C>
Western Europe.............................................. $681,498
North America............................................... 61,873
Latin America............................................... 194
--------
Consolidated................................................ $743,565
========
</TABLE>
(10) COMMON STOCK
On June 29, 1999, the Company completed an offering of 4,315,000 shares of
its common stock at $47 per share. The net proceeds of the offering were
approximately $192.2 million and will be used primarily to fund the further
development of the network as well as for working capital and general corporate
purposes.
F-30
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1999 AND FOR THE PERIODS
ENDED SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
(10) COMMON STOCK (CONTINUED)
At Viatel's 1999 Annual Meeting of Stockholders held on September 14, 1999
(the "1999 Annual Meeting"), Viatel's stockholders approved an amendment to
Viatel's certificate of incorporation increasing the number of shares of common
stock which may be issued without further stockholder approval from 50,000,000
to 150,000,000.
(11) SUBSEQUENT EVENTS
On December 8, 1999, Viatel completed its acquisition of Destia
Communications, Inc. ("Destia"). The acquisition was accomplished through a
merger of a wholly-owned subsidiary of Viatel, with and into Destia. Upon
consummation of the merger, Destia became a wholly-owned subsidiary of Viatel.
Under the terms of the merger, Destia stockholders received 0.445 share of
Viatel's common stock in exchange for each share of Destia common stock held by
such stockholders at the effective time of the merger.
Also on December 8, 1999, Viatel completed an exchange offer pursuant to
which it offered $686.03 principal amount of its 11.50% senior dollar notes due
2009 and $71.24 in cash (of which $20.00 of the cash payment per $1,000
principal amount at maturity of each Destia discount note constituted a consent
payment) and a concurrent consent solicitation which amended the indenture under
which the Destia 11% notes were issued to eliminate substantially all of the
restrictive covenants contained in such indenture. As a result of receiving 100%
tender in the exchange offer, the 11.0% indenture has been eliminated. On
December 8, 1999, Viatel also raised approximately $63.7 million through the
sale of additional 11.50% senior notes due 2009. The purpose of this financing
was to fund and secure the first three interest payments on the new issuance of
11.50% notes and to fund Viatel's cash payments in the exchange offer and
consent solicitation.
F-31
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 or she 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 or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
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 or her 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 or her 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 or she 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 or her 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 or
she 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.
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
II-1
<PAGE>
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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
2.1* Agreement and Plan of Merger, dated as of August 27, 1999,
by and among Viatel, Inc., Viatel Acquisition Corp. and
Destia Communications, Inc. (incorporated herein by
reference to Exhibit 2.1 to Viatel, Inc.'s Registration
Statement on Form S-4, filed October 15, 1999, Registration
No. 333-89143 ("Viatel's October 1999 Form S-4")).
3.1(i)* 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
("Viatel's Form S-1")); Certificate of Designations,
Preferences and Rights of 10% Series A Redeemable
Convertible Preferred Stock, $.01 par value per share
(incorporated herein by reference to Exhibit 3(i)(b) to
Viatel, Inc.'s Registration Statement on Form S-4, filed on
July 10, 1998, File No. 333-58921 ("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); and Second
Certificate of Amendment to Viatel Inc.'s Amended and
Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1(i) to Viatel's October 1999
Form S-4).
3.1(ii)* Third Amended and Restated Bylaws of Viatel, Inc.
(incorporated herein by reference to Exhibit 3.1(ii) to
Viatel's October 1999 Form S-4).
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'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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
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 March 19, 1999, between Viatel, Inc.
and The Bank of New York, as Trustee, relating to Viatel,
Inc.'s U.S. dollar denominated 11.50% Senior Notes due 2009
(including form of 11.50% Senior Dollar Note) (incorporated
herein by reference to Exhibit 4.9 to Viatel, Inc.'s
Registration Statement on Form S-3, filed on February 12,
1999, File No. 333-72309 ("Viatel's February 1999 Form
S-3")).
4.6* Indenture, dated as of March 19, 1999, between Viatel, Inc.
and The Bank of New York, as Trustee, relating to Viatel,
Inc.'s Euro denominated 11.50% Senior Notes due 2009
(including form of 11.50% Senior Euro Note) (incorporated
herein by reference to Exhibit 4.10 to Viatel's
February 1999 Form S-3).
4.7** Registration Rights Agreement, dated as of December 8, 1999,
between Viatel, Inc. and Morgan Stanley & Co. Incorporated.
4.8** Purchase Agreement, dated December 8, 1999, between Viatel,
Inc. and Morgan Stanley & Co. Incorporated.
4.9* Indenture, dated as of December 8, 1999, between Viatel,
Inc. and The Bank of New York, as Trustee, relating to
Viatel, Inc.'s U.S. dollar denominated 11.50% Senior Notes
due 2009 (including form of 11.50% Senior Dollar Note)
(incorporated herein by reference to Exhibit 4.13 to Viatel,
Inc.'s Current Report on Form 8-K, dated December 9, 1999,
File No. 000-21261).
4.10* Specimen of Destia Communications, Inc.'s 13.50% Senior Note
due 2007 (incorporated herein by reference to Exhibit 4.4 of
Destia's Registration Statement on Form S-4, File No.
333-47711, filed on August 7, 1997 ("Destia's 1997 Form
S-4")).
4.11* Indenture, dated as of July 1, 1997, between Destia
Communications, Inc. and The Bank of New York, as Trustee,
relating to Destia's 13.50% Senior Notes due 2007
(incorporated herein by reference to Exhibit 4.5 of Destia's
1997 Form S-4).
5.1** Opinion of Kelley Drye & Warren LLP.
10.1* Stockholder Agreement dated as of August 27, 1999 among
Alfred West, AT Econ Limited Partnership, AT Econ Ltd.
Partnership No. 2, Viatel, Inc., Viatel Acquisition Corp.
and Destia Communications, Inc. (incorporated herein by
reference to Exhibit 10.1 to Viatel's October 1999 Form
S-4).
10.2* Stockholder Agreement dated as of August 27, 1999 among
Steven West, SS Econ Limited Partnership, SS Econ Ltd.
Partnership No. 2, Viatel, Inc., Viatel Acquisition Corp.
and Destia Communications, Inc. (incorporated herein by
reference to Exhibit 10.2 to Viatel's October 1999 Form
S-4).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
10.3* Stockholder Agreement dated as of August 27, 1999 among Gary
Bondi, GS Econ Limited Partnership, GS Econ Ltd. Partnership
No. 2, Viatel, Inc., Viatel Acquisition Corp. and Destia
Communications, Inc. (incorporated herein by reference to
Exhibit 10.3 to Viatel's October 1999 Form S-4).
10.4* Stockholder Agreement dated as of August 27, 1999 among
Princess Gate Investors II, L.P. Acorn Partnership II, L.P.,
PGI Investments Limited, Investor Investments AB, Marinbeach
United S.A., Viatel, Inc., Viatel Acquisition Corp. and
Destia Communications, Inc. (incorporated herein by
reference to Exhibit 10.4 to Viatel's October 1999 Form
S-4).
10.5* Mercury Carrier Services Agreement, dated as of March 1,
1994, between Viatel, Inc. and Mercury Communications
Limited (incorporated herein by reference to Exhibit 10.8 to
Viatel's 1995 Form S-4, filed on May 24, 1995 ("Viatel's
1995 S-4")).
10.6* Commercial Lease Agreement, dated as of November 1, 1993,
and Addendum, dated as of December 8, 1994, between Viatel,
Inc. and 123rd Street Partnership in connection with the
Company's premises located in Omaha, Nebraska (incorporated
herein by reference to Exhibit 10.24 to Viatel's 1995 Form
S-4).
10.7* Facilities Management and Services Agreement, dated as of
August 4, 1995, between Viatel U.K. Limited and Telemedia
International Ltd. (incorporated herein by reference to
Exhibit 10.32 to Viatel's 1995 From S-4).
10.8* Agreement of Lease, dated August 7, 1995, between Viatel,
Inc. and Joseph P. Day Realty Corp. (incorporated herein by
reference to Exhibit 10.33 to Viatel's 1995 Form S-4).
10.9*+ Employment Agreement between Viatel, Inc. and Michael J.
Mahoney (incorporated herein by reference to Exhibit 10.12
to Viatel, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997 ("Viatel's 1997 Form 10-K")).
10.10*+ Viatel, Inc. 1999 Amended Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.12 to Viatel's October
1999 Form S-4).
10.11*+ Employment Agreement between Viatel, Inc. and
Allan L. Shaw (incorporated herein by reference to Exhibit
10.14 to Viatel's 1997 Form 10-K).
10.12*+ Employment Agreement between Viatel, Inc. and
Sheldon M. Goldman (incorporated herein by reference to
Exhibit 10.15 to Viatel's 1997 Form 10-K).
10.13* Mutual Cooperation Agreement, dated as of June 3, 1998,
among Viatel, Inc., Martin Varsavsky and Jazz Telecom S.A.
(incorporated herein by reference to Exhibit 10.16 to
Viatel, Inc.'s Current Report on Form 8-K, dated June 8,
1998, File No. 000-21261).
10.14* Equipment Purchase Agreement, dated June 29, 1998, between
Viatel, Inc. and Nortel PLC (incorporated herein by
reference to Exhibit 10.16 to Viatel's 1998 Form S-4).
10.15* Agreement of Lease, dated June 24, 1998, between 685
Acquisition Corp. and Viatel, Inc., as amended by a letter
agreement, dated July 27, 1998 (incorporated herein by
reference to Exhibit 10.17 to Viatel's 1998 Form S-4).
10.16* Lease, dated June 23, 1998, between VC Associates and Viatel
New Jersey, Inc. (incorporated herein by reference to
Exhibit 10.18 to Viatel's 1998 Form S-4).
10.17*++ Software License Agreement, dated October 22, 1998, between
Viatel, Inc. and Lucent Technologies Inc. (incorporated
herein by reference to Exhibit 10.19 to Viatel, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1998 ("Viatel's 1998 Form 10-K")).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
10.18*++ Engineering, Procurement and Construction Contract, dated as
of November 10, 1998, between Viatel Global Communications,
Inc. and Alcatel Submarine Network S.A. (incorporated herein
by reference to Exhibit 10.20 to Viatel's 1998 Form 10-K).
10.19*++ Equipment Purchase Agreement, dated December 31, 1998,
between Viatel, Inc. and Nortel PLC (incorporated herein by
reference to Exhibit 10.21 to Viatel's 1998 Form 10-K).
10.20*++ Project Services Agreement, dated as of January 11, 1999,
between Viatel, Inc. and Bechtel Limited (incorporated
herein by reference to Exhibit 10.22 to Viatel, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 ("Viatel's March 1999 Form 10-Q")).
10.21*++ Development Agreement by and among Vicame Infrastructure
Development GMBH, Viatel German Asset GMBH, Carrier 1 Fiber
Network GMBH & Co. OH, Metromedia Fiber Network GMBH,
Viatel, Inc. and Metromedia Fiber Network, Inc., dated as of
February 19, 1999 (incorporated herein by reference to
Exhibit 10.23 to Viatel's March 1999 Form 10-Q).
10.22* Securityholders Agreement, dated as of November 1, 1996,
between Alfred West, Destia Communications, Inc. and Princes
Gate Investors II, L.P. (incorporated herein by reference to
Exhibit 4.1 of Destia's 1997 Form S-4).
10.23* Securities Purchase Agreement, dated as of November 1, 1996,
between Destia Communications, Inc. and Princes Gate
Investors II, L.P. (incorporated herein by reference to
Exhibit 10.1 of Destia's 1997 Form S-4).
10.24* Note Purchase Agreement, dated as of April 24, 1997, between
Destia Communications, Inc. and Morgan Stanley Group Inc.
(incorporated herein by reference to Exhibit 4.2 of Destia's
1997 Form S-4).
10.25* Form of Note under Note Purchase Agreement (incorporated
herein by reference to Exhibit 4.3 of Destia's 1997 Form
S-4).
10.26* Second Amended and Restated Equipment Loan and Security
Agreement, dated as of January 28, 1998, between Destia
Communications, Inc. and NTFC Capital Corporation
(incorporated herein by reference to Exhibit 10.13 of
Destia's Registration Statement on Form S-4, Registration
No. 333-47711, filed on March 10, 1998 ("Destia's 1998
Form S-4")).
10.27* Stock Purchase Agreement, dated January 28, 1998, between
Destia Communications, Inc. and the shareholders of Voice
Net Corporation (incorporated herein by reference to Exhibit
10.17 of Destia's 1998 Form S-4).
10.28* Amendment, dated April 16, 1998, to Stock Purchase Agreement
between Destia Communications, Inc. and the shareholders of
Voice Net Corporation (incorporated herein by reference to
Exhibit 10.7 Destia's Form 10-K for the year ended
December 31, 1998 ("Destia's 1998 Form 10-K")).
10.29* Stock Purchase Agreement, dated July 17, 1998, between
Destia Communications, Inc. and certain shareholders of
Telco Global Communications (incorporated herein by
reference to Exhibit 10.13 to Destia's 1998 Form 10-K).
10.30* Telecommunications Services Agreement between Frontier
Communications of the West, Inc. and Destia Communications,
Inc., dated November 17, 1998 (incorporated herein by
reference to Exhibit 10.16 of Destia's Registration
Statement on Form S-1, Registration No. 333-70463, filed on
January 29, 1999 ("Destia's Form S-1")).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
10.31* Modification Agreement No. 1 dated as of March 31, 1999 to
the Second Amended and Restated Equipment Loan and Security
Agreement between Destia Communications, Inc. and NTFC
Capital Corporation (incorporated herein by reference to
Exhibit 10.19 of Destia's Form S-1).
10.32*+ Employment Agreement, dated August 27, 1999, by and between
Viatel and Alfred West (incorporated herein by reference to
Exhibit 10.44 to Viatel's October 1999 Form S-4).
10.33*+ Employment Agreement, dated August 27, 1999, by and between
Viatel and Alan Levy (incorporated herein by reference to
Exhibit 10.45 to Viatel's October 1999 Form S-4).
10.34* Viatel's Employee Stock Purchase Plan (incorporated herein
by reference to Exhibit 4.9 to Viatel's Registration
Statement on Form S-8, Registration No. 333-92235, filed on
December 7, 1999).
10.35* Viatel's Amended and Restated 1999 Flexible Incentive Plan
and Amended and Restated 1996 Flexible Incentive Plan
(incorporated herein by reference to Exhibit 4.11 and
Exhibit 4.12, respectively, to Viatel's Registration
Statement on Form S-8, Registration No. 333-92339, filed on
December 8, 1999).
10.36** Third Amended and Restated Equipment Loan and Security
Agreement, dated as of November 5, 1999, between NTFC
Capital Corporation and Destia Communications, Inc. (to be
filed by amendment).
12.1** Calculation of Ratio of Earnings to Fixed Charges.
21.1** Subsidiaries of Viatel, Inc.
23.1** Consent of Kelley Drye & Warren LLP (included in their
opinion filed as Exhibit 5.1).
23.2** Consent of KPMG LLP.
23.3** Consent of Arthur Andersen LLP.
24** Powers of Attorney (included on signature page hereto).
25.1** Statement of Eligibility of The Bank of New York on Form T-1
relating to Viatel, Inc.'s 11.50% Senior Dollar Notes due
2009.
99.1** Letter of Transmittal relating to Viatel, Inc.'s 11.50%
Senior Dollar Notes due 2009.
99.2** Notice of Guaranteed Delivery relating to Viatel, Inc.'s
11.50% Senior Dollar Notes due 2009.
</TABLE>
- ------------------------
* Incorporated herein by reference.
** Filed herewith.
+ Management contract or compensatory plan or arrangement.
++ Confidential treatment granted as to certain portions of these exhibits.
II-6
<PAGE>
(b) Supplemental Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts for Viatel, Inc. and
Destia Communications, Inc.
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
ITEM 22. 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) 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 to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) 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
II-7
<PAGE>
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.
(d) 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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant 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 21st day of December, 1999.
<TABLE>
<S> <C> <C>
VIATEL, INC.
By: /s/ MICHAEL J. MAHONEY
-----------------------------------------
Michael J. Mahoney
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Michael J. Mahoney, Allan L. Shaw and James P.
Prenetta, and each of them as his true and lawful attorneys-in-fact and agents
for the undersigned, with full power of substitution, for and in the name, place
and stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such pre-effective or post-effective amendments,
(iii) any and all applications and other documents in connection with any such
pre-effective or post-effective amendments, and (iv) generally to do all things
and perform any and all acts and things whatsoever requisite and necessary or
desirable to enable the Registrant to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Securities and
Exchange Commission.
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 December 21, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/s/ MICHAEL J. MAHONEY Chairman of the Board, President
------------------------------------------- and Chief Executive Officer
Michael J. Mahoney (Principal Executive Officer)
Vice Chairman of the Board
-------------------------------------------
Alfred West
Senior Vice President, Finance,
/s/ ALLAN L. SHAW Chief Financial Officer and
------------------------------------------- Director (Principal Financial
Allan L. Shaw and Accounting Officer)
/s/ PAUL G. PIZZANI Director
-------------------------------------------
Paul G. Pizzani
/s/ FRANCIS J. MOUNT Director
-------------------------------------------
Francis J. Mount
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S> <C>
/S/ JOHN G. GRAHAM Director
-------------------------------------------
John G. Graham
/S/ SHELDON M. GOLDMAN Director
-------------------------------------------
Sheldon M. Goldman
Director
-------------------------------------------
Alan L. Levy
Director
-------------------------------------------
Edward C. Schmults
</TABLE>
II-10
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
2.1* Agreement and Plan of Merger, dated as of August 27, 1999,
by and among Viatel, Inc., Viatel Acquisition Corp. and
Destia Communications, Inc. (incorporated herein by
reference to Exhibit 2.1 to Viatel, Inc.'s Registration
Statement on Form S-4, filed October 15, 1999, Registration
No. 333-89143 ("Viatel's October 1999 Form S-4")).
3.1(i)* 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
("Viatel's Form S-1")); Certificate of Designations,
Preferences and Rights of 10% Series A Redeemable
Convertible Preferred Stock, $.01 par value per share
(incorporated herein by reference to Exhibit 3(i)(b) to
Viatel, Inc.'s Registration Statement on Form S-4, filed on
July 10, 1998, File No. 333-58921 ("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); and Second
Certificate of Amendment to Viatel Inc.'s Amended and
Restated Certificate of Incorporation (incorporated herein
by reference to Exhibit 3.1(i) to Viatel's October 1999
Form S-4).
3.1(ii)* Third Amended and Restated Bylaws of Viatel, Inc.
(incorporated herein by reference to Exhibit 3.1(ii) to
Viatel's October 1999 Form S-4).
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'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 March 19, 1999, between Viatel, Inc.
and The Bank of New York, as Trustee, relating to Viatel,
Inc.'s U.S. dollar denominated 11.50% Senior Notes due 2009
(including form of 11.50% Senior Dollar Note) (incorporated
herein by reference to Exhibit 4.9 to Viatel, Inc.'s
Registration Statement on Form S-3, filed on February 12,
1999, File No. 333-72309 ("Viatel's February 1999 Form
S-3")).
4.6* Indenture, dated as of March 19, 1999, between Viatel, Inc.
and The Bank of New York, as Trustee, relating to Viatel,
Inc.'s Euro denominated 11.50% Senior Notes due 2009
(including form of 11.50% Senior Euro Note) (incorporated
herein by reference to Exhibit 4.10 to Viatel's
February 1999 Form S-3).
4.7** Registration Rights Agreement, dated as of December 8, 1999,
between Viatel, Inc. and Morgan Stanley & Co. Incorporated.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
4.8** Purchase Agreement, dated December 8, 1999, between Viatel,
Inc. and Morgan Stanley & Co. Incorporated.
4.9* Indenture, dated as of December 8, 1999, between Viatel,
Inc. and The Bank of New York, as Trustee, relating to
Viatel, Inc.'s U.S. dollar denominated 11.50% Senior Notes
due 2009 (including form of 11.50% Senior Dollar Note)
(incorporated herein by reference to Exhibit 4.13 to Viatel,
Inc.'s Current Report on Form 8-K, dated December 9, 1999,
File No. 000-21261).
4.10* Specimen of Destia Communications, Inc.'s 13.50% Senior Note
due 2007 (incorporated herein by reference to Exhibit 4.4 of
Destia's Registration Statement on Form S-4, File No.
333-47711, filed on August 7, 1997 ("Destia's 1997 Form
S-4")).
4.11* Indenture, dated as of July 1, 1997, between Destia
Communications, Inc. and The Bank of New York, as Trustee,
relating to Destia's 13.50% Senior Notes due 2007
(incorporated herein by reference to Exhibit 4.5 of Destia's
1997 Form S-4).
5.1** Opinion of Kelley Drye & Warren LLP.
10.1* Stockholder Agreement dated as of August 27, 1999 among
Alfred West, AT Econ Limited Partnership, AT Econ Ltd.
Partnership No. 2, Viatel, Inc., Viatel Acquisition Corp.
and Destia Communications, Inc. (incorporated herein by
reference to Exhibit 10.1 to Viatel's October 1999 Form
S-4).
10.2* Stockholder Agreement dated as of August 27, 1999 among
Steven West, SS Econ Limited Partnership, SS Econ Ltd.
Partnership No. 2, Viatel, Inc., Viatel Acquisition Corp.
and Destia Communications, Inc. (incorporated herein by
reference to Exhibit 10.2 to Viatel's October 1999 Form
S-4).
10.3* Stockholder Agreement dated as of August 27, 1999 among Gary
Bondi, GS Econ Limited Partnership, GS Econ Ltd. Partnership
No. 2, Viatel, Inc., Viatel Acquisition Corp. and Destia
Communications, Inc. (incorporated herein by reference to
Exhibit 10.3 to Viatel's October 1999 Form S-4).
10.4* Stockholder Agreement dated as of August 27, 1999 among
Princess Gate Investors II, L.P. Acorn Partnership II, L.P.,
PGI Investments Limited, Investor Investments AB, Marinbeach
United S.A., Viatel, Inc., Viatel Acquisition Corp. and
Destia Communications, Inc. (incorporated herein by
reference to Exhibit 10.4 to Viatel's October 1999 Form
S-4).
10.5* Mercury Carrier Services Agreement, dated as of March 1,
1994, between Viatel, Inc. and Mercury Communications
Limited (incorporated herein by reference to Exhibit 10.8 to
Viatel's 1995 Form S-4, filed on May 24, 1995 ("Viatel's
1995 S-4")).
10.6* Commercial Lease Agreement, dated as of November 1, 1993,
and Addendum, dated as of December 8, 1994, between Viatel,
Inc. and 123rd Street Partnership in connection with the
Company's premises located in Omaha, Nebraska (incorporated
herein by reference to Exhibit 10.24 to Viatel's 1995 Form
S-4).
10.7* Facilities Management and Services Agreement, dated as of
August 4, 1995, between Viatel U.K. Limited and Telemedia
International Ltd. (incorporated herein by reference to
Exhibit 10.32 to Viatel's 1995 From S-4).
10.8* Agreement of Lease, dated August 7, 1995, between Viatel,
Inc. and Joseph P. Day Realty Corp. (incorporated herein by
reference to Exhibit 10.33 to Viatel's 1995 Form S-4).
10.9*+ Employment Agreement between Viatel, Inc. and Michael J.
Mahoney (incorporated herein by reference to Exhibit 10.12
to Viatel, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1997 ("Viatel's 1997 Form 10-K")).
10.10*+ Viatel, Inc. 1999 Amended Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.12 to Viatel's October
1999 Form S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
10.11*+ Employment Agreement between Viatel, Inc. and
Allan L. Shaw (incorporated herein by reference to Exhibit
10.14 to Viatel's 1997 Form 10-K).
10.12*+ Employment Agreement between Viatel, Inc. and
Sheldon M. Goldman (incorporated herein by reference to
Exhibit 10.15 to Viatel's 1997 Form 10-K).
10.13* Mutual Cooperation Agreement, dated as of June 3, 1998,
among Viatel, Inc., Martin Varsavsky and Jazz Telecom S.A.
(incorporated herein by reference to Exhibit 10.16 to
Viatel, Inc.'s Current Report on Form 8-K, dated June 8,
1998, File No. 000-21261).
10.14* Equipment Purchase Agreement, dated June 29, 1998, between
Viatel, Inc. and Nortel PLC (incorporated herein by
reference to Exhibit 10.16 to Viatel's 1998 Form S-4).
10.15* Agreement of Lease, dated June 24, 1998, between 685
Acquisition Corp. and Viatel, Inc., as amended by a letter
agreement, dated July 27, 1998 (incorporated herein by
reference to Exhibit 10.17 to Viatel's 1998 Form S-4).
10.16* Lease, dated June 23, 1998, between VC Associates and Viatel
New Jersey, Inc. (incorporated herein by reference to
Exhibit 10.18 to Viatel's 1998 Form S-4).
10.17*++ Software License Agreement, dated October 22, 1998, between
Viatel, Inc. and Lucent Technologies Inc. (incorporated
herein by reference to Exhibit 10.19 to Viatel, Inc.'s
Annual Report on Form 10-K for the year ended December 31,
1998 ("Viatel's 1998 Form 10-K")).
10.18*++ Engineering, Procurement and Construction Contract, dated as
of November 10, 1998, between Viatel Global Communications,
Inc. and Alcatel Submarine Network S.A. (incorporated herein
by reference to Exhibit 10.20 to Viatel's 1998 Form 10-K).
10.19*++ Equipment Purchase Agreement, dated December 31, 1998,
between Viatel, Inc. and Nortel PLC (incorporated herein by
reference to Exhibit 10.21 to Viatel's 1998 Form 10-K).
10.20*++ Project Services Agreement, dated as of January 11, 1999,
between Viatel, Inc. and Bechtel Limited (incorporated
herein by reference to Exhibit 10.22 to Viatel, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 ("Viatel's March 1999 Form 10-Q")).
10.21*++ Development Agreement by and among Vicame Infrastructure
Development GMBH, Viatel German Asset GMBH, Carrier 1 Fiber
Network GMBH & Co. OH, Metromedia Fiber Network GMBH,
Viatel, Inc. and Metromedia Fiber Network, Inc., dated as of
February 19, 1999 (incorporated herein by reference to
Exhibit 10.23 to Viatel's March 1999 Form 10-Q).
10.22* Securityholders Agreement, dated as of November 1, 1996,
between Alfred West, Destia Communications, Inc. and Princes
Gate Investors II, L.P. (incorporated herein by reference to
Exhibit 4.1 of Destia's 1997 Form S-4).
10.23* Securities Purchase Agreement, dated as of November 1, 1996,
between Destia Communications, Inc. and Princes Gate
Investors II, L.P. (incorporated herein by reference to
Exhibit 10.1 of Destia's 1997 Form S-4).
10.24* Note Purchase Agreement, dated as of April 24, 1997, between
Destia Communications, Inc. and Morgan Stanley Group Inc.
(incorporated herein by reference to Exhibit 4.2 of Destia's
1997 Form S-4).
10.25* Form of Note under Note Purchase Agreement (incorporated
herein by reference to Exhibit 4.3 of Destia's 1997 Form
S-4).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
10.26* Second Amended and Restated Equipment Loan and Security
Agreement, dated as of January 28, 1998, between Destia
Communications, Inc. and NTFC Capital Corporation
(incorporated herein by reference to Exhibit 10.13 of
Destia's Registration Statement on Form S-4, Registration
No. 333-47711, filed on March 10, 1998 ("Destia's 1998
Form S-4")).
10.27* Stock Purchase Agreement, dated January 28, 1998, between
Destia Communications, Inc. and the shareholders of Voice
Net Corporation (incorporated herein by reference to Exhibit
10.17 of Destia's 1998 Form S-4).
10.28* Amendment, dated April 16, 1998, to Stock Purchase Agreement
between Destia Communications, Inc. and the shareholders of
Voice Net Corporation (incorporated herein by reference to
Exhibit 10.7 Destia's Form 10-K for the year ended
December 31, 1998 ("Destia's 1998 Form 10-K")).
10.29* Stock Purchase Agreement, dated July 17, 1998, between
Destia Communications, Inc. and certain shareholders of
Telco Global Communications (incorporated herein by
reference to Exhibit 10.13 to Destia's 1998 Form 10-K).
10.30* Telecommunications Services Agreement between Frontier
Communications of the West, Inc. and Destia Communications,
Inc., dated November 17, 1998 (incorporated herein by
reference to Exhibit 10.16 of Destia's Registration
Statement on Form S-1, Registration No. 333-70463, filed on
January 29, 1999 ("Destia's Form S-1")).
10.31* Modification Agreement No. 1 dated as of March 31, 1999 to
the Second Amended and Restated Equipment Loan and Security
Agreement between Destia Communications, Inc. and NTFC
Capital Corporation (incorporated herein by reference to
Exhibit 10.19 of Destia's Form S-1).
10.32*+ Employment Agreement, dated August 27, 1999, by and between
Viatel and Alfred West (incorporated herein by reference to
Exhibit 10.44 to Viatel's October 1999 Form S-4).
10.33*+ Employment Agreement, dated August 27, 1999, by and between
Viatel and Alan Levy (incorporated herein by reference to
Exhibit 10.45 to Viatel's October 1999 Form S-4).
10.34* Viatel's Employee Stock Purchase Plan (incorporated herein
by reference to Exhibit 4.9 to Viatel's Registration
Statement on Form S-8, Registration No. 333-92235, filed on
December 7, 1999).
10.35* Viatel's Amended and Restated 1999 Flexible Incentive Plan
and Amended and Restated 1996 Flexible Incentive Plan
(incorporated herein by reference to Exhibit 4.11 and
Exhibit 4.12, respectively, to Viatel's Registration
Statement on Form S-8, Registration No. 333-92339, filed on
December 8, 1999).
10.36** Third Amended and Restated Equipment Loan and Security
Agreement, dated as of November 5, 1999, between NTFC
Capital Corporation and Destia Communications, Inc. (to be
filed by amendement).
12.1** Calculation of Ratio of Earnings to Fixed Charges.
21.1** Subsidiaries of Viatel, Inc.
23.1** Consent of Kelley Drye & Warren LLP (included in their
opinion filed as Exhibit 5.1).
23.2** Consent of KPMG LLP.
23.3** Consent of Arthur Andersen LLP.
24** Powers of Attorney (included on signature page hereto).
25.1** Statement of Eligibility of The Bank of New York on Form T-1
relating to Viatel, Inc.'s 11.50% Senior Dollar Notes due
2009.
99.1** Letter of Transmittal relating to Viatel, Inc.'s 11.50%
Senior Dollar Notes due 2009.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------------------- ------------------------------------------------------------
<C> <S>
99.2** Notice of Guaranteed Delivery relating to Viatel, Inc.'s
11.50% Senior Dollar Notes due 2009.
</TABLE>
- ------------------------
* Incorporated herein by reference.
** Filed herewith.
+ Management contract or compensatory plan or arrangement.
++ Confidential treatment granted as to certain portions of these exhibits.
<PAGE>
Exhibit 4.7
REGISTRATION RIGHTS AGREEMENT
Dated December 8, 1999
between
VIATEL, INC.
and
MORGAN STANLEY & CO. INCORPORATED
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is made
and entered into on December 8, 1999 between VIATEL, INC., a Delaware
corporation (the "COMPANY"), and MORGAN STANLEY & CO. INCORPORATED (the
"PURCHASER").
This Agreement is made pursuant to the Purchase Agreement,
dated the date hereof, between the Company and the Purchaser (the "PURCHASE
AGREEMENT"), which provides for the sale by the Company to the Purchaser of an
aggregate of $63,666,000 principal amount of 11.50% Senior Dollar Notes Due 2009
of the Company (the "NEW NOTES").
This Agreement is also made in connection with the Company's
(i) offer to exchange (the "OFFER TO EXCHANGE") $686.03 principal amount of
additional 11.50% Senior Dollar Notes due 2009 of the Company (the "ADDITIONAL
NOTES") and total cash consideration of $71.24 (including a consent fee of
$20.00) for each $1,000 principal amount at maturity of outstanding 11% Senior
Discount Notes Due 2008 (the "DESTIA NOTES") of Destia Communications, Inc.
(formerly known as Econophone, Inc.), a Delaware corporation ("DESTIA"), and
(ii) solicitation of consents from the holders of the Destia Notes to certain
proposed amendments to the indenture pursuant to which the Destia Notes were
issued and waivers from such holders of the Destia Notes of their right to
participate in any repurchase offer for the Destia Notes, on the terms and
subject to the conditions set forth in the Offering Memorandum and Consent
Solicitation, dated November 4, 1999. The New Notes and the Additional Notes are
hereinafter, collectively, referred to as the "NOTES."
In order to induce the Purchaser to enter into the Purchase
Agreement and holders of the outstanding Destia Notes as of November 1, 1999
(the "DESTIA NOTEHOLDERS") to tender and not withdraw their tendered Destia
Notes, the Company has agreed to provide to the Purchaser, such Destia
Noteholders who have properly tendered their Destia Notes pursuant to the Offer
to Exchange, and their direct and indirect transferees the registration rights
set forth in this Agreement. The execution of this Agreement is a condition to
the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"CLOSING DATE" shall mean the Closing Date as defined in the
Purchase Agreement.
<PAGE>
"COMPANY" shall have the meaning set forth in the Preamble to
this Agreement and shall also include the Company's successors.
"DESTIA NOTEHOLDERS" shall have the meaning set forth in the
Preamble to this Agreement.
"DESTIA NOTES" shall have the meaning set forth in the
Preamble to this Agreement.
"EXCHANGE DATES" shall have the meaning set forth in Section
2(a)(ii) hereof.
"EXCHANGE NOTES" shall mean notes issued in the Exchange Offer
pursuant to Section 2(a) hereof.
"EXCHANGE OFFER" shall mean the exchange offer by the Company
of Exchange Notes for Registrable Notes pursuant to Section 2(a)
hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"HOLDER" shall mean registered owners of Registrable Notes
under the Indenture; PROVIDED THAT for purposes of Sections 4 and 5 of
this Agreement, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a) hereof).
"INDENTURE" shall mean the indenture, dated December 8, 1999,
between the Company and The Bank of New York, as trustee, as the same
may be amended from time to time in accordance with the terms thereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Notes; PROVIDED
THAT whenever the consent or approval of Holders of a specified
percentage of Registrable Notes is required hereunder, Registrable
Notes held by the Company or any of its affiliates (as such term is
defined in Rule 405 under the 1933 Act) (other than the Purchaser or
subsequent holders of Registrable Notes if such subsequent holders are
deemed to be such affiliates solely by reason of their holding of such
Registrable Notes) shall not be counted in determining whether such
consent or approval was given by the Holders of such required
percentage or amount.
2
<PAGE>
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"1933 ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"NOTES" shall have the meaning set forth in the Preamble to
this Agreement.
"OFFER TO EXCHANGE" shall have the meaning set forth in the
Preamble to this Agreement.
"PERSON" shall mean an individual, partnership, corporation,
limited liability company, joint venture, association, joint stock
company, trust or unincorporated organization or other entity, or a
government or agency or political subdivision thereof.
"PROSPECTUS" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Notes covered by a
Shelf Registration Statement, and by all other amendments and
supplements to such prospectus, and in each case including all material
incorporated by reference therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the
Preamble to this Agreement.
"PURCHASER" shall have the meaning set forth in the Preamble
to this Agreement.
"REGISTRABLE NOTES" shall mean the Notes; PROVIDED, HOWEVER,
that any particular Note shall cease to be a Registrable Note when the
earliest of the following events occurs (i) a Registration Statement
with respect to such Note shall have been declared effective under the
1933 Act and such Note shall have been disposed of pursuant to such
Registration Statement, (ii) such Note has been sold to the public
pursuant to Rule 144 (or any similar rule then in force, but not Rule
144A) under the 1933 Act or (iii) such Note shall have ceased to be
outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. registration and
filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable
fees and disbursements of counsel for any underwriters or Holders in
connection with blue sky qualification of any of the Exchange Notes or
Registrable Notes), (iii) all expenses of any
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Persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus,
any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi)
the fees and disbursements of the Trustee and its counsel, (vii) the
fees and disbursements of counsel for the Company and, in the case of a
Shelf Registration Statement, the reasonable fees and disbursements of
one counsel for the Holders (which counsel shall be selected by the
Majority Holders and which counsel may also be counsel for the
Purchaser) and (viii) the fees and disbursements of the independent
public accountants of the Company, including the expenses of any
special audits or "cold comfort" letters required by or incident to
such performance and compliance, but excluding fees and expenses of
counsel to the underwriters (other than reasonable fees and expenses
set forth in clause (ii) above) or the Holders and underwriting
discounts and commissions and transfer taxes, if any, relating to the
sale or disposition of Registrable Notes by a Holder.
"REGISTRATION STATEMENT" shall mean any registration statement
of the Company that covers any of the Exchange Notes or Registrable
Notes pursuant to the provisions of this Agreement and all amendments
and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated
by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SHELF REGISTRATION" shall mean a registration effected
pursuant to Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of
Section 2(b) of this Agreement which covers all of the Registrable
Notes (but no other securities unless approved by the Majority Holders)
on an appropriate form under Rule 415 under the 1933 Act, or any
similar rule that may be adopted by the SEC which will accomplish a
similar objective, and all amendments and supplements to such
registration statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"TRUSTEE" shall mean the trustee with respect to the Notes
under the Indenture.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall
mean a registration in which Registrable Notes are sold to an
Underwriter (as hereinafter defined) for reoffering to the public.
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2. REGISTRATION UNDER THE 1933 ACT.
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the staff of the SEC, the Company shall use its
best efforts to cause to be filed an Exchange Offer Registration Statement
covering the offer by the Company to the Holders to exchange all of the
Registrable Notes for Exchange Notes and to have such Registration Statement
remain effective until the closing of the Exchange Offer. The Company shall
commence the Exchange Offer promptly after the Exchange Offer Registration
Statement has been declared effective by the SEC and use its best efforts to
have the Exchange Offer consummated not later than 60 days after such effective
date. The Company shall commence the Exchange Offer by mailing the related
exchange offer Prospectus and accompanying documents to each Holder stating, in
addition to such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Notes validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a
period of at least 20 business days from the date such notice is
mailed) (the "EXCHANGE DATES");
(iii) that any Registrable Note not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Note
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Note, together with the enclosed letters of
transmittal, to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election,
not later than the close of business on the last Exchange Date, by
sending to the institution and at the address (located in the Borough
of Manhattan, The City of New York) specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Notes delivered for
exchange and a statement that such Holder is withdrawing his or her
election to have such Registrable Notes exchanged.
As soon as practicable after the last Exchange Date, the
Company shall:
(i) accept for exchange Registrable Notes or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Notes or portions thereof so accepted for
exchange by the Company
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<PAGE>
and issue, and cause the Trustee to promptly authenticate and mail to
each Holder, an Exchange Note equal in principal amount and of like
terms to the Registrable Notes surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the staff of the SEC. The Company shall inform the
Purchaser of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Purchaser shall have the right, subject to applicable law, to
contact such Holders and otherwise facilitate the tender of Registrable Notes in
the Exchange Offer.
(b) In the event that (i) the Company determines that the
Exchange Offer Registration provided for in Section 2(a) above is not available
or may not be consummated as soon as practicable after the last Exchange Date
because it would violate applicable law or the applicable interpretations of the
staff of the SEC, (ii) the Exchange Offer is not for any other reason
consummated by the date that is six months after the Closing Date or (iii) the
Exchange Offer has been completed and in the opinion of counsel for the
Purchaser or the Destia Noteholders a Registration Statement must be filed and a
Prospectus must be delivered by the Purchaser or the Destia Noteholder in
connection with any offering or sale of Registrable Notes by such Purchaser or
such Destia Noteholder, of Registrable Notes that were acquired by the Purchaser
or the Destia Noteholder from the Company, the Company shall use its best
efforts to cause to be filed as soon as practicable after such determination,
date or notice of such opinion of counsel is given to the Company, as the case
may be, a Shelf Registration Statement providing for the sale by the Holders of
all of the Registrable Notes and to have such Shelf Registration Statement
declared effective by the SEC. The Company agrees to use its best efforts to
keep the Shelf Registration Statement continuously effective until the
expiration of the period referred to in Rule 144(k) under the 1933 Act with
respect to all Registrable Notes covered by the Shelf Registration Statement, or
such shorter period that will terminate when all of the Registrable Notes
covered by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or as would be permitted by the current rules and
regulations. The Company further agrees to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the 1933 Act or by any other applicable rules and
regulations thereunder for shelf registration or if reasonably requested by a
Holder with respect to information relating to such Holder, and to use its best
efforts to cause any such amendment to become effective and such Shelf
Registration Statement to become usable as soon as thereafter practicable. The
Company agrees to furnish to the Holders of Registrable Notes copies of any such
supplement or amendment promptly after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or Section 2(b). Each
Holder shall pay all underwriting
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<PAGE>
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Notes pursuant to the Shelf
Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC unless such action by the SEC is no longer required;
PROVIDED, HOWEVER, that, if, after it has been declared effective, the offering
of Registrable Notes pursuant to a Shelf Registration Statement is interfered
with by any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court, such Registration Statement will be
deemed not to have become effective during the period of such interference until
the offering of Registrable Notes pursuant to such Registration Statement may
legally resume. In the event that the Exchange Offer is not consummated and, if
a Shelf Registration Statement is required hereby, the Shelf Registration
Statement is not declared or permitted to go effective on or prior to the date
that is six months after the Closing Date, the annual interest rate borne by the
Notes will increase by 0.5% per annum, until the date the Exchange Offer is
consummated or a Shelf Registration Statement is declared effective.
(e) Without limiting the remedies available to the Purchaser,
the Destia Noteholders and the Holders, the Company acknowledges that any
failure by the Company to comply with its obligations under Section 2(a) and
Section 2(b) hereof may result in material irreparable injury to the Purchaser,
the Destia Noteholders or the Holders for which there is no adequate remedy at
law, that it will not be possible to measure damages for such injuries precisely
and that, in the event of any such failure, the Purchaser, the Destia
Noteholders or any Holder may obtain such relief as may be required to
specifically enforce the Company's obligations under Section 2(a) and Section
2(b) hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect
to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on
the appropriate form under the 1933 Act, which form (x) shall be
selected by the Company and (y) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable Notes by the
selling Holders thereof and (z) shall comply as to form in all material
respects with the requirements of the applicable form and include all
financial statements required by the SEC to be filed therewith, and use
its best efforts to cause such Registration Statement to become
effective and remain effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
applicable period and cause each Prospectus to be
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<PAGE>
supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to
keep each Prospectus current during the period described under Section
4(3) and Rule 174 under the 1933 Act that is applicable to transactions
by brokers or dealers with respect to the Registrable Notes or Exchange
Notes;
(c) in the case of a Shelf Registration, furnish to each
Holder of Registrable Notes, to counsel for the Purchaser, to counsel
for the Holders and to each Underwriter of an Underwritten Offering of
Registrable Notes, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or
Underwriter may reasonably request, in order to facilitate the public
sale or other disposition of the Registrable Notes; and the Company
consents to the use of such Prospectus and any amendment or supplement
thereto in accordance with applicable law by each of the selling
Holders of Registrable Notes and any such Underwriters in connection
with the offering and sale of the Registrable Notes covered by and in
the manner described in such Prospectus or any amendment or supplement
thereto in accordance with applicable law;
(d) use its reasonable best efforts to register or qualify the
Registrable Notes under all applicable state securities or "blue sky"
laws of such jurisdictions as any Holder of Registrable Notes covered
by a Registration Statement shall reasonably request in writing by the
time the applicable Registration Statement is declared effective by the
SEC, to cooperate with such Holders in connection with any filings
required to be made with the National Association of Securities
Dealers, Inc. and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in each such jurisdiction of such Registrable Notes
owned by such Holder; PROVIDED, HOWEVER, that the Company shall not be
required to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required
to qualify but for this Section 3(d), (ii) file any general consent to
service of process or (iii) subject itself to taxation in any such
jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Notes, counsel for the Holders and counsel for the
Purchaser promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has
become effective and when any post-effective amendment thereto has been
filed and becomes effective, (ii) of any request by the SEC or any
state securities authority for amendments and supplements to a
Registration Statement and Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if, between the
effective date of a Registration Statement and the closing of any sale
of Registrable Notes covered thereby, the representations and
warranties of the
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<PAGE>
Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the
qualification of the Registrable Notes for sale in any jurisdiction or
the initiation of any proceeding for such purpose, (v) of the happening
of any event during the period a Shelf Registration Statement is
effective which makes any statement made in such Registration Statement
or the related Prospectus untrue in any material respect or which
requires the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not misleading in
any material respect and (vi) of any determination by the Company that
a post-effective amendment to a Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at
the earliest possible moment and provide prompt notice to each Holder
of the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each
Holder of Registrable Notes, without charge, at least one conformed
copy of each Registration Statement and any post-effective amendment
thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Notes to facilitate the timely
preparation and delivery of certificates representing Registrable Notes
to be sold and not bearing any restrictive legends and enable such
Registrable Notes to be in such denominations (consistent with the
provisions of the Indenture) and registered in such names as the
selling Holders may reasonably request at least two business days prior
to the closing of any sale of Registrable Notes;
(i) in the case of a Shelf Registration, upon the occurrence
of any event contemplated by Section 3(e)(v) hereof, use its best
efforts to prepare and file with the SEC a supplement or post-effective
amendment to a Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Notes, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The Company agrees to notify the
Holders to suspend use of the Prospectus as promptly as practicable
after the occurrence of such an event, and the Holders hereby agree to
suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
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<PAGE>
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document that is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of
such document to the Purchaser and its counsel (and, in the case of a
Shelf Registration Statement, the Holders and their counsel) and make
such of the representatives of the Company as shall be reasonably
requested by the Purchaser or its counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) available for
discussion of such document, and shall not at any time file or make any
amendment to the Registration Statement, any Prospectus or any
amendment of or supplement to a Registration Statement or a Prospectus
or any document (other than a document which the Company is legally
required to file under the Exchange Act) which is to be incorporated by
reference into a Registration Statement or a Prospectus, of which the
Purchaser and its counsel (and, in the case of a Shelf Registration
Statement, the Holders and their counsel) shall not have previously
been advised and furnished a copy or to which the Purchaser or its
counsel (and, in the case of a Shelf Registration Statement, the
Holders or their counsel) shall reasonably object;
(k) obtain a CUSIP number for all Exchange Notes or
Registrable Notes, as the case may be, not later than the effective
date of a Registration Statement;
(l) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Notes or Registrable Notes, as the case
may be, cooperate with the Trustee and the Holders to effect such
changes to the Indenture as may be required for the Indenture to be so
qualified in accordance with the terms of the TIA and execute, and use
its reasonable best efforts to cause the Trustee to execute, all
documents as may be required to effect such changes and all other forms
and documents required to be filed with the SEC to enable the Indenture
to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, upon execution of
customary confidentiality agreements reasonably satisfactory to the
Company and its counsel, make available for inspection by a
representative of the Holders of the Registrable Notes, any Underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and attorneys and accountants designated by the Holders, at
reasonable times and in a reasonable manner, all financial and other
records, pertinent documents and properties of the Company, and cause
the respective officers, directors and employees of the Company to
supply all information reasonably requested by any such representative,
Underwriter, attorney or accountant in connection with a Shelf
Registration Statement;
(n) in the case of a Shelf Registration, if reasonably
requested by any Holder of Registrable Notes covered by such
Registration Statement, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment such information with respect to
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<PAGE>
such Holder as is legally required to be included therein and (ii) make
all required filings of such Prospectus supplement or such
post-effective amendment as soon as the Company has received
notification of the matters to be incorporated in such filing; and
(o) in the case of a Shelf Registration, use its reasonable
best efforts to enter into such customary agreements and take all such
other actions in connection therewith (including those requested by the
Holders of a majority in principal amount of the Registrable Notes
being sold) in order to expedite or facilitate the disposition of such
Registrable Notes including, but not limited to, an Underwritten
Offering and in such connection, (i) to the extent possible, make such
representations and warranties to the Holders and any Underwriters of
such Registrable Notes with respect to the business of the Company and
its subsidiaries, the Shelf Registration Statement, Prospectus and
documents incorporated by reference therein or deemed incorporated by
reference therein, if any, in each case, in form, substance and scope
as are customarily made by issuers to underwriters in underwritten
offerings and confirm the same if and when requested, (ii) use its
reasonable best efforts to obtain opinions of counsel to the Company
(which counsel and opinions, in form, scope and substance, shall be
reasonably satisfactory to the Holders and such Underwriters and their
respective counsel) addressed to each selling Holder and Underwriter of
Registrable Notes, covering the matters customarily covered in opinions
requested in underwritten offerings, (iii) use its reasonable best
efforts to obtain "cold comfort" letters from the independent certified
public accountants of the Company (and, if necessary, any other
certified public accountant of any subsidiary of the Company, or of any
business acquired by the Company for which financial statements and
financial data are or are required to be included in the Shelf
Registration Statement) addressed to each selling Holder and
Underwriter of Registrable Notes, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings, and (iv) deliver
such documents and certificates as may be reasonably requested by the
Holders of a majority in principal amount of the Registrable Notes
being sold or the Underwriters, and which are customarily delivered in
underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause
(i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Notes to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Registrable Notes as the Company may from time to time reasonably request
in writing. No Holder of Registrable Notes may include its Registrable Notes in
such Shelf Registration Statement unless and until such Holder furnishes such
information to the Company. Each Holder including Registrable Notes in a Shelf
Registration shall agree to furnish promptly to the Company any information
regarding such Holder and the proposed distribution by such Holder of such
Registrable Notes required to make any information previously furnished to the
Company by such Holder not materially misleading.
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In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) hereof, such Holder will
forthwith discontinue disposition of Registrable Notes pursuant to a Shelf
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Notes
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Registrable Notes pursuant to a Shelf
Registration Statement, the Company shall extend the period during which the
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. There may not be more than two such suspensions during any
365 day period and any such suspensions may not exceed 30 days for each
suspension.
The Holders of Registrable Notes covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Notes in an
Underwritten Offering; PROVIDED THAT the Company shall be required to use its
reasonable best efforts to effect an underwritten offering only upon the request
of Holders of at least 25% in aggregate principal amount of the Registrable
Notes outstanding at the time such request is delivered to the Company. In any
such Underwritten Offering, the investment banker or investment bankers and
manager or managers (the "UNDERWRITERS") that will administer the offering will
be selected by the Majority Holders of the Registrable Notes included in such
offering, subject to approval by the Company, which approval will not be
unreasonably withheld.
4. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The staff of the SEC has taken the position that any
broker-dealer that receives Exchange Notes for its own account in the Exchange
Offer in exchange for Notes that were acquired by such broker-dealer as a result
of market-making or other trading activities (a "PARTICIPATING BROKER-DEALER")
may be deemed to be an "underwriter" within the meaning of
the 1933 Act and must deliver a prospectus meeting the requirements of the 1933
Act in connection with any resale of such Exchange Notes.
The Company understands that it is the position of the staff
of the SEC that if the Prospectus contained in the Exchange Offer Registration
Statement includes a plan of distribution containing a statement to the above
effect and the means by which Participating Broker-Dealers may resell the
Exchange Notes, without naming the Participating Broker-Dealers or specifying
the amount of Exchange Notes owned by them, such Prospectus may be delivered by
Participating Broker-Dealers to satisfy their prospectus delivery obligation
under the 1933 Act in connection with resales of Exchange Notes for their own
accounts, so long as the Prospectus otherwise meets the requirements of the 1933
Act.
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(b) In light of the above, notwithstanding the other
provisions of this Agreement, the Company agrees that the provisions of this
Agreement as they relate to a Shelf Registration shall also apply to an Exchange
Offer Registration to the extent, and with such reasonable modifications thereto
as may be, reasonably requested by the Purchaser or by one or more Participating
Broker-Dealers, in each case as provided in clause (ii) below, in order to
expedite or facilitate the disposition of any Exchange Notes by Participating
Broker-Dealers consistent with the positions of the staff of the SEC recited in
Section 4(a) above; PROVIDED THAT:
(i) the Company shall not be required to amend or supplement
the Prospectus contained in the Exchange Offer Registration Statement,
as would otherwise be contemplated by Section 3(i), for a period
exceeding 180 days after the last Exchange Date (as such period may be
extended pursuant to the penultimate paragraph of Section 3 of this
Agreement) and Participating Broker-Dealers shall not be authorized by
the Company to deliver and shall not deliver such Prospectus after such
period in connection with the resales contemplated by this Section 4;
and
(ii) the application of the Shelf Registration procedures set
forth in Section 3 of this Agreement to an Exchange Offer Registration,
to the extent not required by the positions of the staff of the SEC or
the 1933 Act and the rules and regulations thereunder, will be in
conformity with the reasonable request to the Company by the Purchaser
or with the reasonable request in writing to the Company by one or more
broker-dealers who certify to the Purchaser and the Company in writing
that they anticipate that they will be Participating Broker-Dealers;
and PROVIDED FURTHER that, in connection with such application of the
Shelf Registration procedures set forth in Section 3 to an Exchange
Offer Registration, the Company shall be obligated (x) to deal only
with one entity representing the Participating Broker-Dealers, which
shall be Morgan Stanley & Co. Incorporated unless it elects not to act
as such representative, (y) to pay the fees and expenses of only one
counsel representing the Participating Broker-Dealers, which shall be
counsel to the Purchaser unless such counsel elects not to so act, and
(z) to cause to be delivered only one, if any, "cold comfort" letter
with respect to the Prospectus in the form existing on the last
Exchange Date and with respect to each subsequent amendment or
supplement, if any, effected during the period specified in clause (i)
above.
(c) the Purchaser shall have no liability to the Company or
any Holder with respect to any request that it may make pursuant to Section 4(b)
above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Purchaser, each Holder and each person, if any, who controls the Purchaser or
any Holder within the meaning of either Section 15 of the 1933 Act or Section 20
of the 1934 Act, or is under common control with, or is controlled by, the
Purchaser or any Holder, from and against all losses, claims,
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damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by the Purchaser, any Holder or any such
controlling or affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Notes or Registrable Notes were
registered under the 1933 Act, including all documents incorporated therein by
reference, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or caused by any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Purchaser or any Holder furnished to the Company in writing by
the Purchaser or any selling Holder expressly for use therein; PROVIDED THAT the
foregoing indemnity agreement shall not inure to the benefit of any Holder or
any Person controlling such Holder, with respect to any sale or disposition of
Registrable Notes by such Holder in violation of the penultimate paragraph of
Section 3 of this Agreement. In connection with any Underwritten Offering
permitted by Section 3, the Company will also indemnify the Underwriters, if
any, selling brokers, dealers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of either Section 15 of the 1933
Act or Section 20 of the 1934 Act) to the same extent as provided above with
respect to the indemnification of the Holders, if requested in connection with
any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Purchaser and the other selling
Holders, and each of their respective directors, officers who sign the
Registration Statement and each Person, if any, who controls the Company, the
Purchaser and any other selling Holder within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act to the same extent as the
foregoing indemnity from the Company to the Purchaser and the Holders, but only
with reference to information relating to such Holder furnished to the Company
in writing by such Holder expressly for use in any Registration Statement (or
any amendment thereto) or any Prospectus (or any amendment or supplement
thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section, except to the extent that it has
been prejudiced in any material respect by such failure, or from any liability
it may otherwise have) and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably
14
<PAGE>
satisfactory to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (A) the reasonable fees and expenses of more than one separate
firm (in addition to any local counsel) for the Purchaser and all Persons, if
any, who control the Purchaser within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, (B) the reasonable fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each Person,
if any, who controls the Company within the meaning of either such Section and
(C) the reasonable fees and expenses of more than one separate firm (in addition
to any local counsel) for all Holders and all Persons, if any, who control any
Holders within the meaning of either such Section, and that all such fees and
expenses shall be reimbursed as they are incurred. In such case involving the
Holders and such Persons who control Holders, such firm shall be designated in
writing by the Majority Holders. In all other cases, such firm shall be
designated by the Company. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but, if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (x) such settlement is
entered into more than 60 days after receipt by such indemnifying party of the
aforesaid request and (y) such indemnifying party shall not have reimbursed the
indemnified party for such fees and expenses of counsel in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party (which consent may
not be unreasonably withheld), effect any settlement of any pending or
threatened proceeding in respect of which such indemnified party is or could
have been a party and indemnity could have been sought hereunder (whether or not
any indemnified party is an actual or potential party to such proceeding) by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such proceeding.
(d) To the extent the indemnification provided for in
paragraph (a) or paragraph (b) of this Section 5 is unavailable to an
indemnified party or insufficient in respect of any losses, claims, damages or
liabilities referred to therein, then each indemnifying party under
15
<PAGE>
such paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or parties,
on the one hand, and of the indemnified party or parties, on the other hand, in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company and the Holders shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the Holders
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective principal amount of Registrable Notes of such
Holder that were registered pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
PRO RATA allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Notes were sold by such Holder exceeds the amount of any damages
that such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The remedies provided for in this Section 5
are not exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this
Section 5 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Purchaser, any Holder or any Person controlling the Purchaser or any
Holder, or by or on behalf of the Company, its officers or directors or any
Person controlling the Company, (iii) acceptance of any of the Exchange Notes
and (iv) any sale of Registrable Notes pursuant to a Shelf Registration
Statement.
16
<PAGE>
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered
into, and on or after the date of this Agreement will not enter into, any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the provisions
hereof. The rights granted to the Holders hereunder do not in any way conflict
with and are not inconsistent with the rights granted to the holders of the
Company's other issued and outstanding securities under any such agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Notes which are affected by such amendment, modification,
supplement, waiver or consent; PROVIDED, HOWEVER, that no amendment,
modification, supplement, waiver or consent to any departure from the provisions
of Section 5 hereof shall be effective as against any Holder of Registrable
Notes unless consented to in writing by such Holder.
(c) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Purchaser, the
address set forth in the Purchase Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(c).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the person giving the same to the Trustee, at
the address specified in the Indenture.
17
<PAGE>
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; PROVIDED THAT nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Notes in violation of the terms of the Purchase Agreement. If any transferee of
any Holder shall acquire Registrable Notes, in any manner, whether by operation
of law or otherwise, such Registrable Notes shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Notes such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement and such person shall be
entitled to receive the benefits hereof. The Purchaser (in its capacity as the
Purchaser) shall have no liability or obligation to the Company with respect to
any failure by a Holder to comply with, or any breach by any Holder of, any of
the obligations of such Holder under this Agreement.
(e) PURCHASES AND SALES OF NOTES. The Company shall not, and
shall use its best efforts to cause its affiliates (as defined in Rule 405 under
the 1933 Act) not to, purchase and then resell or otherwise transfer any Notes.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Purchaser, on the other hand, and shall have the right to enforce
such agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
VIATEL, INC.
By: /s/ Michael J. Mahoney
-----------------------------------------
Name: Michael J. Mahoney
Title: President and Chief Executive Officer
Confirmed and accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
By: /s/ James D. Allen
-----------------------------------
Name: James D. Allen
Title: Vice President
<PAGE>
VIATEL, INC.
$63,666,000 OF 11.50% SENIOR DOLLAR NOTES DUE 2009
PURCHASE AGREEMENT
DECEMBER 8, 1999
<PAGE>
PURCHASE AGREEMENT
December 8, 1999
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036-8293
Dear Sirs and Mesdames:
Viatel, Inc., a Delaware corporation (the "COMPANY"), proposes
to issue and sell to Morgan Stanley & Co. Incorporated (the "PURCHASER") an
aggregate of $63,666,000 principal amount of 11.50% Senior Dollar Notes Due 2009
of the Company (the "NEW NOTES") to be issued pursuant to the provisions of an
indenture, to be dated December 8, 1999 (the "INDENTURE"), between the Company
and The Bank of New York, as trustee (in such capacity, the "TRUSTEE").
Simultaneous with the sale of the New Notes, the Company is
completing its (i) offer to exchange (hereinafter, the "EXCHANGE OFFER") $686.03
principal amount of 11.50% Senior Dollar Notes due 2009 of the Company (the
"ADDITIONAL NOTES") and a total cash consideration of $71.24 (including a
consent fee of $20.00) (collectively, the "TOTAL CONSIDERATION") payable by the
Company for each $1,000 principal amount at maturity of outstanding 11% Senior
Discount Notes Due 2008 (the "DESTIA NOTES") of Destia Communications, Inc.
(formerly known as Econophone, Inc.), a Delaware corporation ("DESTIA"), and
(ii) consent solicitation of the holders of the Destia Notes (hereinafter, the
"CONSENT SOLICITATION") to certain proposed amendments to the indenture pursuant
to which the Destia Notes were issued and waivers from such holders of the
Destia Notes of their right to participate in any repurchase offer for the
Destia Notes, on the terms and subject to the conditions set forth in the
Offering Memorandum and Consent Solicitation, dated November 4, 1999. The New
Notes and the Additional Notes shall hereinafter collectively be referred to as
the "NOTES" and this agreement between the Company and you as set forth herein
shall hereinafter be referred to as the "AGREEMENT."
Pursuant to the terms of the Indenture, on the Closing Date
(hereinafter defined for the purposes of this Agreement), the Company will
purchase and pledge to the Trustee for the benefit of the registered holders of
the Notes, pursuant to the terms of the Collateral Pledge and Security
Agreement, dated December 8, 1999 (the "PLEDGE AGREEMENT"), Pledged Security
Entitlements (as defined in the Pledge Agreement) in an amount sufficient, upon
receipt of scheduled interest and principal payments on such securities, to
provide for the payment in full of the first three scheduled interest payments
on the Notes.
<PAGE>
Capitalized terms used herein without definition have the
respective meanings specified in the Offering Memorandum (as defined below).
The New Notes will be offered without being registered under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act) in
compliance with the exemption from registration provided by Rule 144A under the
Securities Act.
The holders of the Notes, and their direct and indirect
transferees will be entitled to the benefits of a Registration Rights Agreement
relating to the Notes, to be dated the date hereof, and to be substantially in
the form attached hereto as EXHIBIT A (the "REGISTRATION RIGHTS AGREEMENT").
In connection with the sale of the New Notes to the Purchaser,
the Company has prepared an offering memorandum, dated December 8, 1999 (the
"OFFERING MEMORANDUM"), setting forth or including a description of the terms of
the New Notes, the terms of the offering and a description of the Company and
its business.
1. REPRESENTATIONS AND WARRANTIES.
THE COMPANY REPRESENTS AND WARRANTS TO, AND AGREES WITH, YOU
THAT AS OF THE DATE HEREOF:
(a) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with full corporate power and corporate authority to own
its properties and to conduct its business as described in the Offering
Memorandum and is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a Material
Adverse Effect (as defined below) on the Company and its Subsidiaries
(as defined below), taken as a whole.
(b) Each subsidiary of the Company is listed on EXHIBIT B
hereto (each a "SUBSIDIARY" and, collectively, the "SUBSIDIARIES") and,
if applicable to such country, each of the Subsidiaries operating in
such country has been duly incorporated or otherwise organized, is
validly existing in good standing under the laws of the jurisdiction of
its incorporation or organization, with full corporate power and
corporate authority to own its properties and to conduct its business
as described in the Offering Memorandum and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in
2
<PAGE>
good standing would not have a Material Adverse Effect (defined below)
on the Company and the Subsidiaries, taken as a whole. For the purposes
of Section 1 of this Agreement, Destia and the subsidiaries of Destia
are not deemed subsidiaries of the Company.
(c) All of the issued shares of capital stock or other equity
interests, as the case may be, of each Subsidiary of the Company have
been duly authorized and are validly issued, fully paid and
non-assessable and are owned, either directly or indirectly, by the
Company, free and clear of all liens, encumbrances, equities or claims,
other than those indicated in the Offering Memorandum.
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) The New Notes have been duly authorized by the Company
and, when issued and authenticated in accordance with the Indenture and
delivered to and paid for by the Purchaser in accordance with the terms
of this Agreement and the Indenture, will (x) be valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, except as the enforceability thereof may
be limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and subject to general equitable principles (whether
considered in a proceeding in equity or at law) (the "ENFORCEABILITY
EXCEPTIONS"), and (y) be entitled to the benefits of the Indenture
pursuant to which such New Notes are to be issued, the Registration
Rights Agreement, the Pledge Agreement and the Notification and Control
Agreement, dated as of December 8, 1999 (the "CONTROL AGREEMENT").
(f) The Offering Memorandum does not, and on the Closing Date
will not, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this
paragraph do not apply to statements in or omissions from the Offering
Memorandum (or any supplement or amendment thereto) based upon
information relating to the Purchaser furnished to the Company in
writing by the Purchaser expressly for use therein.
(g) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indenture, the Registration Rights Agreement, the Pledge Agreement,
the Control Agreement and the Notes (collectively, the "TRANSACTION
DOCUMENTS") and the issuance, sale and delivery of the New Notes in
accordance with their terms will not contravene (i) any provision of
applicable law, (ii) the certificate of incorporation or by-laws of the
Company, (iii) any material agreement or other instrument binding upon
the Company or any of its
3
<PAGE>
Subsidiaries, or (iv) any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
Subsidiary, except with respect to clauses (i) and (iii) to the extent
that any contravention would not have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole, and, no consent,
approval, authorization, exemption or order of, or qualification or
filing with, any governmental body or agency is required for the
performance by the Company of its obligations under the Transaction
Documents (other than such consent, approval, authorization, exemption,
order or other action which has been obtained), except (x) such as may
be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Notes, or the issuance and
exchange pursuant to the Exchange Offer, of the Additional Notes issued
in exchange for the Destia Notes, (y) such as may be required by
federal and state securities laws with respect to the Company's
obligations under the Registration Rights Agreement and (z) for any
consents, approvals, authorizations, orders or qualifications, the
failure to obtain which would not have a Material Adverse Effect on the
ability of the Company to perform its obligations under the Transaction
Documents.
(h) any Company document incorporated by reference in the
Offering Memorandum, or filed with the Securities and Exchange
Commission after the date hereof, or from which information is so
incorporated by reference when filed or becoming effective, as the case
may be, shall comply in all material respects with the requirements of
the Securities Act and the Securities Exchange Act of 1934 (the
"EXCHANGE ACT"), as applicable, and the rules and regulations
promulgated thereunder.
(i) The Indenture and the Registration Rights Agreement have
been duly authorized by the Company and, when duly executed and
delivered by the Company, will constitute valid and legally binding
obligations of the Company, enforceable against the Company in
accordance with their terms, subject to the Enforceability Exceptions
and except that (x) rights to indemnification and contribution may be
limited by public policy and (y) provisions of the Indenture, if any,
requiring any waiver of stay or extension laws, diligent performance or
other acts on the part of the Trustee may be unenforceable under
principles of public policy.
(j) Each of the Pledge Agreement and the Control Agreement has
been duly authorized by the Company and, when executed and delivered by
the Company, will constitute a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its
terms, subject to the Enforceability Exceptions.
(k) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing the Pledged Security Entitlements,
the pledge of and grant of a security interest in the Pledged Security
Entitlements for the benefit of the Trustee and the Holders, as the
case may be, will constitute a first priority security interest in the
Pledged
4
<PAGE>
Security Entitlements, enforceable against all creditors of the Company
(and any persons purporting to purchase any of the Pledged Security
Entitlements from the Company).
(l) The New Notes and the Indenture conform in all material
respects to the descriptions thereof contained in the Offering
Memorandum under the heading "Description of the Notes."
(m) Assuming the accuracy of the Purchaser's representations
contained herein and the Purchaser's compliance with its agreements
hereunder, it is not necessary to register the New Notes under the
Securities Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended.
(n) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations (a "MATERIAL ADVERSE EFFECT") of the Company and its
Subsidiaries, taken as a whole, from that set forth in the Offering
Memorandum, dated December 8, 1999, attached as EXHIBIT C; furthermore,
(i) other than the transactions contemplated hereby (including, without
limitation, any related borrowings by the Company or any of its
Subsidiaries or affiliates and by the Joint Proxy Statement/Prospectus,
dated October 15, 1999, and the Exchange Offer), the Company and its
Subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in
the ordinary course of business; (ii) the Company has not purchased any
of its outstanding capital stock, nor declared, paid or otherwise made
any dividend or distribution of any kind on its capital stock other
than ordinary and customary dividends; and (iii) other than the
increase in the Company's authorized common stock adopted at its 1999
annual meeting of stockholders, there has not been any material change
in the capital stock, short-term debt or long-term debt of the Company
and its consolidated Subsidiaries, taken as a whole, except in each
case as described in the Offering Memorandum.
(o) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened to which the Company or any
of its Subsidiaries is or may be a party, or to which any of the
properties of the Company or any of its Subsidiaries is or may be
subject other than proceedings accurately described in all material
respects in the Offering Memorandum and proceedings that are not
reasonably likely to have a Material Adverse Effect on the Company and
its Subsidiaries, taken as a whole, or on the power or ability of the
Company to perform its obligations under any of the Transaction
Documents or to consummate the transactions contemplated by the
Offering Memorandum.
(p) The Company is not, and after giving effect to the
offering and sale of the New Notes, and the application of the proceeds
thereof as described in the Offering
5
<PAGE>
Memorandum under the caption "Use of Proceeds," will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended.
(q) Neither the Company nor any affiliate of the Company (as
defined in Rule 501(b) of Regulation D under the Securities Act, an
"AFFILIATE") has directly, or through any agent, (i) sold, offered for
sale, solicited offers to buy or otherwise negotiated in respect of,
any security (as defined in the Securities Act) which is or will be
integrated with the sale of the New Notes in a manner that would
require the registration under the Securities Act of the New Notes or
(ii) engaged in any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Securities Act) in
connection with the offering of the New Notes in any manner involving a
public offering within the meaning of Section 4(2) of the Securities
Act.
(r) The Company and its Subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
Material Adverse Effect on the Company and its Subsidiaries, taken as a
whole.
(s) There are no costs and liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole.
(t) The New Notes satisfy the requirements set forth in Rule
144A(d)(3) under the Securities Act.
(u) Except as described in the Offering Memorandum, the
Company and its Subsidiaries (i) have all necessary consents,
authorizations, approvals, orders, certificates and permits of and
from, and have made all declarations and filings with, all federal,
state, local and other governmental, administrative or regulatory
authorities, all self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use
their properties and assets and to conduct their business in the manner
described in the Offering Memorandum, except to the extent that the
failure to obtain such consents,
6
<PAGE>
authorizations, approvals, orders, certificates or permits or make such
declarations or filings would not have a Material Adverse Effect on the
Company and its Subsidiaries, taken as a whole; and (ii) have not
received any notice of proceedings relating to the violation,
revocation or modification of any such license, consent, authorization,
approval, order, certificate or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would reasonably be expected to have a Material Adverse Effect
on the Company and its Subsidiaries, taken as a whole.
(v) The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, taken as a whole, in each
case free and clear of all liens, encumbrances and defects except (i)
such as are reflected in the Company's financial statements or are
described in the Offering Memorandum; (ii) such as do not materially
affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and its
Subsidiaries; or (iii) such as do not have a Material Adverse Effect on
the Company and its Subsidiaries, taken as a whole; and any real
property and buildings held under lease by the Company and its
Subsidiaries are held by them under valid, binding and enforceable
leases with such exceptions as are not material and do not materially
interfere with the use made and proposed to be made of such property
and buildings by the Company and its Subsidiaries, in each case except
as described in or contemplated by the Offering Memorandum and subject
to the Enforceability Exceptions.
(w) The Company and its Subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them, and, except as set forth in the Offering
Memorandum, neither the Company nor any of its Subsidiaries has
received any notice of infringement of or conflict with asserted rights
of others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would be reasonably likely to have a Material Adverse Effect
on the Company and its Subsidiaries, taken as a whole.
(x) No material labor dispute with the employees of the
Company or any of its Subsidiaries exists, except as described in or
contemplated by the Offering Memorandum, or, to the knowledge of the
Company, is imminent; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors that might reasonably
be expected to have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
(y) (i) The Company and its Subsidiaries are insured against
such losses and risks and in such amounts as the Company reasonably
believes are prudent and customary
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in the businesses in which they are engaged; (ii) neither the Company
nor any such Subsidiary has been refused any insurance coverage sought
or applied for; and (iii) neither the Company nor any such Subsidiary
has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse
Effect on the Company and its Subsidiaries, taken as a whole, except as
described in or contemplated by the Offering Memorandum.
(z) The Company and its Subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to
any differences.
(aa) The Company has reviewed its operations and that of its
Subsidiaries to evaluate the extent to which the business or operations
of the Company or any of its Subsidiaries will be affected by the Year
2000 Problem (that is, any significant risk that computer hardware or
software applications used by the Company and its subsidiaries will
not, in the case of dates or time periods occurring after December 31,
1999, function at least as effectively as in the case of dates or time
periods occurring prior to January 1, 2000); as a result of such
review, (i) the Company has no reason to believe, and does not believe,
that (A) there are any issues related to the Company's preparedness to
address the Year 2000 Problem that are of a character required to be
described or referred to in the Offering Memorandum which have not been
accurately described in the Offering Memorandum and (B) with respect to
the systems of the Company and its Subsidiaries, the Year 2000 Problem
will have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, or result in any material loss or
interference with the business or operations of the Company and its
Subsidiaries, taken as a whole; and (ii) the Company reasonably
believes, after due inquiry, that the suppliers, vendors, customers or
other material third parties used or served by the Company and such
Subsidiaries are addressing or will address the Year 2000 Problem in a
timely manner, except to the extent that a failure to address the Year
2000 Problem by any supplier, vendor, customer or material third party
would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees
to sell to the Purchaser, and the Purchaser upon the basis of the
representations and warranties herein
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contained, but subject to the conditions hereinafter stated, agrees to purchase
from the Company New Notes in the aggregate principal amount of $63,666,000
million at a purchase price equal to 91.50% of the principal amount of the New
Notes (LESS $595,248.77) (the "PURCHASE PRICE"), plus accrued interest, if any,
on the New Notes from the date of issuance of the New Notes to the Closing Date.
The Company hereby agrees that, without the prior
written consent of the Purchaser, it will not, during the period beginning on
the date hereof, and continuing to and including the Closing Date, offer, sell,
contract to sell or otherwise dispose of any debt of the Company or warrants to
purchase debt of the Company substantially similar to the New Notes (other than
the sale of the Notes under this Agreement, and except as contemplated by the
Exchange Offer).
3. TERMS OF OFFERING. You have advised the Company that you
will make an offering of the Notes purchased by you hereunder on the terms set
forth in the Offering Memorandum, as soon as practicable after this Agreement is
entered into as in your judgment is advisable.
4. PAYMENT AND DELIVERY. Payment for the New Notes shall be
made to the Company in federal or other funds immediately available in New York
City against delivery of such New Notes at the closing to be held at the office
of Kelley Drye & Warren, LLP, 101 Park Avenue, New York, NY 10178, at 9:00 A.M.,
local time, on December 8, 1999, or at such other time on the same or such other
date, not later than December 22, 1999, as shall be agreed to by the Company and
Morgan Stanley & Co. Incorporated. The time and date of such payment are herein
referred to as the "CLOSING DATE."
Certificates for the Notes shall be in definitive form or
global form, as specified by you, and registered in such names and in such
denominations as you shall request in writing not later than two full business
days prior to the Closing Date. The certificates evidencing the Notes shall be
delivered to you on the Closing Date, with any transfer taxes payable in
connection with the transfer of the Notes to the Purchaser duly paid, against
payment of the Purchase Price therefor.
5. CONDITIONS TO THE PURCHASER'S OBLIGATION. The obligations
of the Purchaser to purchase and pay for the Notes on the Closing Date is
subject to the following conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date,
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review
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for a possible change that does not indicate the direction of
the possible change, other than any notice which shall already
have been given as of the date hereof, in the rating accorded
to the Company or any of the Company's securities or in the
rating outlook for the Company by any "nationally recognized
statistical rating organization," as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations, of the Company, its Subsidiaries and Destia, taken
as a whole, from that set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Notes on the terms and in the
manner contemplated in the Offering Memorandum.
(b) The Purchaser shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in Section 5(a)(i) of this
Agreement and to the effect that the representations and warranties of
the Company contained in this Agreement are true and correct as of the
Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions contained herein on its
part to be performed or satisfied hereunder on or before the Closing
Date. The officer signing and delivering such certificate may rely upon
the best of his or her knowledge as to any proceedings threatened.
(c) The Purchaser shall have received, (A) on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Purchaser, from KPMG LLP, independent public accountants,
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Offering Memorandum and (B) on the date hereof, letters dated the date
hereof, in form and substance satisfactory to the Purchaser, from KPMG
LLP, independent public accountants, with respect to agreed-upon
procedures to be applied to information contained in the Offering
Memorandum with respect to billable minutes, revenue per billable
minute and number of customers, and with respect to the Pledged
Security Entitlements; PROVIDED THAT the letters delivered pursuant to
Section 5(c)(A) and Section 5(c)(B) shall use a "cut-off date" not
earlier than 2 business days prior to the date hereof.
(d) The Purchaser shall have received on the Closing Date an
opinion of Kelley Drye & Warren LLP, outside counsel to the Company,
dated the Closing Date, to
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the effect set forth in EXHIBIT D. Such opinion shall be rendered to
the Purchaser at the request of the Company and shall so state therein.
(e) The Purchaser shall have received on the Closing Date
opinions of foreign local counsel in Germany, Switzerland, Italy,
France, Belgium, Spain, The Netherlands and the United Kingdom, dated
the Closing Date, each to the effect set forth in EXHIBIT E or as to
such other form as agreed to by the Purchaser. Such opinions shall be
rendered to the Purchaser at the request of the Company and shall so
state therein.
(f) The Purchaser shall have received on the Closing Date an
opinion of Morrison & Forester, LLP, special U.S. communications
counsel to the Company, together with an opinion of Nebraska counsel,
each dated the Closing Date, substantially to the effect set forth in
EXHIBIT F. Such opinions shall be rendered to the Purchaser at the
request of the Company and shall so state therein.
(g) The Purchaser shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel to the Purchaser, dated the
Closing Date, in form and substance satisfactory to you.
(h) The Registration Rights Agreement and the Pledge Agreement
shall be executed and in full force and effect, and the Company shall
have granted the security interest and made the pledge contemplated by
the Pledge Agreement.
(i) The Exchange Offer and Consent Solicitation shall have
been consummated on or prior to the Closing Date.
(j) The Purchaser shall have received from Destia all
documents to be delivered by Destia, its counsel or its accountants
pursuant to the terms of the Dealer Manager Agreement, dated November
4, 1999 (the "DEALER MANAGER AGREEMENT"), among the Company, Destia and
the Purchaser, including opinions of counsels to Destia, "comfort
letters" from the independent public accountants of Destia and
certificates of officers of Destia.
(k) The Purchaser shall have received on the Closing Date an
opinion of outside counsel to Destia, dated the Closing Date, to the
effect set forth in Exhibit D of the Dealer Manager Agreement. Such
opinion shall be rendered to you at the request of Destia and shall so
state therein.
(l) The Purchaser shall have received on the Closing Date an
opinion of Schulte Roth & Zabel LLP, outside counsel to Destia, dated
the Closing Date, to the effect set forth in Exhibit E of the Dealer
Manager Agreement. Such opinion shall be rendered to you at the request
of Destia and shall so state therein.
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<PAGE>
(m) The Purchaser shall have received on the Closing Date
opinions of foreign local counsel of Destia in Switzerland (to the
effect set forth in Exhibit K of the Dealer Manager Agreement), United
Kingdom (to the effect set forth in Exhibit J of the Dealer Manager
Agreement), Germany (to the effect set forth in Exhibit L of the Dealer
Manager Agreement) and France (to the effect set forth in Exhibit M of
the Dealer Manager Agreement), dated the Closing Date, each opinion to
the effect set forth in their respective Exhibits or as to such other
form as agreed to by you. Each such opinion shall be rendered to you at
the request of Destia and shall so state therein.
(n) The Purchaser shall have received on the Closing Date an
opinion of Swidler, Berlin, Shereff Friedman, special U.S.
communications counsel to Destia, dated the Closing Date, to the effect
set forth in Exhibit I of the Dealer Manager Agreement. Such opinion
shall be rendered to you at the request of Destia and shall so state
therein.
(o) The Purchaser shall have received on the Closing Date an
opinion of counsel to Destia with respect to the disclosure of facts in
the Offering Memorandum in form and substance reasonably acceptable to
you. Such opinion shall be rendered to you at the request of Destia and
shall so state therein.
(p) The Purchaser shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in EXHIBIT H. The officer
signing and delivering such certificate may rely upon the best of his
or her knowledge as to any proceedings threatened.
(q) The Purchaser shall have received such other documents and
certificates as are reasonably requested by you or your counsel.
6. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Purchaser contained in this Agreement, the Company covenants
with the Purchaser as follows:
(a) To use its best efforts to furnish to you in New York
City, without charge, prior to 9:00 a.m. New York City time on December
8, 1999 and during the period mentioned in Section 6(c), as many copies
of the Offering Memorandum, any supplements and amendments thereto and
any documents incorporated by reference therein as you may reasonably
request.
(b) Before amending or supplementing the Offering Memorandum,
to furnish to you a copy of each such proposed amendment or supplement
and not to use any such proposed amendment or supplement without the
consent of Morgan Stanley & Co. Incorporated, which consent shall not
be unreasonably withheld or delayed.
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<PAGE>
(c) If, during such period after the date hereof and prior to
the date on which all of the New Notes shall have been sold by the
Purchaser, any event shall occur or condition exist as a result of
which it is necessary to amend or supplement the Offering Memorandum in
order to make the statements therein, in the light of the circumstances
when the Offering Memorandum is delivered to a purchaser, not
misleading, or if, in the opinion of counsel to the Purchaser it is
necessary to amend or supplement the Offering Memorandum to comply with
applicable law, forthwith to prepare and furnish, at its own expense,
to the Purchaser, either amendments or supplements to the Offering
Memorandum so that the statements in the Offering Memorandum as so
amended or supplemented will not, in the light of the circumstances
when the Offering Memorandum is delivered to a purchaser, be misleading
or so that the Offering Memorandum, as so amended or supplemented, will
comply with applicable law.
(d) To endeavor to qualify the New Notes for offer and sale
under the securities or Blue Sky laws of such jurisdictions as you
shall reasonably request; PROVIDED THAT in no event shall the Company
be obligated to qualify to do business in any jurisdiction in which it
is not now so qualified or to take any action which would subject it to
taxation in any jurisdiction in which it is not now so subject or to
service or process in suits, other than those arising out of the
offering or sale of the Notes in any jurisdiction in which it is not
now so subject.
(e) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the preparation of the
Offering Memorandum and all amendments and supplements thereto; (ii)
the preparation, issuance and delivery of the New Notes, (iii) the fees
and disbursements of the Company's counsel and accountants and the
Trustee and its counsel, (iv) the qualification of such New Notes under
securities or Blue Sky laws in accordance with the provisions of
Section 6(d), including filing fees and the fees and disbursements of
counsel for the Purchaser in connection therewith and in connection
with the preparation of any Blue Sky or legal investment memoranda, (v)
the printing and delivery to the Purchaser in quantities as hereinabove
stated of copies of the Offering Memorandum and any amendments or
supplements thereto, (vi) any fees charged by rating agencies, (vii)
all document production charges and expenses of counsel to the
Purchaser (but not including their fees for professional services) in
connection with the preparation of this Agreement, (viii) the fees and
expenses, if any, incurred in connection with the admission of such New
Notes for trading in the Private Offerings, Resales and Trading through
Automatic Linkages ("PORTAL") Market or any other appropriate market
system, (ix) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the
marketing of the offering, whether by traditional or electronic means,
including, without limitation,
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<PAGE>
expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection
with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and
officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show with the prior
approval of the Company, and (x) all other costs and expenses incident
to the performance of the obligations of the Company hereunder for
which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 8
and Section 11, the Purchaser will pay all of its costs and expenses,
including fees and disbursements of its counsel, transfer taxes payable
on resale of any of the Notes by them and any advertising expenses
connected with any offers they may make.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which would be integrated
with the sale of the New Notes in a manner which would require the
registration under the Securities Act of such New Notes.
(g) Neither the Company nor any Subsidiary will solicit any
offer to buy or offer or sell the New Notes by means of any form of
general solicitation or general advertising (within the meaning of Rule
502(c) under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act,
except as may be contemplated by the Registration Rights Agreement.
(h) While any of the New Notes remain "restricted securities"
within the meaning of Rule 144 under the Securities Act, to make
available, upon request, to any seller of such New Notes the
information specified in Rule 144A(d)(4) under the Securities Act,
unless the Company is then subject to and in compliance with Section 13
or 15(d) of the Exchange Act.
(i) To use its reasonable best efforts to permit the New Notes
to be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market.
(j) The Company shall not, and shall use its best efforts to
cause its Affiliates not to, purchase and then resell or otherwise
transfer any New Notes.
7. OFFERING OF NEW NOTES; RESTRICTIONS ON TRANSFER. (a) The
Purchaser represents and warrants that the Purchaser is a qualified
institutional buyer as defined in Rule 144A under the Securities Act (a "QIB").
The Purchaser agrees with the Company that (i) it will not solicit offers for,
or offer or sell, New Notes by any form of general solicitation or general
advertising (as those terms are used in Rule 502(c) under the Securities Act) or
in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act and (ii) it
14
<PAGE>
will solicit offers for New Notes only from, and will offer such New Notes only
to, persons that it reasonably believes to be other QIBs who, in purchasing such
Notes are deemed to have represented and agreed as provided in the Offering
Memorandum under the caption "Transfer Restrictions."
(b) The Purchaser represents, warrants, and agrees with
respect to offers and sales outside the United States that:
(i) it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public offering of
the Notes, or possession or distribution of the Offering Memorandum or
any other offering or publicity material relating to the Notes, in any
country or jurisdiction where action for that purpose is required;
(ii) the Purchaser will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or
delivers Notes or has in its possession or distributes the Offering
Memorandum or any such other material, in all cases at its own expense;
(iii) the Purchaser has (A) not offered or sold and, prior to
the date six months after the Closing Date, will not offer or sell any
Notes to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and
will not result in an offer to the public in the United Kingdom within
the meaning of the Public Offers of Securities Regulations 1995; (B)
complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United
Kingdom; and (C) only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with
the issue of the Notes to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996, or is a person to whom such
document may otherwise lawfully be issued or passed on; and
(iv) the Purchaser understands that the Notes have not been
and will not be registered under the Securities and Exchange Law of
Japan, and represents that it has not offered or sold, and agrees that
it will not offer or sell, any Notes directly or indirectly in Japan or
for the account of any resident thereof except pursuant to any
exemption from the registration requirements of the Securities and
Exchange Law of Japan and otherwise in compliance with applicable
provisions of Japanese law.
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8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Purchaser, and each person, if any, who controls the Purchaser within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Offering Memorandum (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, HOWEVER, that the Company wi9ill not be liable
in any such case to the extent, but only to the extent, that any such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to the Purchaser furnished to the Company in writing by the Purchaser expressly
for use therein.
(b) The Purchaser agrees to indemnify and hold harmless the
Company, its directors, its officers and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Company to the Purchaser, but only with reference to information relating to the
Purchaser furnished to the Company in writing by the Purchaser expressly for use
in the Offering Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to any provision of Section 8(a) or Section
8(b), such person (the "indemnified party") shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
(but the failure to so notify an indemnifying party shall not relieve it from
any liability which it may have under this Section 8, except to the extent that
it has been prejudiced in any material respect by such failure, or from any
liability it may otherwise have) and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any
16
<PAGE>
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm (in addition to any
local counsel) for all such indemnified parties and that all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by Morgan Stanley & Co. Incorporated in the case of parties
indemnified pursuant to Section 8(a) and by the Company in the case of parties
indemnified pursuant to Section 8(b). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 60 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, which consent may not be
unreasonably withheld, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder (whether or not any
indemnified party is an actual or potential party to such proceeding) by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) To the extent the indemnification provided for in any
provision of Section 8(a) or Section 8(b) is unavailable to an indemnified party
or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such section, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the Purchaser,
on the other hand, from the offering of such Notes, or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Company and the
Purchaser in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Purchaser, on the other hand, in connection with the offering of the New
Notes shall be deemed to be in the same respective proportions as the net
proceeds from the offering of the New Notes (net of discounts and commissions
but before deducting expenses) received by the Company and the total discounts
and commissions received by the Purchaser in respect thereof bear to the
aggregate offering price of the New Notes. The relative fault of the Company, on
the one hand, and the Purchaser, on the other hand, shall be determined by
reference to,
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among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Purchaser and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
(e) The Company and the Purchaser agree that it would not be
just or equitable if contribution pursuant to this Section 8 were determined by
PRO RATA allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in Section 8(d) above shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, the Purchaser shall not be required to contribute any amount in
excess of the amount by which the total price at which the New Notes resold by
it in the initial placement of such New Notes were offered to investors exceeds
the amount of any damages that the Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 8 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
(f) The indemnity and contribution provisions contained in
this Section 8 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of the Purchaser or any person controlling
the Purchaser or by or on behalf of the Company, or any of its officers or
directors or any person controlling the Company, and (iii) acceptance of and
payment for any of the New Notes.
9. EFFECTIVENESS. This Agreement shall become effective upon
the execution and delivery hereof by the parties hereto.
10. MISCELLANEOUS. If this Agreement shall be terminated by
the Purchaser because of any failure or refusal on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement, or
if for any reason the Company shall be unable to perform its obligations under
this Agreement (other than by reason of a breach of this Agreement by the
Purchaser), the Company will reimburse the Purchaser for all out-of-pocket
expenses (including the fees and disbursements of its counsel) reasonably
incurred by the Purchaser in connection with this Agreement or the offering
contemplated hereunder.
18
<PAGE>
11. NOTICES. All notices and other communications required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally to the parties hereto as
follows:
(a) If to the Purchaser:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attention: James D. Allen
(b) If to the Company:
Viatel, Inc.
685 Third Avenue
New York, New York 10017
Attention: James P. Prenetta
Vice President and General Counsel
with a copy to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901
Attention: Jay R. Schifferli
12. COUNTERPARTS. This Agreement may be signed in any number
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
14. HEADINGS. The headings of the sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed a
part of this Agreement.
<PAGE>
Please confirm your agreement to the foregoing by signing in
the space provided below for that purpose and returning to us a copy hereof,
whereupon this Agreement shall constitute a binding agreement between Viatel,
Inc. and the Purchaser.
Very truly yours,
VIATEL, INC.
By: /s/ Michael J. Mahoney
----------------------
Name: Michael J. Mahoney
Title: President and Chief Executive
Officer
Agreed, December 8, 1999
MORGAN STANLEY & CO. INCORPORATED
By: /s/ James D. Allen
-------------------
Name: James D. Allen
Title: Vice President
<PAGE>
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT B
SUBSIDIARIES OF VIATEL, INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION OR ORGANIZATION
- ------------------ ---------------------------------------------
<S> <C>
Viatel U.K. Limited England and Wales
Viatel Belgium Limited England and Wales
Viatel Circe Assets Limited England and Wales
Viatel Spain Limited England and Wales
Viatel (I) Limited England and Wales
Viatel UK Holdings Ltd.
(formerly, Viatel Staines Limited and Viatel England and Wales
Circe Assets Ltd.)
Viatel Austria Limited England and Wales
Network Managed Services England and Wales
Viatel Global Communications S.p.A.
(formerly Viaphone S.R.L.) Italy
Viatel S.R.L. Italy
Viatel Operations, S.A. France
Viatel S.A. France
VPN S.A.R.L. France
Viafon Dat Iberica, S.A. Spain
Viatel Global Communications Espana S.A. Spain
Viatel Belgium NV/SA Belgium
Viaphone NV/SA Belgium
Viatel GmbH Germany
Viatel Communications GmbH Germany
(formerly Viaphone GmbH)
Vicame Infrastructure Development GmbH Germany
Viatel German Asset GmbH Germany
Viatel AG Switzerland
Viaphone AG Switzerland
Viatel Global Communications B.V. Netherlands
Viafoperations Communications B.V. Netherlands
Strijk B.V. Netherlands
Viacol Ltda. Colombia
Viatel Colombia Management, Inc. Delaware
Viatel Colombia Holdings, Inc. Delaware
Viatel Sales U.S.A., Inc. Delaware
YYC Communications, Inc. Delaware
Viatel Nebraska, Inc. Delaware
Viatel Sweden, Inc. Delaware
Viatel Finland, Inc. Delaware
Viatel Argentina Holdings, Inc. Delaware
Viatel Argentina Management, Inc. Delaware
Viatel Brazil Management, Inc. Delaware
Viatel Brazil Holdings, Inc. Delaware
Viatel Development Company Delaware
Viatel Circe Cable System, Limited Delaware
</TABLE>
<PAGE>
Viatel Finance Company L.L.C. Delaware
Viatel Global Communications, Ltd. Delaware
Viatel New Jersey, Inc. Delaware
Viatel, Inc. Delaware
Viatel Virginia, Inc. Virginia
********
<PAGE>
EXHIBIT C
OFFERING MEMORANDUM,
DATED DECEMBER 8, 1999
<PAGE>
EXHIBIT D
FORM OF OPINION OF
KELLEY DRYE & WARREN LLP
Pursuant to Section 5(d) of the Purchase Agreement, Kelley
Drye & Warren LLP shall deliver an opinion to the effect that:
(A) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware with full corporate power and corporate authority to own
its properties and to conduct its business as described in the Offering
Memorandum (references herein to the Offering Memorandum being taken to
mean the same, as amended or supplemented), and is duly qualified to
transact business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership
or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would
not have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole;
(B) the Company has all necessary corporate power and
authority, and has taken all necessary corporate action, to duly and
validly authorize the issuance and sale of the Notes, the execution,
delivery and performance of, and the consummation of the transactions
contemplated in, this Agreement, the Indenture, the Registration Rights
Agreement, the Collateral Pledge and Security Agreement, the
Notification and Control Agreement and the Dealer Manager Agreement
(such documents shall, hereinafter, be referred to collectively as, the
"Transaction Documents" and such transactions shall, hereinafter, be
referred to collectively as, the "Contemplated Transactions"), and no
other corporate proceedings by the Company are necessary to authorize
the execution and delivery by the Company of the Transaction Documents
or the performance by the Company of the Contemplated Transactions;
(C) the Purchase Agreement has been duly authorized, executed
and delivered by the Company;
(D) the Pledge Agreement and the Control Agreement have been
duly authorized, executed and delivered by the Company, and assuming
due authorization, execution and delivery by the Trustee, the Pledge
Agreement and Control Agreement will constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and equitable principles (whether considered in a
proceeding in equity or at law);
<PAGE>
D-2
(E) upon the delivery to the Trustee of the certificates or
instruments, if any, representing the Pledged Security Entitlements,
the pledge of and grant of a security interest in the Pledged Security
Entitlements for the benefit of the Trustee and the Holders will
constitute a first priority security interest in the Pledged Security
Entitlements, enforceable as against all creditors of the Company (and
any person purporting to purchase any of the Pledged Security
Entitlements from the Company);
(F) the Notes have been duly authorized, executed, and issued
by the Company and, assuming due authentication thereof by the Trustee
in accordance with the terms of the Indenture and upon payment and
delivery in accordance with the terms of the Purchase Agreement, will
(x) constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms, except
as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights generally and equitable
principles (whether considered in a proceeding in equity or at law) and
(y) be entitled to the benefits of the Indenture, the Registration
Rights Agreement, the Pledge Agreement and the Control Agreement;
(G) each of the Indenture and the Registration Rights
Agreement has been duly authorized, executed and delivered by the
Company, and, assuming the due authorization, execution and delivery by
the other parties thereto, constitutes a valid and legally binding
obligation of the Company, enforceable against the Company in
accordance with its terms except as (x) the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar state or federal laws
affecting the rights and remedies of creditors generally and general
equitable principles (whether considered in a proceeding in equity or
at law), (y) rights to indemnification and contribution may be limited
by public policy and (z) provisions of the Indenture, if any, requiring
any waiver of stay or extension laws, diligent performance or other
acts on the part of the Trustee may be unenforceable under principles
of public policy;
(H) neither the execution, delivery nor performance by the
Company of its obligations under the Transaction Documents nor the
issuance, sale and delivery of the Notes in accordance with their terms
will contravene (i) the DGCL or any U.S. federal or New York State law,
statute, ordinance, rule, regulation, judgment, order or decree
applicable to the Company or any of its assets or properties, whether
owned or leased, (ii) the Certificate of Incorporation or By-laws of
the Company, (iii) any agreement or other instrument binding upon the
Company or any of its Subsidiaries that is material to the Company and
its Subsidiaries, taken as a whole, or (iv) any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over the Company or any Subsidiary, except, in the case of clauses (i),
(iii) and (iv), for such contraventions which
<PAGE>
D-3
would not have a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole and, except as may be required under
applicable state securities or Blue Sky laws, and except for the filing
of registration statements under the Securities Act and qualification
of the Supplemental Indenture under the Trust Indenture Act in
connection with the Registration Rights Agreement, no consent,
approval, authorization or order of, or qualification with, any U.S.
federal or New York or Delaware state governmental body or agency is
required for the performance by the Company of its obligations under
the Transaction Documents;
(I) to the best knowledge of such counsel, there is no legal
or governmental proceeding, now pending or threatened, to which the
Company or any of its Subsidiaries is a party or to which any of the
properties of the Company or any of its Subsidiaries is or may be
subject that is required to be disclosed in the Offering Memorandum and
that is not so disclosed, or which could reasonably be expected to have
a Material Adverse Effect on the Company and its Subsidiaries, taken as
a whole, or on the ability of the Company to perform its obligations
under the Transaction Documents or to consummate the transactions
contemplated by the Offering Memorandum;
(J) the Company is not, and after giving effect to the
offering and sale of the Notes and the application of the proceeds
thereof as described in the Offering Memorandum, will not be an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(K) the statements in the Offering Memorandum under the
captions "Business -- Legal Proceedings," "Description of Certain
Indebtedness," "Description of the Notes,""Private Placement" and
"Transfer Restrictions," in each case insofar as such statements
constitute summaries of the legal matters, documents or proceedings
referred to therein, constitute accurate summaries of the matters
described therein in all material respects;
(L) the statements in the Offering Memorandum, under the
caption "Certain Income Tax Considerations -- Certain United States
Federal Income Tax Considerations" insofar as such statements
constitute summaries of certain U.S. federal income tax laws and
regulations, constitute accurate summaries of the matters described
therein in all material respects;
(M) based upon the representations, warranties, and agreements
of the Company in the Purchase Agreement and of the Purchasers in
Section 7 of the Purchase Agreement, it is not necessary in connection
with the offer, sale and delivery of the Notes to the Purchaser under
the Purchase Agreement or in connection with the initial resale of such
Notes by the Purchaser solely in accordance with Section 7 of the
Purchase
<PAGE>
D-4
Agreement, to register the Notes under the Securities Act, it being
understood that no opinion is expressed as to any subsequent resale of
any Note; and
(N) any document filed by the Company with the Securities and
Exchange Commission and incorporated by reference in the Offering
Memorandum or from which information is so incorporated by reference,
when it was filed or became effective, as the case may be, complied as
to form in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, and the rules and
regulations promulgated thereunder.
* * * * * * * * *
<PAGE>
ATTACHMENT A
TO
FORM OF KELLEY DRYE & WARREN LLP OPINION
In the course of the preparation by the Company of the
Offering Memorandum, we have participated in conferences with officers,
directors and representatives of the Company, its independent auditors,
officers, directors and your representatives and representatives of your counsel
at which conferences the contents of the Offering Memorandum and related matters
were discussed. Although we have not independently verified the accuracy or
completeness of, or otherwise verified the statements made in the Offering
Memorandum (other than as expressly provided above), nothing has come to our
attention that has led us to believe that the Offering Memorandum, as of its
date or the date hereof, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order the make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing, we are not expressing any opinion or
belief as to the financial statements and supporting notes and schedules and
other financial data contained in the Offering Memorandum.
<PAGE>
EXHIBIT E
FORM OF FOREIGN LOCAL COUNSEL OPINION
(A) [________] (the "Company") has been duly incorporated, is
validly existing as a company under the laws of [Name of Country], has the
corporate power and authority to own its property and to conduct its business as
described in the Offering Memorandum of Viatel, Inc. dated December 8, 1999 (the
"Offering Memorandum") and is duly qualified to transact business in each
jurisdiction in which the conduct of its business or its ownership or leasing of
property requires such qualification (except to the extent that the failure to
be so qualified would not in our view have a Material Adverse Effect on the
Company and its subsidiaries taken as a whole).
(B) The Company has no subsidiaries.
(C) The Company has all materially necessary certificates,
orders, permits, licenses, authorizations, consents and approvals of and from,
and has made all declarations and filings with all relevant governmental
authorities, all self-regulatory organizations and all relevant courts and
tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Offering Memorandum, and, to
the best of our knowledge, after due inquiry has not received any notice of
proceedings relating to revocation or modification of any such certificates,
orders, permits, licenses, authorizations, consents or approvals, nor is the
Company in violation of, or in default under, any federal, state, local,
national or regional law, regulation, rule, decree, order or judgment applicable
to the Company, the effect of which, singly or in the aggregate, would have a
material adverse effect on the prospects, condition, financial or otherwise, or
in the earnings, business or operations of the Company, except as described
herein or in the Offering Memorandum.
(D) The statements in the Offering Memorandum under the
caption "Business -- [_______]" are accurate in all material respects and fairly
summarize all matters referred to therein.
(E) There are no restrictions (legal, contractual or
otherwise) on the ability of the Company to declare and pay any dividend or make
any payment or transfer of property or assets to its stockholders other than
those described in the Offering Memorandum and such restrictions as would not
have a material adverse effect on the prospects, condition, financial or
otherwise, or in the earnings, business or operations of the Company and such
descriptions, if any, fairly summarize such restrictions.
* * * * * * * * *
<PAGE>
EXHIBIT G
FORM OF U.S. REGULATORY COUNSEL OPINION
Pursuant to Section 5(f) of the Purchase Agreement, Morrison & Foerster
LLP, regulatory counsel for the Company, shall furnish an opinion to the effect
that:
(A) (1) the execution and delivery of the Purchase Agreement
by the Company and the consummation of the transactions contemplated
thereby do not violate (i) the federal Communications Act of 1934, as
amended, and the Telecommunications Act of 1996, any rules or
regulations of the Federal Communications Commission ("FCC") applicable
to the Company (collectively, the "Communications Act"), (ii) any state
telecommunications law, rules or regulations ("State Law") applicable
to the Company, and (iii) to the best of such counsel's knowledge, any
decree from any court, and (2) no consent, approval, authorization or
order of or filing with the FCC or any state authority overseeing
telecommunications matters ("State Authority"), is necessary for the
execution and delivery of the Purchase Agreement by the Company and
except to the extent that the failure to obtain such consents,
approvals, authorizations or orders or to make filings with, the FCC or
any State Authority would not, individually or in the aggregate, have a
material adverse effect on the prospects, condition (financial or
otherwise) or in the earnings, business or operations of the Company
and the subsidiaries listed in Schedule B to the Purchase Agreement
(the "Subsidiaries") taken as a whole;
(B) except as indicated in this paragraph B, to the best of
our knowledge, (1) the Company and its Subsidiaries have made all
reports and filings, and paid all fees, required by the FCC and the
State Authorities, and have all certificates, orders, permits,
licenses, authorizations, consents and approvals of and from, and have
made all filings and registrations, with the FCC and the State
Authorities necessary to own, lease, license and use its properties and
assets and to conduct its respective business in the manner described
in the Offering Memorandum, except for those filings, fees, and
approvals the failure to obtain or file of which would not have
material adverse effect on the financial condition, or on the earnings,
business, or operations of the Company and its Subsidiaries, taken as a
whole; (2) has not received any notice of proceedings relating to the
violation, revocation or modification of any such certificates, orders,
permits, licenses, authorizations, consents or approvals, or the
qualification or rejection of any such filing or registration, the
effect of which, singly or in the aggregate, would have a material
adverse effect on the prospects, condition, financial or otherwise, or
in the earnings, business or operations of the Company, taken as a
whole; and (3) neither the Company nor its Subsidiaries is in violation
of, or in default under, the Communications
<PAGE>
Act or State Law, the effect of which, singly or in the aggregate,
would have a material adverse effect on the prospects, condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its Subsidiaries, taken as a whole;
(C) to the best of such counsel's knowledge after due inquiry
(i) no adverse judgment, decree or order of the FCC or any State
Authority has been issued against the Company or its Subsidiaries and
(ii) no litigation, proceeding, inquiry or investigation has been
commenced or threatened against the Company or its Subsidiaries before
or by the FCC or any State Authority which, if decided adversely to the
interests of the Company or its Subsidiaries would have a material
adverse effect on the Company and its Subsidiaries, taken as a whole;
and
(D) the statements in the Offering Memorandum under the
captions "Risk Factors -- Competition," "Risk Factors -- Substantial
Government Regulation," "Business -- Government Regulation," insofar as
such statements constitute a summary of the legal matters, documents or
proceedings of the FCC and State Authorities with respect to
telecommunications regulation referred to therein, fairly summarize the
matters referred to therein.
* * * * * * * * *
<PAGE>
EXHIBIT H
DESTIA OFFICER'S CERTIFICATE
Reference is made to the Purchase Agreement, dated December 8,
1999 (the "Purchase Agreement"), between Viatel, Inc., a Delaware corporation,
and Morgan Stanley & Co. Incorporated. Each capitalized term used but not
defined herein shall have the meaning ascribed thereto in the Purchase
Agreement.
I, Richard L. Shorten, Jr., certify that:
(i) I am the duly qualified and elected General Counsel and
Senior Vice President of Destia Communications, Inc. (the "Company"),
and that, as such, I am authorized to execute this certificate on
behalf of the Company pursuant to Section 8(p) of the Purchase
Agreement;
(ii) I have read the Offering Memorandum, dated December 8,
1999, and the statements made in this certificate are based upon my
review of the Offering Memorandum, upon a general knowledge of and
familiarity with the operations of the Company and upon the performance
of my duties as an officer of the Company; and
(iii) I do hereby further certify that the Offering Memorandum
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the certification set forth in this paragraph do not apply
to statements in or omissions from the Offering Memorandum that does
not relate to the Company.
H-2
<PAGE>
IN WITNESS WHEREOF, I have executed this certificate of Destia
Communications, Inc. on this 8th day of December, 1999.
By:_________________________________
Name: Richard L. Shorten, Jr.
Title:
<PAGE>
Exhibit 5.1
KELLEY DRYE & WARREN LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901-3229
December 21, 1999
Viatel, Inc.
685 Third Avenue
New York, New York 10017
Re: Registration Statement on Form S-4
--------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Viatel, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing of a Registration
Statement on Form S-4 (the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") pursuant to the Securities Act of
1933, as amended (the "Act"), with respect to the proposed offer by the
Company to exchange (the "Exchange Offer") $269,456,000 principal amount of
its 11.50% Senior Dollar Notes due 2009 (the "Exchange Notes") for a like
aggregate principal amount of its outstanding 11.50% Senior Dollar Notes Due
2009 (the "Existing Notes") which have not been registered under the Act. The
Exchange Notes will be issued pursuant to the Indenture, dated as of December
8, 1999, between the Company and The Bank of New York, as Trustee, pursuant
to which the Existing Notes were originally issued (the "Indenture"). As such
counsel, you have requested our opinion as to the matters described herein
relating to the issuance of the Exchange Notes in the Exchange Offer.
In connection with this opinion, we have examined and relied upon (i) the
Company's Amended and Restated Certificate of Incorporation as amended, as
certified by governmental officials, and the Company's Third Amended and
Restated By-laws, as certified by the Secretary of the Company; (ii) the
minute books and other records of corporate proceedings of the Company, as
made available to us by officers of the Company; (iii) an executed copy of
the Registration Statement, together with the exhibits and schedules thereto,
in the form filed with the Commission; (iv) an executed copy of the
Indenture; and (v) such other records, agreements, certificates, instruments
and information from officers and other representatives of the Company and
governmental and regulatory authorities as we have deemed necessary as the
basis for the opinion expressed herein; and we have reviewed such matters of
law deemed necessary by us in order to deliver the within opinion.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to originals of copies
and the authenticity of the originals of such 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
<PAGE>
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. We express no opinion with respect to the
enforceability of any provision of the Indenture or the Exchange Notes to the
extent such provision may be subject to, or affected by, applicable
bankruptcy, insolvency, reorganization, moratorium or similar state or
federal law affecting the rights and remedies of creditors generally
(including, without limitation, fraudulent conveyance laws). We express no
opinion concerning any law of any jurisdiction other than the laws of the
State of New York, the General Corporation 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 matters of municipal laws or
the rules, regulations or orders of any municipal agencies within any 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 Exchange Notes have been duly authorized for issuance by the
Company and, when issued and delivered in exchange for the Existing Notes in
the manner described in the Registration Statement and when executed, issued
and authenticated in accordance with the terms of the Indenture, will
constitute valid and legally binding obligations of the Company,
enforceable against the Company in accordance with their terms.
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 General Corporation 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.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the reference to our firm under the heading
"Legal Matters" in the Registration Statement. In giving such consent, we do
not admit that we are in the category of persons who 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
<PAGE>
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Nine months ended Nine months ended
1994 1995 1996 1997 1998 9/30/98 9/30/99 1998 30-Sep-99
---- ---- ---- ---- ---- ------- ------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings ss.259.503(d)(3)
Net loss $(12,495) $(28,476) $(38,375) $(43,044) $(127,304) $ (94,367) $(130,831) $(332,330) $(301,903)
Fixed Charges 1,084 9,681 11,426 13,056 86,402 56,732 107,051 152,891 151,401
Preferred Dividends -- -- -- -- (3,301) (2,131) (1,341) (3,301) (1,341)
Interest - Capitalized -- (508) (67) (164) (3,322) (1,471) (7,113) (3,322) (7,113)
----------------------------------------------------------------------- --------- ---------
$(11,411) $(19,303) $(27,016) $(30,152) $ (47,525) $ (41,237) $ (32,234) $(186,062) $(158,956)
======================================================================= ========= =========
Fixed Charges ss.259.503(d)(4)
Interest - Expensed** $ 772 $ 8,856 $ 10,848 $ 12,450 $ 79,177 $ 52,715 $ 97,344 135,389 140,467
Interest - Capitalized -- 508 67 164 3,322 1,471 7,113 3,322 7,113
Preferred Dividends -- -- -- -- 3,301 2,131 1,341 3,301 1,341
Lease Expense 312 317 511 442 602 415 1,253 1,543 2,480
----------------------------------------------------------------------- --------- ---------
$ 1,084 $ 9,681 $ 11,426 $ 13,056 $ 86,402 $ 56,732 $ 107,051 $ 143,555 $ 151,401
======================================================================= ========= =========
Ratio of E to FC -10.53 -1.99 -2.36 -2.31 -0.55 -0.73 -0.30 -1.30 -1.05
======================================================================= ========= =========
Deficiency of E to FC $(12,495) $(28,984) $(38,442) $(43,208) $(133,927) $ (97,969) $(139,285) $(329,617) $(310,357)
======================================================================= ========= =========
</TABLE>
** Includes accretion of senior discount notes and amortization of debt issue
costs.
The ratio of earnings to fixed charges is calculated as income before income
taxes, divided by fixed charges. Fixed charges consist of interest on
indebtedness, dividends on preferred stock and one third of rental expense. The
ratio of earnings to fixed charges for the years ended 1994, 1995, 1996, 1997
and 1998 and the nine months ended September 30, 1998 and 1999 and the pro forma
for the year ended 1998 and nine months ended 1999 by $12.5 million, $29.0
million, $38.4 million, $43.2 million, $133.9 million, $98.0 million, $139.3
million, $329.6 million and 310.4 million.
<PAGE>
Exhibit 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF VIATEL, INC.
----------------------------
Jurisdiction of
Incorporation
Or Organization/
Name of Subsidiary Foreign Qualifications
- ------------------ ----------------------
<S> <C>
Viatel, Inc. DE (Foreign
qualifications in
CT, NE, NJ)
Viatel Acquisition Corp. Delaware
Viatel Argentina Holdings, Inc. Delaware
Viatel Argentina Management, Inc. Delaware
Viatel Brazil Holdings, Inc. Delaware
Viatel Brazil Management, Inc. Delaware
Viatel Circe Cable System, Limited Delaware
Viatel Colombia Holdings, Inc. Delaware
Viatel Colombia Management, Inc. Delaware
Viatel Development Company Delaware
Viatel Finance Company L.L.C. Delaware
Viatel Finland, Inc. Delaware
Viatel Global Communications, Ltd. Delaware
Viatel Nebraska, Inc. Delaware
Viatel New Jersey, Inc. DE, NJ
Viatel Sales U.S.A., Inc. DE, IN, CA, IL, CO
Viatel Sweden, Inc. Delaware
Viatel Maryland, Inc. Maryland
Viatel Virginia, Inc. Virginia
YYC Communications, Inc. DE, NY
Viaphone NV/SA Belgium
Viatel Belgium NV/SA Belgium
Viacol Ltda. Colombia
Viatel Circe Assets Limited UK
Viatel Austria, Ltd. UK
Viatel Network Managed Services Limited UK
Viatel (I) Limited UK
Viatel Belgium Limited UK
Viatel Spain Limited UK
Viatel U.K. Limited UK
Viatel UK Holding Ltd. (formerly Viatel Staines Ltd
and Viatel Circe Assets Ltd.) UK
Viatel Operations, S.A. France
Viatel S.A. France
VPN S.A.R.L. France
Viatel Communications GmbH Germany
(formerly Viaphone GmbH)
Viatel GmbH Germany
Vicame Infrastructure Development GmbH Germany
Viatel German Asset GmbH Germany
Viatel Global Communications S.p.A. (formerly Italy
Viaphone S.R.L.).
Viatel S.R.L. Italy
Strijk B.V. Netherlands
Viafoperations Communications B.V. Netherlands
Viatel Global Communications B.V. Netherlands
Viafon Dat Iberica, S.A. Spain
Viatel Global Communications Espana S.A. Spain
Viaphone AG Switzerland
Viatel AG Switzerland
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation
Or Organization/
Name of Subsidiary Foreign Qualifications
- ------------------ ----------------------
<S> <C>
Amber Hold, Ltd. United Kingdom
America First Ltd. United Kingdom
Call BvBa Belgium
Call the World Ireland
destia.com, Inc. Delaware
Destia Communications BV The Netherlands
Destia Communications, Ltd. Ireland
Destia Communications, Ltd. United Kingdom
Destia Communications SA France
Destia Communications Holdings, Ltd. United Kingdom
Destia Communications Services, Inc. Delaware
Destia Communications Services, Ltd. Ireland
Destia Network Services Ltd. United Kingdom
Econophone AG Switzerland
Econophone GmbH Austria
Econophone GmbH Germany
Econophone, Ltd. United Kingdom
Econophone NV Belgium
Econophone Services GmbH Switzerland
Econophone (Hellas), SA Greece
Microdoor United Kingdom
Off the Mall Advertising Inc. Delaware
Phonecentre GmbH Switzerland
Telco Global Communications Ltd. United Kingdom
Teleriffic Global Communications GmbH Germany
Voicenet Corporation New York
WaveTech, Ltd. United Kingdom
WaveTech Network Services Ltd. United Kingdom
3461386 Canada, Inc. Canada
</TABLE>
S-2
<PAGE>
EXHIBIT 23.2
Independent Auditors' Consent
The Board of Directors and Stockholders
Viatel, Inc.:
The audits referred to in our report dated February 26, 1999, included the
related financial statement schedule as of December 31, 1998 and for each of
the years in the three-year period ended December 31, 1998, included in the
registration statement. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to use of our report included herein and to the references to our
firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the prospectus.
/s/ KPMG LLP
KPMG LLP
New York, New York
December 21, 1999
<PAGE>
ARTHUR ANDERSEN LLP
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Destia Communications, Inc.:
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
New York, New York
December 21, 1999
<PAGE>
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
--------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------
VIATEL, INC.
(Exact name of obligor as specified in its charter)
Delaware 13-3787366
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
685 Third Avenue 10017
New York, New York (Zip code)
(Address of principal executive offices)
----------------------
11.50% Senior Dollar Notes Due 2009
(Title of the indenture securities)
================================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY
TO WHICH IT IS SUBJECT.
- -----------------------------------------------------------------------------
Name Address
- -----------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 20th day of December, 1999.
THE BANK OF NEW YORK
By: /S/MARY LAGUMINA
----------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1999, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS In Thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and currency and coin.. $6,394,412
Interest-bearing balances........................... 3,966,749
Securities:
Held-to-maturity securities......................... 805,227
Available-for-sale securities....................... 4,152,260
Federal funds sold and Securities purchased under
agreements to resell................................ 1,449,439
Loans and lease financing receivables:
Loans and leases, net of unearned
income...............37,900,739
LESS: Allowance for loan and
lease losses............572,761
LESS: Allocated transfer risk
reserve........................11,754
Loans and leases, net of unearned income,
allowance, and reserve............................ 37,316,224
Trading Assets......................................... 1,646,634
Premises and fixed assets (including capitalized
leases)............................................. 678,439
Other real estate owned................................ 11,571
Investments in unconsolidated subsidiaries and
associated companies................................ 183,038
Customers' liability to this bank on acceptances
outstanding......................................... 349,282
Intangible assets...................................... 790,558
Other assets........................................... 2,498,658
-----------
Total assets........................................... $60,242,491
===========
</TABLE>
<PAGE>
<TABLE>
LIABILITIES
<S> <C>
Deposits:
In domestic offices................................. $26,030,231
Noninterest-bearing.......................11,348,986
Interest-bearing..........................14,681,245
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 18,530,950
Noninterest-bearing..........................156,624
Interest-bearing..........................18,374,326
Federal funds purchased and Securities sold under
agreements to repurchase............................ 2,094,678
Demand notes issued to the U.S.Treasury................ 232,459
Trading liabilities.................................... 2,081,462
Other borrowed money:
With remaining maturity of one year or less......... 863,201
With remaining maturity of more than one year
through three years............................... 449
With remaining maturity of more than three years.... 31,080
Bank's liability on acceptances executed and
outstanding......................................... 351,286
Subordinated notes and debentures...................... 1,308,000
Other liabilities...................................... 3,055,031
-----------
Total liabilities...................................... 54,578,827
===========
EQUITY CAPITAL
Common stock........................................... 1,135,284
Surplus................................................ 815,314
Undivided profits and capital reserves................. 3,759,164
Net unrealized holding gains (losses) on
available-for-sale securities....................... ( 15,440)
Cumulative foreign currency translation adjustments.... ( 30,658)
-----------
Total equity capital................................... 5,663,664
-----------
Total liabilities and equity capital................... $60,242,491
===========
</TABLE>
<PAGE>
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Reyni
Alan R. Griffith Directors
Gerald L. Hassell
- --------------------------------------------------------------------------------
<PAGE>
LETTER OF TRANSMITTAL
[LOGO]
Offer to Exchange all Outstanding 11.50% Senior Dollar Notes Due 2009
Which Have Not Been Registered Under the Securities Act of 1933
for
11.50% Senior Dollar Notes Due 2009 Which Have Been Registered Under the
Securities Act of 1933
Pursuant to the Prospectus, dated , 2000
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS FOR
EXCHANGE MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
- --------------------------------------------------------------------------------
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 815-3750
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Reorganization Section (212) 815-6339
101 Barclay Street, Floor 7 East
New York, New York 10286 CONFIRM BY TELEPHONE:
Attention: Kin Lau (212) 815-3750
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX BELOW
<PAGE>
The undersigned acknowledges that he, she or it has received and reviewed
this Letter of Transmittal and the Prospectus, dated , 2000 (the
"Prospectus"), of Viatel, Inc., a Delaware corporation (the "Company" or the
"Issuer"), relating to its offer to exchange up to $269,456,000 aggregate
principal amount of its 11.50% Senior Dollar Notes Due 2009 (the "Exchange
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 11.50% Senior Dollar Notes Due 2009 (the "Existing Notes") held by
the registered holders thereof (the "Note Holders"). The Prospectus and this
Letter of Transmittal together constitute the Company's offers to exchange (the
"Exchange Offer") its Exchange Notes for a like principal amount of its Existing
Notes from the Note Holders.
For each Existing Note accepted for exchange, the Holder of such Existing
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Existing Note. The Exchange Notes will bear interest from the
most recent date to which interest has been paid on the Existing Notes or, if no
interest has been paid on the Existing Notes, from December 8, 1999.
Accordingly, registered Holders of Exchange Notes on the relevant record date
for the first interest payment date following the consummation of the Exchange
Offer will receive interest accruing from the most recent date to which interest
has been paid or, if no interest has been paid, from December 8, 1999. Existing
Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer. Holders of Existing Notes whose
Existing Notes are accepted for exchange will not receive any payment in respect
of accrued interest on such Existing Notes otherwise payable on any interest
payment date the record date for which occurs on or after consummation of the
Exchange Offer.
This Letter of Transmittal is to be completed by a Holder of Existing Notes
either if certificates are to be forwarded herewith or if a tender of
certificates for Existing Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository Trust
Company (the "Book-Entry Transfer Facility") pursuant to the procedures set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus.
Holders of Existing Notes whose certificates are not immediately available, or
who are unable to deliver their certificates or confirmation of the book-entry
tender of their Existing Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other
documents required by this Letter of Transmittal to the Exchange Agent on or
prior to the Expiration Date, must tender their Existing Notes according to the
guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
List below the Existing Notes to which this Letter of Transmittal relates.
If the space provided below is inadequate, the certificate numbers and principal
amount of Existing Notes should be listed on a separate signed schedule affixed
hereto.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DESCRIPTION OF EXISTING NOTES
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(1) (2) (3)
AGGREGATE
NAME(S) AND ADDRESS(ES) PRINCIPAL PRINCIPAL
OF REGISTERECERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL NUMBER(S)*NK) EXISTING NOTE(S) TENDERED**
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Existing Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Existing Notes represented by the Existing Notes
indicated in column 2. See Instruction 2. Existing Notes tendered hereby
must be in denominations of principal amount of $1,000 and any integral
multiple thereof. See Instruction 1.
<PAGE>
/ / CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s) ____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution Which Guaranteed Delivery ______________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER ENTITLED, PURSUANT TO THE TERMS OF
THE REGISTRATION RIGHTS AGREEMENT REFERRED TO IN THE PROSPECTUS, TO RECEIVE,
AND WISH TO RECEIVE, 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF
ANY AMENDMENTS OR SUPPLEMENTS THERETO WITHIN 180 DAYS AFTER THE EXPIRATION
DATE.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Existing Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
and represents that it will deliver a prospectus meeting the requirements of the
Securities Act, in connection with any resale of such Exchange Notes; however,
by so acknowledging and representing and by delivering such a prospectus the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. If the undersigned is a broker-dealer that will
receive Exchange Notes, it represents that the Existing Notes to be exchanged
for the Exchange Notes were acquired as a result of market-making activities or
other trading activities. In addition, such broker-dealer represents that it is
not acting on behalf of any person who could not truthfully make the foregoing
representations.
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of
Existing Notes indicated above. Subject to, and effective upon, the acceptance
for exchange of the Existing Notes tendered hereby, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to such Existing Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Existing Notes, with full power of substitution, among
other things, to cause the Existing Notes to be assigned, transferred and
exchanged. The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the Existing
Notes, and to acquire Exchange Notes issuable upon the exchange of such tendered
Existing Notes, and that, when such Existing Notes are accepted for exchange,
the Company will acquire good and unencumbered title thereto, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any adverse
claim when the same are accepted by the Company. The undersigned hereby further
represents and warrants that any Exchange Notes acquired in exchange for
Existing Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such Exchange Notes, whether or not such person
is the undersigned, that neither the Holder of such Existing Notes nor any such
other person is participating in, intends to participate in or has an
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of Existing Notes or Exchange Notes,
that neither the Holder of such Existing Notes nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company,
and that neither the Holder of such Existing Notes nor such other person is
acting on behalf of any person who could not truthfully make the foregoing
representations and warranties.
The undersigned acknowledges that the Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Existing Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is a
broker-dealer or an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business, at
the time of commencement of the Exchange Offer such Holder has no arrangement or
understanding with any person to participate in a distribution of such Exchange
Notes, and such Holder is not engaged in, and does not intend to engage in, a
distribution of such Exchange Notes. However, the SEC has not considered the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in other circumstances. If the undersigned is
not a broker-dealer, the undersigned represents that it is not engaged in, and
does not intend to engage in, a distribution of Exchange Notes and has no
arrangement or understanding to participate in a distribution of Exchange Notes.
If the undersigned is a broker-dealer that will receive Exchange Notes for its
own account in exchange for Existing Notes, it represents that the Existing
Notes to be exchanged for the Exchange Notes were acquired by it as a result of
market-making activities or other trading activities and acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus meeting the requirements of the Securities Act,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The SEC has taken the position that such broker-dealers may fulfill their
prospectus delivery requirements with respect to the Exchange Notes (other than
a resale of Exchange Notes received in exchange for an unsold allotment from the
original sale of the Existing Notes) with the Prospectus. The Prospectus, as it
may be amended or supplemented from time to time, may be used by certain broker-
dealers (as specified in the registration rights agreement referenced in the
Prospectus) ("Participating
<PAGE>
Broker-Dealers") for a period of time, starting on the Expiration Date and
ending on the close of business 180 days after the Expiration Date in connection
with the sale or transfer of such Exchange Notes. The Company has agreed that,
for such period of time, it will make the Prospectus (as it may be amended or
supplemented) available to such a broker-dealer which elects to exchange
Existing Notes, acquired for its own account as a result of market making or
other trading activities, for Exchange Notes pursuant to the Exchange Offer for
use in connection with any resale of such Exchange Notes. By accepting the
Exchange Offer, each broker-dealer that receives Exchange Notes pursuant to the
Exchange Offer acknowledges and agrees to notify the Company prior to using the
Prospectus in connection with the sale or transfer of Exchange Notes and that,
upon receipt of notice from the Company of the happening of any event which
makes any statement in the Prospectus untrue in any material respect or which
requires the making of any changes in the Prospectus in order to make the
statements therein (in light of the circumstances under which they were made)
not misleading, such broker-dealer will suspend use of the Prospectus until
(i) the Company has amended or supplemented the Prospectus to correct such
misstatement or omission and (ii) either the Company has furnished copies of the
amended or supplemented Prospectus to such broker-dealer or, if the Company has
not otherwise agreed to furnish such copies and declines to do so after such
broker-dealer so requests, such broker-dealer has obtained a copy of such
amended or supplemented Prospectus as filed with the SEC. Except as described
above, the Prospectus may not be used for or in connection with an offer to
resell, a resale or any other retransfer of Exchange Notes. A broker-dealer that
acquired Existing Notes in a transaction other than as part of its market-making
activities or other trading activities will not be able to participate in the
Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Existing Notes tendered hereby. All
authority conferred or agreed to be conferred in this Letter of Transmittal and
every obligation of the undersigned hereunder shall be binding upon the
successors, assigns, heirs, executors, administrators, trustees in bankruptcy
and legal representatives of the undersigned and shall not be affected by, and
shall survive, the death or incapacity of the undersigned. This tender may be
withdrawn only in accordance with the procedures set forth in "The Exchange
Offer--Withdrawal of Tenders" section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Existing Notes for any Existing Notes not
exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Existing Notes, please credit the account indicated above maintained
at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under
the box entitled "Special Delivery Instructions" below, please send the Exchange
Notes (and, if applicable, substitute certificates representing Existing Notes
for any Existing Notes not exchanged) to the undersigned at the address shown
above in the box entitled "Description of Existing Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF EXISTING
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE
EXISTING NOTES AS SET FORTH IN SUCH BOX ABOVE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
<PAGE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
x ___________________________________________________________________ , 2000
x ___________________________________________________________________ , 2000
____________________________________________________________________________
Signature(s) of Owner Date
Area Code and Telephone Number _____________________________________________
If a Holder is tendering an Existing Note, this Letter of Transmittal
must be signed by the registered Holder(s) as the name(s) appear(s) on the
certificate(s) for the Existing Note or by any person(s) authorized to
become registered Holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
Name(s) ____________________________________________________________________
____________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: __________________________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
SIGNATURE(S) GUARANTEED BY _________________________________________________
AN ELIGIBLE INSTITUTION: ___________________________________________________
(AUTHORIZED SIGNATURE)
__________________________________________________________________________
(TITLE)
__________________________________________________________________________
(NAME AND FIRM)
DATED: ______________________________________________________________ , 2000
(PLEASE COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 HEREIN. SEE INSTRUCTION
5.)
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Existing Notes not exchanged
and/or Exchange Notes are to be issued in the name of and sent to someone
other than the person or persons whose signature(s) appear(s) on this Letter
of Transmittal above, or if Existing Notes delivered by book-entry transfer
which are not accepted for exchange are to be returned by credit to an
account maintained at the Book-Entry Transfer Facility other than the
account indicated above.
Issue: Exchange Notes and/or Existing Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
_________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
__________________________________________________________________________
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged Existing Notes delivered by book-entry transfer to
the Book-Entry Transfer Facility account set forth below.
________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4 AND 6)
To be completed ONLY if certificates for Existing Notes not exchanged
and/or Exchange Notes are to be sent to someone other than the person or
persons whose signature(s) appear(s) on this Letter of Transmittal above or
to such person or persons at an address other than shown in the box entitled
"Description of Existing Notes" on this Letter of Transmittal above.
Mail: Exchange Notes and/or Existing Notes to:
Name(s) ____________________________________________________________________
(PLEASE TYPE OR PRINT)
_________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(ZIP CODE)
- -----------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH THIS LETTER
OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
EXISTING NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS)
MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE EXPIRATION DATE.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
11.50% SENIOR DOLLAR NOTES DUE 2009 OF VIATEL INC.,
WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
IN EXCHANGE FOR THE
11.50% SENIOR DOLLAR NOTES DUE 2009 OF VIATEL INC.,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND EXISTING NOTES; GUARANTEED
DELIVERY PROCEDURES.
This Letter of Transmittal is to be completed by Holders of Existing Notes
either if certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Certificates for
all physically tendered Existing Notes, or Book-Entry Confirmation, as the case
may be, as well as a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile hereof) and any other documents required by this
Letter of Transmittal, must be received by the Exchange Agent at the address set
forth herein on or prior to the Expiration Date, or the tendering Holder must
comply with the guaranteed delivery procedures set forth below. Existing Notes
tendered hereby must be in denominations of principal amount of $1,000 and any
integral multiple thereof.
Holders whose certificates for Existing Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book entry transfer on a timely basis, may tender their Existing
Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the Holder of Existing Notes and the amount of Existing Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three Nasdaq NNM trading days after the date of execution of the Notice
of Guaranteed Delivery, the certificates for all physically-tendered Existing
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by this Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically-tendered Existing Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by this Letter of Transmittal, are received by the Exchange
Agent within three Nasdaq NNM trading days after the date of execution of the
Notice of Guaranteed Delivery.
The method of delivery of this Letter of Transmittal, the Existing Notes and
all other required documents is at the election and risk of the tendering
Holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If Existing Notes are sent by mail, it is
suggested that the mailing be registered mail, properly insured, with return
receipt requested, made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Existing Notes evidenced by a submitted certificate
are to be tendered, the tendering Holder(s) should fill in the aggregate
principal amount of Existing Notes to be tendered in the box above entitled
"Description of Existing Notes--Principal Amount Tendered." A reissued
certificate representing the balance of nontendered Existing Notes will be sent
to such tendering Holder, unless otherwise provided in the appropriate box on
this Letter of Transmittal, promptly after the Expiration Date. ALL OF THE
EXISTING NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN
TENDERED UNLESS OTHERWISE INDICATED.
<PAGE>
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder of the
Existing Notes tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificates without any change whatsoever.
If any tendered Existing Notes are owned of record by two or more joint
owners, all of such owners must sign this Letter of Transmittal.
If any tendered Existing Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter of Transmittal as there are different registrations of
certificates.
When this Letter of Transmittal is signed by the registered Holder or
Holders of the Existing Notes specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are required. If, however,
the Exchange Notes are to be issued, or any untendered Existing Notes are to be
reissued, to a person other than the registered Holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required. Signatures
on such certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name or names of the registered Holder or
Holders appear(s) on the certificate(s) and signatures on such certificate(s)
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
ENDORSEMENTS ON CERTIFICATES FOR EXISTING NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY ANY MEMBER FIRM OF A
REGISTERED NATIONAL SECURITIES EXCHANGE OR OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC., A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR
CORRESPONDENT IN THE UNITED STATES OR AN "ELIGIBLE GUARANTOR INSTITUTION" WITHIN
THE MEANING OF RULE 17AD-15 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (EACH AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED BY AN
ELIGIBLE INSTITUTION, PROVIDED THE EXISTING NOTES ARE TENDERED: (I) BY A
REGISTERED HOLDER OF EXISTING NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE
OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE
NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH EXISTING
NOTES) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR
"SPECIAL DELIVERY INSTRUCTIONS" IN THIS LETTER OF TRANSMITTAL, OR (II) FOR THE
ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering Holders of Existing Notes should indicate in the applicable box
the name and address to which Exchange Notes issued pursuant to the Exchange
Offer and or substitute certificates evidencing Existing Notes not exchanged are
to be issued or sent, if different from the name or address of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification or social security number of the person named must
also be indicated. Holders tendering Existing Notes by book-entry transfer may
request that Existing Notes not exchanged be credited to such account maintained
at the Book-Entry Transfer Facility as such Holder may designate hereon. If no
such instructions are given, such Existing Notes not exchanged will be returned
to the name and address of the person signing this Letter of Transmittal.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering Holder whose
Existing Notes are accepted for exchange must provide the Company (as payor), or
the Paying Agent designated by the Company to act
<PAGE>
on its behalf, with such Holder's correct Taxpayer Identification Number ("TIN")
on Substitute Form W-9 below, which in the case of a tendering Holder who is an
individual, is his or her social security number. If the Company is not provided
with the current TIN or an adequate basis for an exemption, such tendering
Holder may be subject to penalties imposed by the Internal Revenue Service. In
addition, delivery to such tendering Holder of Exchange Notes may be subject to
backup withholding in an amount equal to 31% of all reportable payments made
after the exchange. If withholding results in an overpayment of taxes, a refund
may be obtained, provided that the required information is furnished to the
Internal Revenue Service.
Exempt Holders of Existing Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements.
To prevent backup withholding, each tendering Holder of Existing Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding, (ii) the Holder
has not been notified by the Internal Revenue Service that such Holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the Holder that
such Holder is no longer subject to backup withholding. If the tendering Holder
of Existing Notes is a nonresident alien or foreign entity not subject to backup
withholding, such Holder must give the Exchange Agent a completed Form W-8,
Certificate of Foreign Status. This form may be obtained from the Exchange
Agent. If the Existing Notes are in more than one name or are not in the name of
the actual owner, such Holder should consult the Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
information on which TIN to report. If such Holder does not have a TIN, such
Holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Note: Checking this box and writing "applied for" on the form
means that such Holder has already applied for a TIN or that such Holder intends
to apply for one in the near future. If such Holder does not provide its TIN to
the Issuer within 60 days, backup withholding will begin and continue until such
Holder furnishes its TIN to the Issuer.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Existing Notes to it or its order pursuant to the Exchange Offer. If,
however, Exchange Notes and/or substitute Existing Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered Holder of the Existing Notes tendered hereby, or if tendered
Existing Notes are registered in the name of any person other than the person
signing this Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Existing Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE EXISTING NOTES SPECIFIED IN THIS LETTER
OF TRANSMITTAL.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders of Existing Notes, by execution of this Letter
of Transmittal, shall waive any right to receive notice of the acceptance of
their Existing Notes for exchange.
<PAGE>
Neither the Company, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of Existing
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES.
Any Holder whose Existing Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. WITHDRAWAL RIGHTS.
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 P.M.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Existing Notes to be effective, a written
notice of withdrawal must be received by the Exchange Agent at the address set
forth above prior to 5:00 P.M., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
tendered the Existing Notes to be withdrawn (the "Depositor"), (ii) identify the
Existing Notes to be withdrawn (including the principal amount of such Existing
Notes), (iii) in the case of Existing Notes tendered by book-entry transfer,
specify the number of the account at the Book-Entry Transfer Facility from which
the Existing Notes were tendered and specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Existing
Notes and otherwise comply with the procedures of such facility, (iv) contain a
statement that such Holder is withdrawing its election to have such Existing
Notes exchanged, (v) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Existing Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer to have the trustee with respect to the Existing Notes
register the transfer of such Existing Notes in the name of the person
withdrawing the tender and (vi) specify the name in which such Existing Notes
are registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Existing Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Existing Notes so withdrawn
are validly retendered. Any Existing Notes that have been tendered for exchange
but which are not exchanged for any reason will be returned to the tendering
Holder thereof without cost to such Holder (or, in the case of Existing Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set
forth in "The Exchange Offer--Book-Entry Transfer" section of the Prospectus,
such Existing Notes will be credited to an account maintained with the
Book-Entry Transfer Facility for the Existing Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Existing Notes may be retendered by following the procedures
described above at any time on or prior to 5:00 P.M., New York City time, on the
Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, and requests
for Notices of Guaranteed Delivery and other related documents may be directed
to the Exchange Agent, at the address and telephone number indicated above.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: THE BANK OF NEW YORK, AS PAYING AGENT
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE
PROVIDE
YOUR TIN IN THE BOX
AT RIGHT AND
CERTIFY
BY SIGNING AND
DATING BELOW.
----------------------------------------------------------------
TIN:
SOCIAL SECURITY NUMBER OR
EMPLOYER IDENTIFICATION NUMBER
Form W-9 PART 2--TIN APPLIED FOR / /
----------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY,
I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer
Identification Number (or I am waiting for a number to be issued
to me).
(2) I am not subject to backup withholding either because: (a) I
am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (the "IRS") that I
DEPARTMENT OF THE TREASURY am subject to backup withholding as a result of a failure to
INTERNAL REVENUE SERVICE report all interest or dividends, or (c) the IRS has
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER notified me that I am no longer subject to backup
("TIN") AND CERTIFICATION withholding, and
(3) any other information provided on this form is true and
correct.
Signature --------------------------------------- Date
------------
- -------------------------------------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have be notified by the IRS that you are
subject to backup withholding because of underreporting of interest or dividends on your tax return and you
have not been notified by the IRS that you are no longer subject to backup withholding.
------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
<TABLE>
<C> <S> <C>
- -------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and
either (a) I have mailed or delivered an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not provide a taxpayer
identification number by the time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
Signature ----------------------------- Date -----------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF
ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFERS.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
VIATEL, INC.
11.50% SENIOR DOLLAR NOTES DUE 2009
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Viatel, Inc. (the "Issuer" or the "Company") made pursuant to
the Prospectus, dated , 2000 (the "Prospectus"), if certificates (as
applicable) for outstanding 11.50% Senior Dollar Notes Due 2009 (the "Existing
Notes") of the Issuer are not immediately available or if the procedure for
book-entry transfer cannot be completed on a timely basis or time will not
permit all required documents to reach The Bank of New York, as exchange agent
(the "Exchange Agent") prior to 5:00 P.M., New York City time, on the Expiration
Date of the Exchange Offer. Such form may be delivered or transmitted by
facsimile transmission, mail or hand delivery to the Exchange Agent as set forth
below. In addition, in order to utilize the guaranteed delivery procedure to
tender Existing Notes pursuant to the Exchange Offer, a completed, signed and
dated Letter of Transmittal (or facsimile thereof) relating to the tender for
exchange of Existing Notes (the "Letter of Transmittal") must also be received
by the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration
Date. Capitalized terms not defined herein are defined in the Prospectus or the
Letter of Transmittal.
DELIVERY TO: The Bank of New York, EXCHANGE AGENT
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 815-3750
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Reorganization Section (212) 815-6339
101 Barclay Street, Floor 7 East
New York, New York 10286 CONFIRM BY TELEPHONE:
Attention: Kin Lau (212) 815-3750
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Existing Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
CERTIFICATE NUMBER(S)
(IF KNOWN) OF EXISTING
NOTES OR ACCOUNT AGGREGATE PRINCIPAL
NUMBER AT THE BOOK- AGGREGATE PRINCIPAL AMOUNT TENDERED
ENTRY TRANSFER FACILITY AMOUNT REPRESENTED (IF LESS THAN ALL)*
<S> <C> <C>
</TABLE>
* Unless otherwise indicated, the Holder will be deemed to have tendered the
full aggregate principal amount represented by such Existing Notes.
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE
DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES,
SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
PLEASE SIGN HERE
<TABLE>
<S> <C> <C>
X
--------------------------------------------------------- -----------------------------
--------------------------------------------------------- -----------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
</TABLE>
Area Code and Telephone Number: __________
Must be signed by the Holder(s) of Existing Notes as their name(s) appear(s)
on certificates for Existing Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
<PAGE>
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _______________________________________________________________________
Capacity: ______________________________________________________________________
Address(es): ___________________________________________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees that the
certificates representing the principal amount of Existing Notes tendered hereby
in proper form for transfer, or timely confirmation of the book-entry transfer
of such Existing Notes into the Exchange Agent's account at The Depository Trust
Company pursuant to the procedures set forth in "The Exchange Offer--Guaranteed
Delivery Procedures" section of the Prospectus, together with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, no later than three Nasdaq NNM trading days after the date of execution
of this Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm Authorized Signature
Address Title
Name:
Zip Code (Please Type or Print)
Area Code and Tel. No. Dated:
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR EXISTING NOTES WITH THIS FORM. CERTIFICATES
FOR EXISTING NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY
EXECUTED LETTER OF TRANSMITTAL.
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the Exchange
Agent at its address set forth herein prior to 5:00 P.M., New York City time, on
the Expiration Date. The method of delivery of this Notice of Guaranteed
Delivery and any other required documents to the Exchange Agent is at the
election and risk of the Holder and the delivery will be deemed made only when
actually received by the Exchange Agent. If delivery is by mail, registered or
certified mail properly insured, with return receipt requested, is recommended.
In all cases sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedure, see Instruction 1 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered Holder(s) of the Existing Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Existing Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Existing Notes, the signature must correspond with the
name shown on the security position listing as the owner of the Existing Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered Holder(s) of any Existing Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
Holder(s) appears on the Existing Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus may be directed
to the Exchange Agent at the address specified in the Prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the Exchange Offer.
