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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VIATEL, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 4813 13-3787366
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) Number)
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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)
------------------------------
Sheldon M. Goldman, Esq.
Senior Vice President,
Business Affairs and General Counsel
Viatel, Inc.
685 Third Avenue
New York, New York 10017
(212) 350-9200
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
COPIES OF ALL COMMUNICATIONS TO:
JAMES P. PRENETTA, ESQ.
KELLEY DRYE & WARREN LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10017
(212) 808-7800
--------------------------
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 EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER NOTE OFFERING PRICE(1) REGISTRATION FEE
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11.50% Senior Dollar Notes Due 2009......... $200,000,000 100% $200,000,000 $55,600
11.50% Senior Euro Notes Due 2009........... [EURO]150,000,000(2) 100 149,678,190 41,611
(U.S.$147,260,940)
Total....................................... $349,678,190 100% $349,678,190 $97,211
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(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457(f).
(2) Euro amounts have been translated into U.S. Dollars at [EURO]0.9978546,
which was the noon buying rate in New York City for cable transfers in Euro
as certified for customs purposes by the Federal Reserve Bank of New York on
July 14, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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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.
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SUBJECT TO COMPLETION, DATED JULY 16, 1999
PRELIMINARY PROSPECTUS
[LOGO]
OFFER TO EXCHANGE
11.50% SENIOR DOLLAR NOTES DUE 2009 AND 11.50% SENIOR EURO NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR ANY AND ALL OUTSTANDING
11.50% SENIOR DOLLAR NOTES DUE 2009 AND 11.50% SENIOR EURO NOTES DUE 2009
WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
We are offering to exchange up to $200.0 million in principal amount of our
11.50% Senior Dollar Notes due 2009 and [EURO]150.0 million in principal amount
of our 11.50% Senior Euro Notes due 2009 which have been registered under the
Securities Act of 1933 for our existing unregistered 11.50% Senior Dollar Notes
due 2009 and our existing unregistered 11.50% Senior Euro Notes due 2009.
TERMS OF THE EXCHANGE OFFER:
- The exchange offer and withdrawal rights will expire at 5:00 p.m., New
York City time (10:00 p.m., London time), on , 1999, 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 (10:00 p.m.,
London time), on the expiration date.
- You may withdraw tendered existing notes at any time prior to the
expiration date. The exchange offers are not conditioned upon any minimum
principal amount of either series 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 sold in transactions pursuant to Rule
144A and Regulation S under the Securities Act of 1933 and therefore not
registered with the SEC.
- The terms of the particular series of registered notes to be issed in the
exchange offers are substantially identical to the corresponding series of
existing notes, except for certain transfer restrictions, registration
rights and additional interest relating to 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 the exchange offers.
- If you fail to tender your existing notes while these exchange offers are
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 offers. Pursuant to the
registration rights agreement entered into when the existing notes were
sold, we will pay all expenses incident to our consummation of the
exchange offers and compliance with the terms of the registration rights
agreement. See "The Exchange Offers."
This prospectus, together with the letters of transmittal, are being sent to
all holders of existing notes.
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 15 FOR
A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN
EVALUATING THE EXCHANGE OFFERS.
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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.
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The date of this prospectus is July , 1999.
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TABLE OF CONTENTS
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Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 15
Special Note Regarding Forward-Looking Statements.......................................................... 26
The Exchange Offers........................................................................................ 27
Use of Proceeds............................................................................................ 35
Capitalization............................................................................................. 36
Selected Consolidated Financial Data....................................................................... 37
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 39
Business................................................................................................... 51
Management................................................................................................. 72
Certain Transactions....................................................................................... 81
Principal Stockholders..................................................................................... 82
Description of the Exchange Notes.......................................................................... 83
Certain United States Federal Income Tax Considerations.................................................... 120
Plan of Distribution....................................................................................... 126
Legal Matters.............................................................................................. 126
Experts.................................................................................................... 127
Where You Can Find More Information About Us............................................................... 127
Index to Consolidated Financial Statements................................................................. F-1
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CERTAIN REGULATORY ISSUES
Persons in the United Kingdom will be eligible to receive exchange notes
only if the ordinary activities of such persons 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 do not
constitute an offer to the public in the United Kingdom for purposes of the U.K.
Public Offers of Securities Regulation 1995.
This prospectus is being distributed on the basis that each person in the
United Kingdom to whom this prospectus is issued is reasonably believed to be a
person falling within an exemption to section 57 of the Financial Services Act
1986, as amended, as set out in the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 (as amended by the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1997) and, accordingly,
by accepting delivery of this prospectus the recipient warrants and acknowledges
that it is a person falling within any such exemption.
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. Viatel has a fiscal year end of December 31.
In this prospectus, except where otherwise indicated, reference to (i) "$"
or "U.S. dollars" are to the lawful currency of the United States and (ii)
"[EURO]" or "Euro" are to the single currency at the start of the third stage of
European economic and monetary union on January 1, 1999, pursuant to the treaty
establishing the European Economic Community, as amended by the treaty on
European Union, signed at Maastricht on February 7, 1992.
Given its recent introduction, there is insufficient historical exchange
rate data concerning the Euro for inclusion in this prospectus. The ECU,
predecessor to the Euro, is a composite currency, consisting of specified
amounts of currencies of certain European Union member states. The ECU
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basket is composed of specified amounts of the German mark, the British pound
sterling, the French franc, the Italian lira, the Dutch guilder, the Belgian
franc, the Luxembourg franc, the Danish kroner, the Irish punt, the Greek
drachma, the Spanish peseta and the Portuguese escudo. Changes in exchange rates
of the currencies of the member states of these European Communities including
revaluations and devaluations, do not affect the fixed composition of the ECU
but may change the exchange rate of the ECU in subsequent trading.
Stage III of the European Economic and Monetary Union began on January 1,
1999, and on that date the value of the ECU as against the currencies of the
member states participating in Stage III was irrevocably fixed and the ECU
became a currency in its own right. On June 17, 1997, the Council of the
European Union adopted Council Regulation (European Communities) No. 1103/97,
establishing the Euro and providing for the substitution of the Euro for the ECU
at the rate of one Euro for one ECU. On January 1, 1999, 11 of the 15 member
countries of the European Union (excluding Denmark, Greece, the United Kingdom
and Sweden, which may convert to the Euro at later dates) established fixed
conversion rates between their then existing sovereign currencies and the Euro
and adopted the Euro as their common legal currency on that date. These legacy
currencies are scheduled to remain legal tender in the participating countries
as denominations of the Euro until January 1, 2002. During the transition
period, public and private parties may pay for goods and services using either
the Euro or the participating countries' legacy currency.
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.
------------------------
VIACALL, VIACALL Plus, VIACALL Express, VIAPN, VIAISDN, VIAGLOBE and
VIAWORLDFAX are marketed under a number of service marks; VIADIRECT, VIADIRECT
Plus, VIALINK and VIA0800 are marketed under a number of pending service marks;
and Viatel uses various registered logos including "Viatel," a federally
registered service mark in the United States.
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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 THE ENTIRE PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES, AND THE RISK FACTORS.
THE COMPANY
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 $135.2 million in 1998, and today we have direct sales forces in twelve
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 Belgium, France, Germany, Italy, The Netherlands and
the United Kingdom and interconnection agreements with the incumbent
telecommunications operator in each of these countries. We also have licenses in
Spain and Switzerland and expect to obtain interconnection agreements in these
countries during the fourth quarter of 1999.
We currently operate one of Europe's largest pan-European networks, with
points of presence in 45 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, and have begun
construction of phases two and three. We plan to begin construction of phases
four and five in the second half of 1999.
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 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 expect our
data network to be commercially operable in the fourth quarter of 1999.
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THE CIRCE NETWORK
The 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. The second phase, which will extend through northern
France, The Netherlands and into western Germany, is scheduled to be placed into
service during the third quarter of 1999. The third phase, which will extend
through eastern Germany, 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 second 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 operators 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 at 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 Nortel Telecom's optronics and Lucent's
fiber optic cable, thereby enhancing service quality while improving
efficiency and lowering costs.
- SECURE AND RELIABLE. The Circe Network is being designed to provide high
security and reliability by employing such features as two redundant
network operating centers and a self-healing architecture to allow for
instantaneous restoration in the event of a single fiber cut.
- 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 at least 48 fibers.
BUSINESS STRATEGY
Our goal is to become a fully integrated communications company that is well
positioned to take advantage of growth opportunities in the European
communications industry. We believe that we can accomplish this goal by becoming
a low-cost provider of services through the ownership of network infrastructure.
The key elements of our strategy include:
- CAPITALIZE ON DEREGULATION IN LARGE EUROPEAN MARKETS. Our principal focus
is on exploiting both international and national long distance
opportunities presented by rapidly deregulating European
telecommunications markets. In 1997, according to industry sources, the
European international long distance market for voice services was the
largest in the world, with approximately 35 billion minutes of use.
According to industry sources, Europe's volume of international minutes
grew approximately 12% from 1996 to 1997. Industry sources estimate the
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European wholesale and retail market for all Internet services was $1.9
billion in revenue for 1997.
- LEVERAGE ESTABLISHED MARKET PRESENCE AND LOCAL DISTRIBUTION NETWORK. We
established an early presence in Western Europe to capitalize on the
opportunities presented by deregulation of the telecommunications
industry. As a result, we gained substantial experience in the
operational, technical, financial and logistical issues involved in
operating a network and building a sales force in Western Europe. We
believe that our existing presence positions us to further capitalize on
market opportunities in Western Europe.
- FOCUS ON END USERS. We have established a customer base of small and
medium-sized businesses to which we currently sell long distance voice
services. The Circe Network allows us to provide high quality services to
these end users at competitive prices, particularly businesses with
multiple offices and those requiring significant capacity. Carrier
preselection, scheduled for the year 2000 for most countries in the
European Union, will enable us to capture a larger portion of our
customers' telecommunications spending by enabling end-users to pre-select
us, as opposed to the incumbent telecommunications operator, as their long
distance provider.
- LEVERAGE NETWORK THROUGH RESELLERS AND CARRIERS. To efficiently use
capacity on our network, we sell switched minutes to wholesale customers
and other resellers. While we are constructing the Circe Network primarily
for our own use, we also intend to sell switched minutes and to
opportunistically sell excess capacity on the Circe Network, thus
enhancing its utilization and reducing our construction costs.
- OFFER A COMPREHENSIVE RANGE OF COMMUNICATION SERVICES. Historically, we
have only offered voice and value-added services such as facsimile
transmission. The Circe Network will significantly expand our ability to
meet the growing demand for data services and to offer a comprehensive
range of such services including Internet access and transmission, frame
relay, asynchronous transfer mode and Internet protocol services, as well
as private line and data center co-location services. All of these
services are extremely capacity intensive, and the high cost of leased
transmission capacity made it uneconomical to offer such services without
owning our own network.
- BECOME A LOW COST PROVIDER OF COMMUNICATIONS SERVICES. We believe that
ownership of our network is critical to becoming a low-cost provider of
bundled communications services. In addition, network ownership will
enable us to manage service offerings and transmission quality. To achieve
this objective, we (1) have invested in points of presence and switches,
(2) are in the process of constructing the Circe Network, and (3) have
purchased and swapped for capacity on fiber optic cable systems in and
between Western Europe and the U.S.
- PURSUE ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES. In addition to
systematically expanding through internal growth, in the future we intend
to expand our services and network capabilities through acquisitions,
investments and strategic alliances in order to lower termination costs
and achieve desired economies of scale.
RECENT DEVELOPMENTS
On June 29, 1999, we completed an offering of common stock in which we sold
4,315,000 shares of our common stock to the public at a price of $47.00 per
share. The net proceeds from this sale, after deducting offering expenses and
underwriting discounts and commissions, totaled approximately $192.2 million. We
intend to use the net proceeds from this offering principally to fund the
further development of our network as well as for working capital and general
corporate purposes.
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THE EXCHANGE OFFERS
The existing notes were issued and sold by us on March 19, 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 our
March 1999 offering, we entered into a registration rights agreement with the
initial purchasers of the existing notes which grants holders of existing notes
certain exchange and registration rights. These exchange offers are intended to
satisfy these exchange and registration rights, all of which will terminate upon
the consummation of the exchange offers, except under limited circumstances. The
exchange offers are being made for all outstanding existing notes. See "The
Exchange Offers." Each series of exchange notes will be entitled to the benefits
of the respective indenture under which the particular series of existing notes
were issued. See "Description of the Exchange Notes."
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The Exchange Offers............. We are offering to exchange $200.0 million principal
amount of our 11.50% Senior Dollar Notes due 2009 and
[EURO]150.0 million principal amount of our 11.50% Senior
Euro Notes due 2009, respectively, which have been
registered under the Securities Act (collectively, the
"exchange notes"), for your outstanding 11.50% Senior
Dollar Notes due 2009 or 11.50% Senior Euro Notes due
2009, respectively, sold in the March 1999 private
offering. 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 offers.
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
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deliver a prospectus in connection with any resale of such
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 the exchange offers. See "The Exchange
Offers--Terms of the Exchange Offers" and "Risk
Factors--Your Failure to Participate in the Exchange
Offers Will Have Adverse Consequences."
Expiration Date................. These exchange offers expire at 5:00 p.m., New York City
time (10:00 p.m., London time), on , 1999,
unless extended by us.
Conditions to the Exchange
Offers........................ These exchange offers are subject to customary conditions,
which we may waive.
Procedures for Tendering the
Existing Notes................ If you wish to accept the exchange offers, 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
relevant letter of transmittal. See "The Exchange
Offers--Procedures for Tendering," "--Book-Entry Transfer"
and "--Guaranteed Delivery Procedures." Other procedures
may apply with respect to book-entry transfers. See "The
Exchange Offers--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
Offers--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 these exchange offers and not
withdrawn, prior to 5:00 p.m., New York City time (10:00
p.m., London time), on the expiration date. The exchange
notes issued pursuant to these exchange offers will be
delivered as promptly as practicable
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following the expiration date. See "The Exchange
Offers--Terms of the Exchange Offers."
Withdrawal Rights............... You may withdraw the tender of your existing notes at any
time prior to 5:00 p.m., New York City time (10:00 p.m.,
London time), on the expiration date, unless previously
accepted by us or unless we extend the exchange offers.
Certain United States Federal
Income Tax Considerations..... For information regarding certain United States Federal
Income Tax considerations relating to these exchange
offers 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 these exchange offers.
Exchange Agent.................. The Bank of New York is serving as exchange agent for the
exchange offers. You can find the address for the exchange
agent under the heading "The Exchange Offers--Exchange
Agent."
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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 respective series of 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 respective series of
exchange notes represent the same debt as the corresponding series of existing notes. The
series of existing notes and the corresponding series of exchange notes are governed by the
same indenture.
Exchange Notes Offered.......... $200.0 million principal amount of our 11.50% Senior
Dollar Notes due 2009, and [EURO]150.0 million principal
amount of our 11.50% Senior Euro Notes due 2009.
Maturity........................ March 15, 2009.
Interest........................ Interest will accrue on the exchange notes from the date
of initial issuance and will be payable on March 15 and
September 15 of each year, beginning September 15, 1999.
Holders of exchange notes will receive interest on
September 15, 1999 from the date of initial issuance of
the exchange notes, plus an amount equal to the accrued,
but unpaid, interest on the existing notes.
Security........................ The 11.50% Senior Dollar Notes are secured by U.S.
government securities and the 11.50% Senior Euro Notes are
secured by German government securities, in each case,
until we make the first four scheduled interest payments
on the notes.
Pledged Securities.............. In accordance with the terms of the respective indenture
under which each series of existing notes were issued, on
the closing date for such offerings we purchased and
pledged to the trustee for the benefit of the holders of
the 11.50% Senior Dollar Notes and the holders of the
11.50% Senior Euro Notes U.S. government obligations and
German government obligations, respectively, in an amount
sufficient, upon receipt of scheduled interest and
principal payments on such securities, to provide for
payment in full of the first four scheduled interest
payments due on the 11.50% Senior Dollar Notes and the
11.50% Senior Euro Notes. A failure by us to pay interest
on the notes in a timely manner through the first four
scheduled interest payment dates for such notes will
constitute an immediate event of default under the
respective 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, plus accrued
interest. The redemption prices decline each year after
2004 and will be 100% of their principal amount, 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 either series of
notes with
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
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 interest. We may make
this redemption only if after such redemption, an amount
equal to at least 65% of the principal amount of such
notes remain outstanding and only if that notice of such
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 March 31, 1999, we had approximately $1.3
billion of senior indebtedness, $18.4 million of which was
secured, and $12.5 million of subordinated 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. As of March 31, 1999, our subsidiaries had
approximately $198.4 million of liabilities.
Certain Covenants............... Each of the indentures contains certain covenants which,
among other things, 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 Viatel, effect a
consolidation or merger.
The limitations are, however, subject to a number of
important qualifications and exceptions.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Trading......................... There has previously been only a limited secondary market,
and no public market, for either series of existing notes.
The existing dollar notes have been approved for trading
in the PORTAL market. It is expected that application will
be made to have the existing Euro notes included in the
Regulated Unofficial Market (Freiverkehr) of the Frankfurt
Stock Exchange. There is no established trading market for
either series of 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 for 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
offers, you should consider the information presented under the caption "Risk
Factors."
12
<PAGE>
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 information gives effect to the issuance and sale of 4,315,000
shares of common stock offered and sold by us in June 1999, the exercise of
54,000 options by certain stockholders who sold stock in the June 1999 offering
for an aggregate purchase price of approximately $296,000 and the conversion of
our outstanding shares of Series A preferred stock and subordinated convertible
debentures as if the issuance, exercise and conversion had occurred as of March
31, 1999. Net loss per share is computed on the basis described in the notes to
our consolidated financial statements. 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. Ratio 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Communication services revenue.............................. $ 50,419 $ 73,018 $ 131,938 $ 21,239 $ 48,395
Capacity sales.............................................. -- -- 3,250 -- 13,246
--------- --------- --------- --------- ---------
Total revenue........................................... 50,419 73,018 135,188 21,239 61,641
Operating expenses:
Cost of services and sales.................................. 42,130 63,504 122,109 19,105 51,048
Selling, general and administrative......................... 32,866 36,077 44,893 8,955 18,763
Depreciation and amortization............................... 4,802 7,717 16,268 2,911 9,603
--------- --------- --------- --------- ---------
Total operating expenses................................ 79,798 107,298 183,270 30,971 79,414
--------- --------- --------- --------- ---------
Operating loss................................................ (29,379) (34,280) (48,082) (9,732) (17,773)
Interest income............................................... 1,852 3,686 28,259 510 6,828
Interest expense.............................................. (10,848) (12,450) (79,177) (3,781) (26,166)
--------- --------- --------- --------- ---------
Loss before extraordinary loss................................ (38,375) (43,044) (99,000) (13,003) (37,111)
Extraordinary loss on debt prepayment......................... -- -- (28,304) -- --
--------- --------- --------- --------- ---------
Net loss...................................................... (38,375) (43,044) (127,304) (13,003) (37,111)
Dividends on redeemable convertible preferred stock........... -- -- (3,301) -- (1,177)
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders................ $ (38,375) $ (43,044) $(130,605) $ (13,003) $ (38,288)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Loss per common share, basic and diluted:
Before extraordinary item................................... $ (2.47) $ (1.90) $ (4.44) $ (0.57) $ (1.65)
From extraordinary item..................................... -- -- (1.23) -- --
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders................ $ (2.47) $ (1.90) $ (5.67) $ (0.57) $ (1.65)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares used in per share calculation:
Basic and diluted........................................... 15,514 22,620 23,054 22,783 23,186
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA........................................................ $ (24,577) $ (26,563) $ (31,814) $ (6,821) $ (8,170)
Net cash used in operating activities......................... (26,331) (22,525) (60,318) (10,771) (21,578)
Net cash provided by (used in) investing activities........... (1,592) (43,164) (349,992) 16,455 (200,424)
Net cash provided by (used in) financing activities........... 94,772 11,286 729,035 (209) 351,655
Capital additions............................................. 9,800 40,214 220,903 2,412 161,590
Ratio of earnings to fixed charges............................ -2.52 -2.43 -0.62 -2.44 -0.43
Deficiency of earnings to fixed charges....................... (38,375) (43,044) (130,605) (13,003) (38,288)
OTHER OPERATING DATA:
Billable minutes (000s)....................................... 62,249 140,918 383,875 52,418 270,808
Switches...................................................... 13 14 15 14 15
Points of presence............................................ 13 33 34 33 45
Route kilometers of owned intra-European fiber optic cable in
operation................................................... -- -- -- -- 1,850
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............................................ $ 498,755 $ 691,226
Restricted cash equivalents and restricted marketable securities............................ 229,796 229,796
Cash securing letters of credit for network construction.................................... 121,239 121,239
Working capital............................................................................. 427,217 619,688
Property and equipment, net................................................................. 409,909 409,909
Intangible assets, net...................................................................... 70,579 70,116
Total assets................................................................................ 1,411,990 1,603,998
Long-term debt, excluding current installments.............................................. 1,292,482 1,280,001
Redeemable convertible preferred stock...................................................... 48,298 --
Stockholders' (deficiency) equity........................................................... (184,370) 68,417
</TABLE>
14
<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 OFFERS. 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.
OUR SUBSTANTIAL LEVERAGE COULD ADVERSELY AFFECT OUR ABILITY TO RUN OUR BUSINESS
We have now and will continue to have a significant amount of indebtedness.
As of March 31, 1999, we had $1.3 billion of indebtedness and a stockholders
deficit of $124.1 million (as adjusted for the conversion of certain securities
into common stock). Furthermore, our senior discount notes will accrete in value
(i.e., effectively increase in principal amount) by $241.8 million before they
begin to pay interest in cash. Our substantial indebtedness could have important
consequences to you. For example, it could:
- limit our ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general corporate purposes,
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the funds
available to us for other purposes, including working capital, capital
expenditures, acquisitions and general corporate purposes,
- make us more vulnerable to economic downturns, limiting our ability to
withstand competitive pressures and reduce our flexibility in responding
to changing business and economic conditions,
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate,
- place us at a competitive disadvantage compared to our competitors that
have less debt, and
- limit 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 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. We also had
interest expense of $79.2 million and capitalized interest of $3.3 million in
1998. Interest expense will increase substantially as a result of the high yield
offering which we completed in March 1999. These losses and our high interest
expense present a significant risk for investors. We need to increase traffic on
our network to reduce our per minute costs and reverse these trends.
Our negative EBITDA and negative cash flow are likely to continue beyond the
year 2000 if:
- we extend our expansion plans,
- prices charged to end users decline faster than we anticipate,
- interconnection rates and wholesale prices paid by us do not decline as
quickly as we anticipate, or
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<PAGE>
- any of the other risks described in this prospectus materialize.
Accordingly, we cannot assure you that we will achieve or sustain profitability
or positive cash flows from operating activities in the future. If we cannot
achieve profitability or positive cash flows from operating activities, we may
be unable to meet 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. We cannot assure you that
our business will generate sufficient cash flow from operations to meet our debt
service requirements. We may need to refinance all or a portion of our
indebtedness. Based on our current level of operation, we anticipate that cash
flow from operations may be insufficient to repay our indebtedness at scheduled
maturity and that some or all of such indebtedness may need to be refinanced. If
we are unable to refinance our debt or if additional financing is not available,
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.
DUE TO RESTRICTIONS IN OUR INDENTURES, WE MAY NOT BE ABLE TO OPERATE OUR
BUSINESS AS WE DESIRE
The indentures under which our long-term debt was issued contain a number of
conditions and/or limitations on the way in which we can operate our 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 indentures restrict, and in some cases
significantly limit or prohibit, among other things, our ability and the ability
of our subsidiaries to:
- incur additional indebtedness,
- make prepayments of certain indebtedness,
- pay dividends,
- make investments,
- engage in transactions with stockholders and affiliates,
- issue capital stock,
- create liens,
- sell assets, and
- engage in mergers and consolidations.
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 we
currently anticipate. We cannot assure you that additional financing
arrangements will be available to us on acceptable terms or at all. Moreover,
the amount of our outstanding indebtedness may adversely affect our ability to
raise additional financing. Our inability to
16
<PAGE>
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 long distance calls. This decrease,
absent a significant increase in the number of billable minutes which we carry
or the amount we can charge for additional services, would have a material
adverse effect on our business, financial condition, results of operations and
on our ability to make payments on the notes.
WE MAY NOT BE ABLE TO PROVIDE DATA TRANSMISSION SERVICES EFFECTIVELY
We have no direct 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, and
- enhance our billing, back-office and information systems to accommodate
data transmission services and 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 provider for asynchronous transfer mode equipment is
Lucent. We believe that Lucent does not have extensive experience providing this
equipment, or configuring data networks, in Europe. In addition, this Lucent
equipment will need to be integrated with our existing Nortel Telecom-based
platforms. In Europe, there are a number of different protocols for data
transmission. Our network will need to be able to handle all of these protocols,
which will pose technical difficulties.
The asynchronous transfer mode network equipment we are installing is
designed to enable us to carry voice calls using Internet Protocol as well as
using traditional circuit switched technology. While we do not anticipate a
wholesale conversion to voice over Internet Protocol in the near future, we may
use this protocol to carry some portion of our voice traffic. Traditionally,
voice calls have been transmitted by keeping a circuit or line open between the
calling parties for the duration of the call. This method to transmit voice
calls is inefficient because during conversations there are pauses and periods
of silence when the capacity of the circuit is not being used. Voice
communications carried over data transmission technologies are designed to
eliminate this inefficiency. This technology breaks the voice conversation into
"packets" of information and sends those packets over transmission lines
individually. The packets are then re-assembled at or near their destination, so
the parties are able to have a conversation. When the parties on the call pause
or are silent, there are no packets transmitted and the transmission lines can
be used for other purposes. This technology promises to substantially improve
the efficiency of carrying voice conversations, reducing their cost.
Some telecommunications companies, including ICG Communications, Inc., IDT
Corporation and RSL Communications Ltd., are carrying calls over similar
technologies today and many others,
17
<PAGE>
including Sprint Corporation, are developing this technology. However, carrying
voice communications over Internet Protocol is still under development, is
extremely complex and has not, in our judgement, been developed to quality
levels equal to those of traditional voice transmission methods. We do not
currently carry voice communications over Internet Protocol on our network.
Accordingly, there is a risk that we will not be able to develop this technology
well enough to be able to use it for voice traffic and, therefore, will not be
able to enjoy the cost reductions it promises. Furthermore, it is not clear
today which of the emerging versions of this technology will prevail. We believe
the asynchronous transfer mode technology we are implementing is adaptable to
future developments of voice over Internet Protocol technology. Many
telecommunications companies have far more experience with these types of issues
than we do. Our failure to successfully carry voice communications using data
transmission technologies could have a material adverse effect on our ability to
make payments on the notes.
OUR OPERATING RESULTS MAY BE SUBJECT TO SUBSTANTIAL FLUCTUATIONS
Any significant shortfall in demand for our services in relation to
expectations, or the occurrence of any other factors which cause revenue to fall
significantly short of expectations, would have a material adverse effect on our
business, financial condition, results of operations and the price of our common
stock. Additional factors which may cause our operating results to fluctuate in
the future include:
- pricing changes in the industry,
- changes in the mix of services which we sell or channels through which
those services are sold,
- timing and amount of capacity sales,
- changes in user demand and customer terminations of service,
- changes in capital expenditure requirements and other costs relating to
the expansion of our network,
- the start-up and ready-for service dates of each phase of our network
expansion,
- the timing and costs of any acquisitions of customer bases, 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.
OUR ABILITY TO USE NET OPERATING LOSS CARRYFORWARDS MAY BE LIMITED IN THE FUTURE
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 net operating loss
carryforwards, to reduce our future tax payments would be limited if there were
to occur a more than fifty percent ownership change 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 June 1999 offering of common stock, when combined with prior
or subsequent direct or indirect changes in the ownership of our common stock
within the relevant three-year period, could trigger this limitation.
18
<PAGE>
OUR 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 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, results of operations and our ability to make
payments on the notes. We cannot assure you that we will be able to compete
successfully.
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, such as British Telecom and AT&T, Global One
(Sprint, France Telecom and Deutsche Telekom), MCI Worldcom and Telefonica de
Espana, and new entrants, such as alternative carriers, Internet backbone
networks and other service providers. 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:
- cable communications companies,
- wireless telephone companies,
- electric and other utilities with rights-of-way,
- railways,
- microwave carriers, and
- large end-users which have private networks.
The intensity of competition and price declines in both billable minutes and
capacity have increased over the past several years and we believe that
competition and price declines will continue to intensify, particularly in
Western Europe, as other providers obtain operative 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, are considering
the construction of new fiber optic and other long distance transmission
networks. Since the cost of the actual fiber is a relatively small portion of
building new transmission lines, persons building such lines are likely to
install fiber that provides substantially more transmission capacity than will
be needed over the short or medium term. Further, recent technological advances
have shown the potential to greatly expand the capacity of existing and new
fiber optic cable. 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 pricing pressure on long distance carriers. Such pricing pressure
could have a material adverse effect on us and the value of our common stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
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<PAGE>
THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING BUSINESSES COULD IMPEDE
OUR FUTURE GROWTH AND ADVERSELY AFFECT OUR COMPETITIVENESS
We continuously evaluate and discuss potential acquisitions. We may seek to
acquire customer bases and businesses from, make investments in, or enter into
strategic alliances with, other companies, which may expose us to the following
risks:
- the difficulty of identifying appropriate acquisition candidates in the
countries in which we do business,
- the difficulty of assimilating the operations and personnel of the
acquired entities,
- the potential disruption to our ongoing business caused by senior
management's focus on the acquisition transactions,
- our failure to successfully incorporate licensed or acquired technology
into our network and service offerings,
- the failure to maintain uniform standards, controls, procedures and
policies, and
- the impairment of relationships with employees as a result of changes in
management and ownership.
Additionally, in connection with an acquisition, we may experience rates of
customer attrition that are significantly higher than the rate of customer
attrition which we generally experience and will generally record goodwill that
must be amortized and which would reduce our earnings per share. Further, to the
extent that any transaction involves customer bases or businesses located
outside the United States, the transaction would involve the risks associated
with international operations. We cannot assure you that we would be successful
in overcoming these risks and our failure to overcome these risks could have a
material adverse effect on our business, financial condition, results of
operations and our ability to make payments on the notes.
NETWORK CONSTRUCTION DELAYS AND SYSTEM DISRUPTIONS OR FAILURES COULD ADVERSELY
AFFECT OUR BUSINESS
Our success is dependent, in part, on our ability to continue to expand our
network and on our ability to provide seamless technical operation of this
network. Furthermore, as we continue to expand our network to increase its
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 our budget for
those projects, we may be required to obtain additional financing 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
hope, which will, for some period of time, have a detrimental effect on our
ability to increase traffic volumes and gross margins. In addition, construction
delays 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,
20
<PAGE>
- 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 on the price of
our common stock.
Our operations are also dependent on our ability to successfully integrate
new and emerging technologies and equipment into the network, which could
increase the risk of system failure and result in further strains upon our
network. We attempt to minimize customer inconvenience in the event of a system
disruption by routing traffic to other circuits and switches which may be owned
by other carriers. However, prolonged or significant system failures, or
difficulties for customers in accessing and maintaining connection with our
network, could seriously damage our reputation and result in customer attrition,
reduced margins and financial losses and, as a result, have a material adverse
effect on our ability to make payments on the notes. Additionally, any damage to
our switching centers in New York, New York; Somerset, New Jersey; London,
England; or Egham, England could have a material adverse effect on our ability
to manage our network operations and generate accurate call detail reports and,
in the case of our switching centers in Somerset and Egham, to monitor our
system.
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 purchase
of capacity or minimum investment units on digital fiber optic cables or digital
microwave equipment, 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 on 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. We cannot
provide any assurance that exchange rate fluctuations will not have a material
adverse effect on our ability to make payments on our outstanding indebtedness.
In addition, we cannot assure you that the laws or administrative practices
relating to taxation, foreign exchange or other matters in countries within
which we operate will not change. Any such change could have a material adverse
effect on our business, financial condition, 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 and 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."
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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 effectively utilize 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 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 three months ended March 31, 1999
and the year ended December 31, 1998, carrier customers accounted for 34.2% and
58.3% of our total revenue, respectively, with one carrier customer accounting
for 10.6% of total revenue for the year ended December 31, 1998. Accordingly,
the loss of revenue from more than one significant carrier customer would have a
material adverse effect upon our business, financial condition, results of
operations and our ability to make payment on the notes.
OUR BUSINESS WILL SUFFER IF WE LOSE CERTAIN KEY PERSONNEL OR FAIL TO ATTRACT AND
RETAIN OTHER QUALIFIED PERSONNEL
The success of our business is 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, our Chairman, Chief Executive
Officer and President. We do not currently have employment agreements with any
employee other than Mr. Mahoney, Allan L. Shaw, our Senior Vice President of
Finance and Chief Financial Officer, and Sheldon M. Goldman, our Senior Vice
President, Business Affairs and General Counsel, nor do we intend to enter into
any employment agreements with any employee other than Lawrence G. Malone, our
Senior Vice President, Global Sales and Marketing, and Francis J. Mount, our
Senior Vice President, Engineering and Network Operations. See
"Management--Employment Agreements." 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 also depends 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
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to attract, retain and motivate qualified personnel, could have a material
adverse effect on our business, financial condition and results of operations
and our ability to make payment on the notes.
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 VIATEL
OVERVIEW. National and local laws and regulations governing the provision
of telecommunications services differ significantly among the countries in which
we currently operate and intend to operate. The interpretation and enforcement
of such laws and regulations varies and could limit our ability to provide
certain communications 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.
INTERNATIONAL TRAFFIC. Under the World Trade Organization Basic Telecom
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.
On November 26, 1997, the FCC adopted the Foreign Participation Order to
implement the U.S. obligations under the WTO Agreement. In this order, the FCC
adopted an open entry standard for carriers from World Trade Organization member
countries, generally facilitating market entry for such applicants by
eliminating certain existing tests. These tests remain in effect, however, for
carriers from non-World Trade Organization member countries.
International carriers serving the United States, including us, are subject
to the FCC's international settlements policy. 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
FCC'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 FCC has required carriers to
file publicly available copies of their international settlement arrangements.
The FCC adopted rules regarding specific rate levels for international
settlements which became effective on January 1, 1998 and which were
substantially affirmed by the FCC on reconsideration on June 11, 1999. The
International Settlement Rates Order generally requires U.S. facilities-based
carriers to negotiate settlement rates with their foreign correspondent at no
greater than FCC-established benchmark prices. In addition, the International
Settlement Rates Order imposed new conditions upon certain carriers, including
us. First, as amended on reconsideration, the FCC 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 FCC 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.
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In the Foreign Participation Order described above, if the subject WTO 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 WTO country that either has
been found by the FCC to comply with the benchmarks or has been determined to be
equivalent. We, however, remain subject to prior FCC approval in order to
provide resold private lines to any country in which we have an affiliated
carrier that has not been found by the FCC to lack market power.
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.
In new rules released on May 6, 1999, but not yet effective, the FCC has
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 settlements policy order, the FCC also eliminated the
requirement that carriers file the settlement arrangements where the
international settlement policy has been eliminated. Finally, the international
settlements 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,
upon the effectiveness of these new rules, we will have more flexibility in
negotiating settlement arrangements with many carriers on many routes, which we
expect will lower our 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. Certain FCC
rules limit the way in which some international calls can be routed.
Accordingly, it is possible that the FCC could find that our network
configuration violates these rules. If we were found to be in violation of these
routing restrictions, and if the violation was sufficiently severe, it is
possible that the FCC could impose sanctions and penalties upon us.
CALL REORIGINATION. In addition, outside the European Union we provide a
small number of customers with access to services through the use of call
reorigination. A substantial number of countries have prohibited certain forms
of call reorigination. We cannot assure you that certain of our services and
transmission methods will not be or not become prohibited in certain
jurisdictions and, depending on the jurisdictions, services and transmission
methods affected, there could be a material adverse effect on our business,
financial condition and results of operations.
UNSETTLED NATURE OF REGULATORY ENVIRONMENT. We have pursued and expect to
continue to pursue a strategy of providing our services to the maximum extent we
believe permissible under applicable laws and regulations. Our provision of
services in Western Europe may also be affected if any European Union member
state imposes greater restrictions on non-European Union international service
than on such service within the European Union. We cannot assure you that the
United States or foreign jurisdictions will not adopt laws or regulatory
requirements that will adversely affect us.
Additionally, we cannot assure you that future United States or foreign
regulatory, judicial or legislative changes will not have a material adverse
effect on us or that regulators or third parties will not raise material issues
with regard to our compliance with applicable laws or regulations. If we are
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unable to provide the services we are presently providing or intend to provide
or to use our existing or contemplated transmission methods, due to:
- our inability to receive or retain formal or informal approvals for such
services or transmission methods, or
- for any other reason related to regulatory compliance or the lack of such
compliance,
such events could have a material adverse effect on our business, financial
condition and results of operations.
Since January 1, 1998, we, as well as our U.S. competitors, have been
required by the FCC to make contributions to a universal service fund to
subsidize telecommunications services for low-income persons, schools and
libraries, and rural health care providers. These contributions are based upon
our gross revenues. There can be no assurance that we will be able fully to pass
the cost of these contributions on to our customers or that doing so will not
result in a loss of customers.
EUROPEAN IMPLEMENTATION. The national governments of the European Union
member states were required to pass legislation to liberalize the
telecommunications markets within their countries to implement European
Commission directives. Most of the member states have now implemented the
required legislation. In certain cases this has been done on an inconsistent,
and sometimes unclear, basis.
In addition, the legislation and/or its implementation have, in certain
circumstances, imposed significant obstacles on the ability of carriers to
proceed with the necessary licensing process. Such barriers include requirements
that carriers:
- post significant bonds or make significant capital commitments to build
infrastructure,
- complete extensive application documentation, and
- pay significant license fees.
Implementation has also been slow in certain member states as a result of
such member state's failure to dedicate the resources necessary to have a
functioning regulatory body in place. The above factors and other obstacles
which could develop in connection with deregulation of telecommunications
services could have a material adverse effect on our operations by slowing down
the rate of our intended expansion, as well as a material adverse effect on our
business, financial condition, results of operations and our ability to make
payments on the notes.
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 have been
subject to disruptions that have caused substantial 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.
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YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFERS 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 them, offer them
for resale or otherwise transfer them unless they are subsequently registered or
resold under an 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 the exchange offers, you will not be able to resell,
offer to resell or otherwise transfer the outstanding 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 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 sold.
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, results of
operations and financial position.
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THE EXCHANGE OFFERS
The following contains a summary of the material provisions of the
registration rights agreement. It does not purport to be complete. Reference is
made to the provisions of the registration rights agreement, which has been
filed as an exhibit to the registration statement. Copies are available as set
forth under the heading "Where You Can Find More Information About Us."
TERMS OF THE EXCHANGE OFFERS
GENERAL
In connection with the issuance of the existing notes pursuant to a purchase
agreement, dated as of March 12, 1999, between Viatel and the initial
purchasers, the initial purchasers became entitled to the benefits of the
registration rights agreement.
Under the registration rights agreement, Viatel has agreed to use its best
efforts to consummate the exchange offers by September 19, 1999. Viatel will
keep the exchange offers open for not less than 20 business days after the date
notice of the exchange offers is mailed to holders of the existing notes. The
exchange offers being made hereby, if consummated within six months after the
initial issuance of the existing notes, 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 letters of transmittal, all existing notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time (10:00 p.m., London time), on
the expiration date will be accepted for exchange. Exchange notes of the
relevant series will be issued in exchange for an equal principal amount of
outstanding existing notes of such series accepted in the exchange offers.
Existing notes may be tendered only in integral multiples of $1,000 or
[EURO]1,000, as applicable. This prospectus, together with the letters of
transmittal, is being sent to all registered holders as of , 1999.
The exchange offers are 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 offers are 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 Viatel has 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)), Viatel believes that the exchange notes
issued pursuant to the exchange offers 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 Viatel 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 offers 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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Viatel has not sought, and does not intend to seek, a no-action letter from the
SEC with respect to the effects of the exchange offers, 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
applicable letter of transmittal, each holder will represent to Viatel 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 Viatel.
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 offers, 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, Viatel will have no obligation to effect a subsequent registration
of the existing notes.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The expiration date shall be , 1999, unless Viatel, in its sole
discretion, extends the exchange offer with respect to one or both series of
existing notes, in which case the expiration date shall be the latest date to
which the exchange offer is extended with respect to the relevant series.
To extend the expiration date, Viatel will notify the exchange agent of any
extension by oral or written notice and will notify the holders of the relevant
series of existing notes by means of a press release or other public
announcement prior to 9:00 A.M., New York City time (2:00 P.M., London time), on
the next business day after the previously scheduled expiration date. Such
announcement may state that Viatel is extending the exchange offers for a
specified period of time.
Viatel reserves 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 Viatel 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 it 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 Viatel to constitute a material change,
Viatel 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 Viatel may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offers, Viatel 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 September 15, 1999. No additional interest will be paid on
existing notes tendered and accepted for exchange.
PROCEDURES FOR TENDERING
To tender in the exchange offers, a holder must complete, sign and date the
applicable 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 (10:00 p.m., London time), on the expiration date. In addition, either
- certificates of such existing notes must be received by the exchange agent
along with the applicable 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
appropriate book-entry transfer facility, that is (1) at The Depository
Trust Company, in the case of existing dollar notes, or (2) at Euroclear
and Cedel, in the case of existing Euro notes, pursuant to the procedure
for book-entry transfer described below, must be received by the exchange
agent prior to the expiration date with the applicable 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, LETTERS OF TRANSMITTAL OR
OTHER REQUIRED DOCUMENTS SHOULD BE SENT TO VIATEL. Delivery of all existing
notes (if applicable), letters 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 Viatel in accordance with the terms and subject to the
conditions set forth herein and in the applicable 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 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
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Rule 17Ad-15 under the Securities Exchange Act (each an "Eligible Institution")
unless the existing notes tendered pursuant thereto are tendered (i) by a
registered holder of existing notes who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
applicable letter of transmittal or (ii) 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 Viatel, evidence satisfactory to Viatel 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 Viatel in its
sole discretion, which determination will be final and binding. Viatel reserves
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 for
Viatel, be unlawful. Viatel also reserves the absolute right to waive any
irregularities or conditions of tender as to particular existing notes. Viatel's
interpretation of the terms and conditions of the exchange offers, including the
instructions in the letters 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 Viatel shall determine.
Neither Viatel, 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 is 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, Viatel reserves the right, in its sole discretion, subject to
the provisions of the indentures 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 offers,
- 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 offers.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offers,
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 offers,
existing notes shall be deemed to have been accepted as validly tendered for
exchange when, as and if Viatel has given oral or written notice thereof to the
exchange agent. For each existing note of a series accepted for exchange, the
holder of such existing note will receive an exchange note of the relevant
series 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 applicable
book-entry transfer facility,
- 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 the exchange offers, 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 such book-entry transfer facility as promptly as practicable after the
expiration or termination of the exchange offers.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the existing notes at the applicable book-entry transfer facility for
purposes of the exchange offer within two business days after the date of this
prospectus. Any financial institution that is a participant in such book-entry
transfer facility's systems may make book-entry delivery of existing notes by
causing such book-entry transfer facility to transfer such existing notes into
the exchange agent's account at the book-entry transfer facility in accordance
with such book-entry transfer facility's procedures for transfer. However,
although delivery of existing notes may be effected through book-entry transfer
at the applicable book-entry transfer facility, the applicable 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 book-entry transfer facility have confirmed that
any financial institution that is a participant in the book-entry transfer
facility may utilize the book-entry transfer facility Automated Tender Offer
Program ("ATOP") procedures to tender existing notes.
Any participant in the applicable book-entry transfer facility may make
book-entry delivery of existing notes by causing such book-entry transfer
facility to transfer such existing notes into the exchange agent's account in
accordance with such book-entry transfer facility's 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 applicable
letter of transmittal. The term "agent's message" means a message, transmitted
by the book-entry transfer facility and received by the exchange agent and
forming part of a book-entry confirmation, which states that the book-entry
transfer facility 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 Viatel 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 Viatel, 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
31
<PAGE>
(3) guarantees 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 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 NNM trading days after the date of
execution of the notice of guaranteed delivery.
WITHDRAWAL OF TENDERS
Tenders of existing notes of a series may be withdrawn at any time prior to
5:00 p.m., New York City time (10:00 p.m., London time), on the expiration date
with respect to such series.
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 (10:00
p.m., London time) on the expiration date with respect to such series at one of
the addresses 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 Viatel, 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. 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 offers. 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 (10:00 p.m., London time), on the expiration date.
32
<PAGE>
CONDITIONS
Notwithstanding any other provision of the exchange offers, Viatel shall not
be required to accept for exchange, or to issue exchange notes in exchange for,
any existing notes and may terminate or amend the exchange offers if at any time
prior to 5:00 p.m., New York City time (10:00 p.m., London time), on the
expiration date, Viatel determines, in its reasonable judgment, that the
exchange offers violate 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 Viatel and may be
asserted by Viatel regardless of the circumstances giving rise to any such
condition or may be waived by Viatel in whole or in part at any time and from
time to time in its reasonable discretion. The failure by Viatel 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, Viatel 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.
Viatel is 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
offers. Questions and requests for assistance and requests for additional copies
of this prospectus or of the letters of transmittal should be directed to the
exchange agent addressed as follows:
If tendering an existing dollar note or requesting information with respect
to the exchange of an existing dollar note:
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 815-2824
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Reorganization Section (212) 815-4699
101 Barclay Street, Floor 7 East CONFIRM BY TELEPHONE:
New York, New York 10286 (212) 815-2824
Attention: Tolutope Adeyoju
</TABLE>
If tendering an existing Euro note that has been deposited with a custodian
for, and registered in the name of, The Depository Trust Company or requesting
information with respect to the exchange of an existing Euro note deposited with
The Depository Trust Company:
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: (212) 815-2824
The Bank of New York FACSIMILE TRANSMISSION NUMBER
Reorganization Section (212) 815-4699
101 Barclay Street, Floor 7 East CONFIRM BY TELEPHONE
New York, New York 10286 (212) 815-2824
Attention: Tolutope Adeyoju
</TABLE>
33
<PAGE>
If tendering an existing Euro note (except a Euro note deposited with The
Depository Trust Company) or requesting information with respect to the exchange
of a Euro note (except a Euro note deposited with The Depository Trust Company):
<TABLE>
<S> <C>
BY MAIL, HAND DELIVERY OR FOR INFORMATION CALL:
OVERNIGHT CARRIER: 44 171 893-7284
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Corporate Trust Services 44 171 893-6369/7294
30 Cannon Street CONFIRM BY TELEPHONE:
Lower Ground Floor 44 171 893-7284
London EC4M 6XH
Attention: Linda Read/Deborah Cumner-Price
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offers will be
borne by Viatel. The principal solicitation for tenders pursuant to the exchange
offers is being made by mail; however, additional solicitations may be made by
telegraph, telephone, telecopy or in person by officers and regular employees of
Viatel.
Viatel will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offers. Viatel, 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. Viatel may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the 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 Viatel in connection with the exchange offers
will be paid by Viatel, including fees and expenses of the exchange agent and
trustee and accounting, legal, printing and related fees and expenses.
Viatel will pay all transfer taxes, if any, applicable to the exchange of
existing notes pursuant to the exchange offers. 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 the exchange offers, 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 the exchange offers 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. Viatel
does not currently anticipate that it will register the existing notes under the
Securities Act. To the extent that existing notes are tendered and accepted in
the exchange offers, the trading market for untendered and tendered but
unaccepted existing notes could be adversely affected.
34
<PAGE>
USE OF PROCEEDS
The exchange offers are intended to satisfy certain of our obligations under
the registration rights agreement entered into when the existing notes were
sold. 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 original issuance of the existing notes were
approximately $352.6 million (based on a conversion rate of Euro into U.S.
dollars of approximately [EURO].9065 per U.S. $1.00), after deducting discounts
and commissions and expenses of that offering payable by us. We used a portion
of the net proceeds from that offering to purchase U.S. government securities
which secure the payment of the first four interest payments on the senior
dollar notes and a portion of the net proceeds to purchase German government
obligations securing the senior Euro notes.
We intend to use the remaining net proceeds from our 1999 high yield
offering primarily to fund the expansion of the Circe Network into southern
France and into Switzerland. Pending the foregoing uses, we have invested such
proceeds in short-term, interest-bearing, high quality securities.
We believe that the net proceeds from our 1999 high yield offering and from
our June 1999 equity offering, together with cash and marketable securities on
hand and the proceeds from the sale 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 and losses will depend on a number of factors,
including the success of our business, the start-up dates of the unfinished
rings of the Circe Network, the rate at which we further expand our network, the
types of services that we offer, staffing levels, acquisitions and customer
growth, as well as other factors that are not within our control, including
competitive conditions, government regulatory developments and capital costs. In
the event that our plans or assumptions change or prove to be inaccurate, or the
net proceeds of our March 1999 high yield offering, our June 1999 equity
offering and the sale of capacity on the Circe Network prove to be insufficient
to fund our capital expenditures and losses 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. See "Risk Factors--Our Cash
Flow May Not Be Sufficient to Permit Repayment of Our Indebtedness When Due" and
"Risk Factors--Our Growth Will Require Substantial Additional Capital Which
Could Exceed Budgeted Amounts and Cause Us to Delay or Abandon Expansion
Projects."
35
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, various other
assets and the capitalization of Viatel as of March 31, 1999 on an actual basis,
on an as adjusted basis to give effect to the conversion of our Series A
redeemable convertible preferred stock and subordinated convertible debentures,
and on a pro forma as adjusted basis to reflect the application of the net
proceeds from the sale of the 4,315,000 shares of common stock sold by us in
June 1999, after deducting underwriting discounts and commissions and estimated
offering expenses, and the proceeds from the exercise of 54,000 options by
stockholders selling shares in the June offering for an aggregate purchase price
of approximately $296,000. You should read the information in this table in
conjunction with "Use of Proceeds," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
---------------------------------------
PRO FORMA
AS ADJUSTED
AS ADJUSTED FOR THE
FOR JUNE 1999
ACTUAL CONVERSION OFFERING
--------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents........................................... $ 442,042 $ 442,042 $ 634,513
--------- ------------- -------------
--------- ------------- -------------
Restricted cash equivalents......................................... $ 23,530 $ 23,530 $ 23,530
--------- ------------- -------------
--------- ------------- -------------
Cash securing letters of credit on network construction............. $ 121,239 $ 121,239 $ 121,239
--------- ------------- -------------
--------- ------------- -------------
Marketable securities, current...................................... $ 56,713 $ 56,713 $ 56,713
--------- ------------- -------------
--------- ------------- -------------
Restricted marketable securities, current and non-current........... $ 206,266 $ 206,266 $ 206,266
--------- ------------- -------------
--------- ------------- -------------
Long-term liabilities, excluding current installments:
Long-term debt.................................................. $1,256,196 $ 1,243,715 $ 1,243,715
Notes payable and obligations under capital leases.............. 36,286 36,286 36,286
--------- ------------- -------------
Total long-term debt.......................................... 1,292,482 1,280,001 1,280,001
--------- ------------- -------------
Series A Redeemable Convertible Preferred Stock, $.01 par value;
718,042 shares authorized; 472,791 shares issued and outstanding
actual, 0 shares issued and outstanding pro forma for the
conversion and 0, pro forma, as adjusted for the June 1999 equity
offering.......................................................... 48,298 -- --
--------- ------------- -------------
Stockholders' (deficiency) equity:
Common stock, $.01 par value; 50,000,000 shares authorized;
23,193,265 shares issued and outstanding, actual, 27,798,533
shares issued and outstanding, pro forma for the conversion
and 32,167,533, shares issued and outstanding pro forma as
adjusted for the June 1999 equity offering.................... 232 278 322
Additional paid-in capital...................................... 128,403 188,673 381,100
Accumulated other comprehensive loss............................ (15,082) (15,082) (15,082)
Accumulated deficit............................................. (297,923) (297,923) (297,923)
--------- ------------- -------------
Total stockholders' (deficiency) equity....................... (184,370) (124,054) 68,417
--------- ------------- -------------
Total capitalization........................................ $1,156,410 $ 1,155,947 $ 1,348,418
--------- ------------- -------------
--------- ------------- -------------
</TABLE>
The total shares outstanding after the June 1999 equity offering do not
include (1) outstanding options at July 12, 1999 to purchase a total of
approximately 3.0 million shares of common stock at prices ranging from $5.00 to
$43.00, with a weighted average exercise price of $12.10 per share, and (2) an
additional 0.2 million shares reserved for future grants under our stock
incentive plan.
36
<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 the other financial data included elsewhere in this
prospectus. The statement of operations data, other financial data and balance
sheet data as of and for the years ended December 31, 1994, 1995, 1996, 1997 and
1998 are derived from the consolidated financial statements of Viatel 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
financial data and balance sheet data as of and for the three-month periods
ended March 31, 1998 and 1999 are derived from the unaudited consolidated
financial statements of Viatel included elsewhere in this prospectus, which, in
the opinion of management, include all adjustments necessary for a fair
presentation of the financial condition and results of operations of Viatel for
such periods. The results of operations for interim periods are not necessarily
indicative of a full year's operations. Net loss per share is computed on the
basis described in the notes to our consolidated financial statements. 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. Ratio 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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<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 $ 21,239 $ 48,395
Capacity sales.............................. -- -- -- -- 3,250 -- 13,246
--------- --------- --------- --------- --------- --------- ---------
Total revenue............................. 26,268 32,313 50,419 73,018 135,188 21,239 61,641
Operating expenses:
Cost of services and sales.................. 22,953 27,648 42,130 63,504 122,109 19,105 51,048
Selling, general and administrative......... 14,463 24,370 32,866 36,077 44,893 8,955 18,763
Depreciation and amortization............... 789 2,637 4,802 7,717 16,268 2,911 9,603
Equipment impairment loss................... -- 560 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................. 38,205 55,215 79,798 107,298 183,270 30,971 79,414
--------- --------- --------- --------- --------- --------- ---------
Operating loss................................ (11,937) (22,902) (29,379) (34,280) (48,082) (9,732) (17,773)
Interest income............................... 214 3,282 1,852 3,686 28,259 510 6,828
Interest expense.............................. (772) (8,856) (10,848) (12,450) (79,177) (3,781) (26,166)
--------- --------- --------- --------- --------- --------- ---------
Loss before extraordinary loss................ (12,495) (28,476) (38,375) (43,044) (99,000) (13,003) (37,111)
Extraordinary loss on debt prepayment......... -- -- -- -- (28,304) -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss...................................... (12,495) (28,476) (38,375) (43,044) (127,304) (13,003) (37,111)
Dividends on redeemable convertible preferred
stock....................................... -- -- -- -- (3,301) -- (1,177)
--------- --------- --------- --------- --------- --------- ---------
Net loss attributable to common
stockholders.............................. $ (12,495) $ (28,476) $ (38,375) $ (43,044) $(130,605) $ (13,003) $ (38,288)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Loss per common share, basic and diluted:
Before extraordinary item................... $ (1.22) $ (2.09) $ (2.47) $ (1.90) $ (4.44) $ (0.57) $ (1.65)
From extraordinary item..................... -- -- -- -- (1.23) -- --
--------- --------- --------- --------- --------- --------- ---------
Net loss attributable to common
stockholders.............................. $ (1.22) $ (2.09) $ (2.47) $ (1.90) $ (5.67) $ (0.57) $ (1.65)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares used in per share
calculation:
Basic and diluted........................... 10,252 13,641 15,514 22,620 23,054 22,783 23,186
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA........................................ $ (11,148) $ (20,265) $ (24,577) $ (26,563) $ (31,814) $ (6,821) $ (8,170)
Net cash used in operating activities......... (11,571) (18,489) (26,331) (22,525) (60,318) (10,771) (21,578)
Net cash provided (used in) by investing
activities.................................. (4,996) (37,057) (1,592) (43,164) (349,992) 16,455 (200,424)
Net cash provided by (used in) financing
activities.................................. 80,984 (2,306) 94,772 11,286 729,035 (209) 351,655
Capital additions............................. 4,267 11,887 9,800 40,214 220,903 2,412 161,590
Ratio of earnings to fixed charges............ -15.19 -2.10 -2.52 -2.43 -0.62 -2.44 -0.43
Deficiency of earnings to fixed charges....... (12,495) (28,467) (38,375) (43,044) (130,605) (13,003) (38,288)
OTHER OPERATING DATA:
Billable minutes (000s)....................... 14,981 25,932 62,249 140,918 383,875 52,418 270,808
Switches...................................... 2 10 13 14 15 14 15
Points of presence............................ 3 11 13 33 34 33 45
Route kilometers of owned intra-European fiber
optic cable in operation.................... -- -- -- -- -- -- 1,850
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.................................. $66,762 $ 35,066 $ 92,982 $ 47,143 $ 501,282 $ 28,150 $ 498,755
Restricted cash equivalents and restricted
marketable securities....................... -- -- -- -- 144,523 -- 229,796
Cash securing letters of credit for network
construction................................ -- -- -- -- -- -- 121,239
Working capital............................... 58,549 26,214 79,434 7,666 428,657 12,729 427,217
Property and equipment, net................... 6,933 15,715 21,074 54,094 266,256 56,997 409,909
Intangible assets, net........................ 5,225 5,502 5,021 4,339 46,968 12,567 70,579
Total assets.................................. 83,923 65,613 134,664 126,809 1,009,111 121,894 1,411,990
Long-term debt, excluding current
installments................................ 59,955 67,283 77,904 99,610 921,139 102,360 1,292,482
Redeemable convertible preferred stock........ -- -- -- -- 47,121 -- 48,298
Stockholders' equity (deficiency)............. 10,985 (17,618) 38,483 (8,564) (137,292) (18,271) (184,370)
</TABLE>
38
<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, THE NOTES THERETO, AND THE OTHER FINANCIAL DATA INCLUDED LATER 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 the 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 communication services
revenue and other line items, see "--The Circe Network."
REVENUE
Our revenue is derived from communication 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 communication services revenue principally from long distance
telecommunications services.
During recent years, the following key trends have affected the composition
of our communication services revenue:
- A growing proportion of our customers, particularly in Western Europe, now
access 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 communication services revenue, as a
percentage of total revenue, from different regions (based on where calls
originated on the network):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Western Europe................................................ 39.5% 44.7% 46.6% 52.9% 67.2%
North America................................................. 18.9 21.9 41.6 26.9 28.0
Latin America................................................. 28.6 22.2 10.8 17.3 4.7
Asia/Pacific Rim and Other.................................... 13.0 11.2 1.0 2.9 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. See "Risk Factors--Our
Industry is Highly Competitive With Participants That Have Greater Resources
Than We Do, and We May Not Be Able to Compete Successfully." 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 communication 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, 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
40
<PAGE>
run economic costs that would be incurred by an efficient provider using
state-of-the-art technology. 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 Circle 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 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 communication services revenue.
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 intangibles 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 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
41
<PAGE>
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 communication services is included in property
and equipment and is being charged to depreciation and amortization over its
useful life.
We expect to 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 expense 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,
our 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 total revenue. Our total 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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Cost of services and sales........................... 83.6% 87.0% 90.3% 90.0% 82.8%
Selling, general and administrative expenses......... 65.2% 49.4% 33.2% 42.2% 30.4%
Depreciation and amortization........................ 9.5% 10.6% 12.0% 13.7% 15.6%
EBITDA loss(1)....................................... (48.7%) (36.4%) (23.5%) (32.1%) (13.3%)
</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.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998
TOTAL REVENUE. Total revenue increased by 190.2% to $61.6 million for the
three months ended March 31, 1999 from $21.2 million for the three months ended
March 31, 1998. Within this growth was a 127.9% increase in communication
services revenue to $48.4 on 270.8 million billable minutes for the first
quarter of 1999 from $21.2 million on 52.4 million billable minutes for the
first quarter of 1998.
42
<PAGE>
Capacity sales were $13.2 million for the first quarter of 1999. We had no
capacity sales during the first quarter of 1998, because the Circe Network did
not exist. Revenue growth for the first quarter of 1999 was generated primarily
by growth from European end user revenues and new capacity sales.
A substantial increase in billable minutes from the first quarter of 1998 to
the first quarter of 1999 was partially offset by a substantial decline in
revenue per billable minute primarily because of (1) a higher percentage of
lower-priced intra-European and national long distance traffic on our network
and (2) reductions in prices in response to price reductions by incumbent
telecommunications operators and other competitors in many of our markets.
Communication services revenue per billable minute from the sale of services
to retail customers, which represented 44.3% of total revenue for the three
months ended March 31, 1999, compared to 55.2% for the three months ended March
31, 1998, decreased 72.5% to $.14 in the first quarter of 1999 from $.51 in the
first quarter of 1998. Communication services revenue per billable minute from
the sale of services to carriers and other resellers remained constant at $.29
for the first quarter of 1999 and in the first quarter of 1998.
During the first quarter of 1999 as compared to the first quarter of 1998,
we increased our carrier business (through which we provide switched minutes,
private lines and ports to carriers, Internet Service Providers and other
resellers) on an absolute basis. However, our carrier business declined as a
percentage of communications service revenue, because our retail services grew
at a faster rate. The carrier business represented approximately 34.2% of total
revenue and approximately 27.1% of billable minutes for the three months ended
March 31, 1999 as compared to approximately 44.6% of total revenue and
approximately 56.2% of billable minutes for the three months ended March 31,
1998.
COST OF SERVICES AND SALES. Cost of services and sales increased to $51.0
million in the first quarter of 1999 from $19.1 million in the first quarter of
1998. As a percentage of total revenue, however, cost of services and sales
decreased to approximately 82.8% from approximately 90.0% for the three months
ended March 31, 1999 and 1998, respectively. Cost of services and sales for the
three months ended March 31, 1999 includes costs associated with the sale of
capacity on the Circe Network. These costs did not occur in the first quarter of
1998. 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. Our gross margin increased, as a result of
capacity sales to 17.2% for the three months ended March 31, 1999 as compared to
10.0% for the three months ended March 31, 1998.
Cost of services and sales continued to increase in the three months ended
March 31, 1999 in part because of the relatively high cost of leased
infrastructure and the increase in minutes. These costs are expected to decrease
as a percentage of revenue as we migrate from leased infrastructure to the Circe
Network and other owned capacity. The effect of bringing traffic "on-net" will
be somewhat delayed, because our leased line agreements require minimum
notification to terminate our obligations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $18.8 million in the three months ended
March 31, 1999 from $9.0 million in the three months ended March 31, 1998 and,
as a percentage of total revenue, decreased to approximately 30.4% in the three
months ended March 31, 1999 from approximately 42.2% in the corresponding period
in 1998. 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 seventeen different 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 47.5% and 52.3% for the three months ended March 31, 1999 and
1998, respectively. Advertising and promotion expenses, as a percentage of total
selling, general and administrative expenses, were approximately 5.1% and 1.1%
for the three months ended March 31, 1999 and 1998, respectively.
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<PAGE>
EBITDA LOSS. EBITDA loss increased to $8.2 million for the three months
ended March 31, 1999 from $6.8 million for the three months ended March 31,
1998. As a percentage of total revenue, EBITDA loss decreased to approximately
13.3% in the first quarter of 1999 from approximately 32.1% in the first quarter
of 1998. We expect EBITDA margin to improve as we migrate traffic from leased
lines to our own network.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense, which
includes depreciation of the network, increased to approximately $9.6 million in
the three months ended March 31, 1999 from approximately $2.9 million in the
three months ended March 31, 1998. The increase was due primarily to the
increase in gross property and equipment from $72.2 million at March 31, 1998 to
$440.0 million at March 31, 1999. Depreciation expense will increase
substantially as each additional ring of the Circe Network becomes operational.
INTEREST. Interest expense increased from approximately $3.8 million in the
three months ended March 31, 1998 to approximately $26.2 million in the three
months ended March 31, 1999 primarily as a result of our aggregate debt, which
includes notes and capital lease obligations, increasing from $104.2 million at
March 31, 1998 to $1.3 billion at March 31, 1999. During the three months ended
March 31, 1999, we capitalized $2.3 million of interest costs. Interest income
increased from approximately $510,000 in the three months ended March 31, 1998
to approximately $6.8 million in the three months ended March 31, 1999 primarily
as a result of the interim investment of the net proceeds from our April 1998
high yield offering.
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
pricing reductions enacted by incumbent telecommunications operators and other
carriers in many of our markets. See "--Cost of Communication Services and
Capacity."
Communication 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, 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
44
<PAGE>
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 infrastructure
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.
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
45
<PAGE>
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. See "--Cost of Communication Services and
Capacity."
Total revenue per billable minute from the sale of services to retail
customers, which represented 83.5% 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 16.5% 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 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.
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<PAGE>
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 we issued 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 March 31, 1999, we had $620.0 million of cash, cash
equivalents, cash securing letters of credit for network construction and
marketable securities and $229.8 million of restricted cash equivalents and
other restricted marketable securities, which secure interest payments on our
notes through April 2001.
On June 29, 1999, we completed an offering of common stock in which we sold
an aggregate of 4,315,000 shares to the public at a price of $47.00 per share.
The net proceeds from this sale, after deducting offering expenses and
underwriting discounts and commissions, totaled approximately $192.2 million.
On March 19, 1999, we completed a high yield offering through which we
raised $365.5 million of gross 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
$889.6 million of gross proceeds ($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.
We believe that the net proceeds from our June 1999 equity offering and our
March 1999 high yield offering, 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 at
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 competitive conditions, government regulatory
developments and capital costs. In addition, we continuously discuss and
evaluate potential acquisitions. In the event that (1) our plan or assumptions
change or prove to be inaccurate, (2) we consumate an acquisition, (3) we are
unable to convert from leased to owned infrastructure in accordance with our
current plans or (4) the net proceeds from our March and June 1999 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
47
<PAGE>
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.
CAPITAL ADDITIONS; COMMITMENTS
The development of our business has required substantial capital. Capital
additions for each period 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 totalled $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. During the three
months ended March 31, 1999, we had capital additions of $161.6 million, which
consisted of capital expenditures of approximately $101.7 million, a net
increase of $44.1 million in property and equipment purchases payable, $13.6
million of assets acquired under capital lease obligations and capitalized
interest of $2.3 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 $225.0 million at March 31, 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.
Based upon certain key operating performance targets which were met during
the period ended March 31, 1999, we recognized our obligation to pay contingent
consideration for our 1998 Flat Rate Communications acquisition.
On May 13, 1999, our Series A preferred stock and our subordinated
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
debentures converted at a conversion price equal to $13.20 and DM24.473,
respectively, at the then applicable exchange rate. Accordingly, we issued
approximately 4.6 million shares of our common stock and will pay cash for any
fractional shares due upon conversion.
FOREIGN CURRENCY
We have exposure to fluctuations in foreign currencies relative to the U.S.
Dollar as a result of billing portions of our communication 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 are currently payable in Euros. A substantial
portion of our capital expenditures are 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.
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 communication services revenue that was billed in local
currencies. Consequently, our financial position as of March 31, 1999 and our
results of operations for the three months ended March 31, 1999 were not
significantly impacted by fluctuations in the U.S. Dollar in relation to foreign
currencies.
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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. At December 31, 1997, gross
property and equipment was $67.0 million compared to $440.0 million at March 31,
1999, an increase of 556.7% in gross property and equipment. As part of this
process, we have inventoried, tested, and ensured Year 2000 compliance of our
mission critical systems. The inventory and testing of these mission critical
systems is complete. The backbone of our communications network is primarily
composed of Nortel switches which 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 our
non-mission critical systems being Year 2000 compliant during the third quarter
of 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 have initiated formal communications with the key carriers and other
vendors on which our operations and infrastructure are dependent to determine
the extent to which we are susceptible to a failure resulting from such third
parties' inability to remediate their own Year 2000 problems. Accordingly,
during the procurement process, we have taken steps to ensure that our vending,
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 affect on our
business, financial condition and results of operations. As a contingency
against any possible disruptions in services provided by vendors, we have 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 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, results of operations and the price of our common stock.
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.
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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. We are now able to conduct
business in both 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 strategy 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.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
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. While scheduled to be effective in the year 2000,
there is a proposal to delay the implementation of the statement for one year.
We have not completed our analysis of the impact of this statement on our
financial statements.
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 the
outstanding Euro denominated senior notes, senior discount notes and
subordinated convertible debentures in foreign currencies. 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. Fixed-rate debt
obligations issued by us are generally not callable until maturity.
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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 $135.2 million in 1998, and today we have direct sales forces in twelve
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 and the United Kingdom and interconnection agreements with the
incumbent telecommunications operator in each of these countries. We also have
licenses in Spain and Switzerland and expect to obtain interconnection
agreements in these countries during the fourth quarter of 1999.
We currently operate one of Europe's largest pan-European networks, with
points of presence in 45 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, and have begun
construction of phases two and three. We plan to begin construction of phases
four and five in the second half of 1999.
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 additional capacity. Our network should allow us to
meet this increased demand by providing abundant transmission capacity for:
- continued growth in our 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
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-
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network interfaces with certain specified carriers. We expect our data network
to be commercially operable in the fourth quarter of 1999.
MARKET OPPORTUNITIES
International telecommunications is one of the fastest growing segments of
the long distance industry, having experienced a compounded growth in total
minutes of 15.5% per annum from 1988 to 1998. In 1997, according to industry
sources, the European international long distance market for voice services was
the largest in the world, with approximately 29.6 billion minutes or 43% of
international calling volume originating in Europe. A substantial portion of the
traffic originating in Europe terminates in Europe or the United States, where
we have international gateway switches.
INTERNATIONAL TRAFFIC PATTERNS
<TABLE>
<CAPTION>
DESTINATION
---------------------------------------
COUNTRY (MARKET DATA AS OF) EUROPE* USA OTHER
- -------------------------------------------------- OUTGOING MINUTES ------------- --- -----------
-----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
United Kingdom (1997/1998)........................ 5,800 52% 13% 35%
Germany (1997).................................... 5,333 52 6 42
France (1997)..................................... 3,545 64 6 30
Italy (1997)...................................... 2,352 57 11 32
Switzerland (1997)................................ 2,164 70 4 26
Netherlands (1997)................................ 1,535 75 6 19
Belgium (1996).................................... 1,228 85 4 11
Spain (1995)...................................... 1,025 70 5 25
</TABLE>
- ------------------------
* Europe-EU member states and Switzerland.
Source: TeleGeography 1999.
In 1997, the market for total domestic and international long distance in
the Western European countries in which we operate represented approximately
$104.3 billion, with $87.4 billion representing national long distance and
approximately $16.9 billion representing international long distance (Source:
"The European Telecommunications Fact File 1998"). In many European Union member
states, the ability to provide telecommunications services was liberalized on
January 1, 1998. We believe that regulatory liberalization in Western Europe and
technological advancements eventually will lead to market developments similar
to those that have occurred in the United States and the United Kingdom
following deregulation, including an increase in both international and national
traffic volume, reduced prices, increased service offerings and the emergence of
new entrants. By 1997, new entrants had amassed approximately 56.4% of the
United States international long distance market, from approximately 2.7% in
1985. (Source: FCC Common Carrier Bureau). In addition, from 1991 to July 1998
the number of licensed long distance competitors in the United Kingdom grew from
2 to 144. (Source: TeleGeography, 1999).
We believe that there continues to be a shortage of cross-border capacity in
Europe. Most infrastructure in Europe is owned and operated by the incumbent
telecommunications operator. Under the traditional system of carrying
cross-border telecommunications traffic in Europe, the incumbent
telecommunications operators did not develop end-to-end cross-border circuits,
but rather connected their national networks with other carriers at the border
pursuant to bilateral agreements. We believe the system of bilateralism resulted
in a serious shortage of cross-border capacity in Europe. 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 additional
capacity.
We believe that a substantial part of the capacity on existing routes has a
number of deficiencies including (1) high costs, (2) lack of end-to-end quality
control, (3) limited availability of capacity,
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(4) long lead times for provisioning, (5) lack of redundancy and (6) long delays
for restoration. While there have been significant reductions in leased line
costs as a result of deregulation, these deficiencies are exacerbated by the
increase in demand for capacity from new entrants, thereby resulting in
artificially and significantly higher costs. We believe there is a significant
opportunity to provide high quality, cost-effective capacity to new entrants.
BUSINESS STRATEGY
Our goal is to become a fully integrated communications company that is well
positioned to take advantage of growth opportunities in the European
communications industry. We believe that we can accomplish this goal by becoming
a low-cost provider of services through the ownership of key network
infrastructure. The key elements of our strategy include:
- CAPITALIZE ON DEREGULATION IN LARGE EUROPEAN MARKETS. Our principal focus
is on exploiting both international and national long distance
opportunities presented by rapidly deregulating European
telecommunications markets. In 1997, according to industry sources, the
European international long distance market for voice services was the
largest in the world, with approximately 35 billion minutes of use.
According to industry sources, Europe's volume of international minutes
grew approximately 12% from 1996 to 1997. Industry sources estimate the
European wholesale and retail market for all Internet services was $1.9
billion in revenue for 1997.
- LEVERAGE ESTABLISHED MARKET PRESENCE AND LOCAL DISTRIBUTION NETWORK. We
established an early presence in Western Europe to capitalize on the
opportunities presented by deregulation of the telecommunications
industry. As a result, we gained substantial experience in the
operational, technical, financial and logistical issues involved in
operating a network and building a sales force in Western Europe. To date,
we have established sales offices in twelve Western European cities and
have established indirect sales offices, through arrangements with
independent sales representatives and telemarketing agents, in more than
180 locations in Western Europe. We believe that we are positioned to
further capitalize on market opportunities in Western Europe.
- FOCUS ON END USERS. We have established a customer base of small and
medium-sized businesses to which we currently sell long distance voice
services. The Circe Network allows us to provide high quality services to
these end users at competitive prices, particularly businesses with
multiple offices and those requiring significant capacity. Carrier
preselection, scheduled for the year 2000 in most countries in the
European Union, will enable us to capture a larger portion of our
customers' telecommunications spending by enabling end-users to pre-select
us, as opposed to the incumbent telecommunications operator, as their long
distance provider.
- LEVERAGE NETWORK THROUGH RESELLERS AND CARRIERS. To efficiently use
capacity on our network, we sell switched minutes to wholesale customers
and other resellers. While we are constructing the Circe Network for our
own use, we also intend to sell switched minutes and to opportunistically
sell excess capacity on the Circe Network, thus enhancing its utilization
and reducing our construction cost.
- OFFER A COMPREHENSIVE RANGE OF COMMUNICATION SERVICES. Historically, we
have only offered voice and value-added services such as facsimile
transmission. The Circe Network will significantly expand our ability to
meet the growing demand for data services and to offer a comprehensive
range of these services including Internet access and transmission, frame
relay, asynchronous transfer mode and Internet protocol services, as well
as private line and data center co-location services. All of these
services are extremely capacity intensive, and the high cost of leased
transmission capacity made it uneconomical to offer these services without
owning our own network. See "Risk Factors--We May Not Be Able to Provide
Data Transmission Services Effectively."
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- BECOME A LOW COST PROVIDER OF COMMUNICATIONS SERVICES. We believe that
ownership of our network is critical to becoming a low-cost provider of
bundled communications services. In addition, network ownership will
enable us to manage service offerings and transmission quality. To achieve
this objective, we (1) have invested in points of presence and switches,
(2) are in the process of constructing the Circe Network, and (3) have
purchased and swapped for capacity on fiber optic cable systems in and
between Western Europe and the U.S.
- PURSUE ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES. In addition to
systematically expanding through internal growth, in the future we intend
to expand our services and network capabilities through acquisitions,
investments and strategic alliances in order to lower termination costs
and achieve desired economies of scale.
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 recently entered into 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 Viatel's 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 the new 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.
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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 fourth quarter of 1999.
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 presence in 45 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 which currently consists of approximately 1,850
route kilometers. Additional points of presence 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 requires us to pay a regulated tariff for
using the incumbent telecommunications operator's network to originate the
calls; (2) paid access, which requires the end user to pay another carrier to
access our services; (3) national or international toll-free, which accesses a
Viatel switch by direct dial or (4) 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) and Telecom Italia. We also have interconnection
agreements with Cable & Wireless (United Kingdom) and Infostrada (Italy). We are
currently negotiating interconnection agreements with Telefonica de Espana and
SwissCom. We cannot assure you that we will be successful in securing such
interconnection agreements 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.
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THE EUROPEAN PORTION OF OUR 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 there.
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 will extend through northern
France, The Netherlands and into western Germany, is scheduled to be placed into
service during the third quarter of 1999. The third phase, which will extend
through eastern Germany, 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 second 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 Nortel Telecom's optronics and Lucent's fiber
optic cable, thereby enhancing service quality while improving efficiency and
lowering costs.
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.
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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 (1,088.5 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 our 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.
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.
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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 will allow full monitoring capability and remote diagnostics and
testing on key elements of our network.
The international network operations centers will 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.
- 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.
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- 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 direct sales forces in
twelve 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 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 sale 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;
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- 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 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.
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, such as British
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Telecom and AT&T, Global One (Sprint, France Telecom and Deutsche Telekom), MCI
Worldcom and Telefonica de Espana, and new entrants, such as alternative
carriers, Internet backbone networks and other service providers. 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:
- cable communications companies,
- wireless telephone companies,
- electric and other utilities with rights-of-way,
- railways,
- microwave carriers, and
- large end-users which have private networks.
The intensity of competition and price declines in both billable minutes and
capacity sales has increased over the past several years and we believe that
this kind of competition and price declines 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, are considering the construction of new
fiber optic and other long distance transmission networks. Since the cost of the
actual fiber is a relatively small portion of building new transmission lines,
persons building such lines are likely to install fiber that provides
substantially more transmission capacity than will be needed over the short or
medium term. Further, recent technological advances have shown the potential to
greatly expand the capacity of existing and new fiber optic cable. 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 pricing pressure on
long distance carriers. Such pricing pressure could have a material adverse
effect on us and on our ability to make payments on the notes. 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, results of operations and on our ability to make payments on the
notes and we cannot assure you 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
during the past eighteen months 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
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by incumbent telecommunications operators and other major competitors. However,
prices for long distance calls have decreased substantially over the past few
years 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 expects 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, results of operations and on our ability to make payments
on the notes.
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, results of operations and on our ability to make payments on the
notes. 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 assure you 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 telecommunications operators for leased
long-haul lines, but it will not reduce our 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 assure you 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, results of operations and
on our ability to make payments on the notes.
INTERNATIONAL TRAFFIC
Under the 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.
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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 assure you that the WTO Agreement will result in
beneficial regulatory liberalization in all signatory countries.
On November 26, 1997, the FCC adopted the Foreign Participation Order to
implement the U.S. obligations under the WTO Agreement. In this order, the FCC
adopted an open entry standard for carriers from WTO member countries, generally
facilitating market entry for such applicants by eliminating certain existing
tests. These tests remain in effect, however, for carriers from non-World Trade
Organization member countries.
International carriers serving the United States, including us, are subject
to the FCC's international settlements policy. 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
FCC'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 FCC has required carriers to
file publicly available copies of their international settlement arrangements.
The FCC adopted rules regarding specific rate levels for international
settlements rates, which became effective on January 1, 1998 and which were
substantially affirmed by the FCC on reconsideration on June 11, 1999.
International Settlement Rates Order generally requires U.S. facilities-based
carriers to negotiate settlement rates with their foreign correspondent at no
greater than FCC-established benchmark prices. In addition, the International
Settlement Rates Order imposed new conditions upon certain carriers, including
us. First, as amended on reconsideration, the FCC 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 FCC 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
WTO 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 WTO country that either has been found by the FCC to comply with the
benchmarks or has been determined to be equivalent. We, however, remain subject
to prior FCC approval in order to provide resold private lines to any country in
which we have an affiliated carrier that has not been found by the FCC to lack
market power.
Many parties have appealed the International Settlement Rates Order to the
U.S. Court of Appeals for the D.C. Circuit. 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.
In new rules released on May 6, 1999, but not yet effective, the FCC has
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
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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 FCC 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,
upon the effectiveness of these new rules, we will have more flexibility in
negotiating settlement arrangements with many carriers on many routes, which we
expect will lower our 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 FCC rules limit the way in which some international calls can be routed,
we do not believe that our network configuration, specifically the way in which
traffic is routed through our facilities in the U.K., is specifically prohibited
by, or undermines in any way the intent of, these rules. It is possible,
however, that the FCC 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 FCC could impose
sanctions and penalties upon us.
REGULATORY STATUS
A summary discussion of the regulatory situations 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 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. 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, ensure that interconnection requirements are non-discriminatory and
transparent and to ensure adequate and
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efficient interconnection for public telecommunications networks and publicly
available telecommunications services.
In October 1997, the European Commission issued a consultative document
supporting the implementation of long run incremental cost principles as a basis
for interconnection pricing. This document also sets forth interconnection
pricing benchmarks reflecting current interconnection agreements in European
Union member states. The European Commission believes such benchmarks should be
relied upon pending the adoption of accounting systems and interconnection rates
based on long run incremental cost principles.
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 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 can
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.
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 under the
provisional licensing system for the establishment and operation of a public
telecommunications network on June 30, 1998 and a provisional license for the
provision of voice telephony on July 3, 1998. Recently, these provisional
licenses were converted into definitive licenses.
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.
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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. From
1998 onwards, the Belgian Institute for Postal Services and Telecommunications
will "dry-run" the universal service costing model and keep operators informed
of the contributions that they may be required to make if and when the Universal
Service Fund is activated.
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 new independent regulatory authority, the Authorite
de Regulation des T elecommunications ("ART").
In December 1997, we filed a joint application for a license as a public
telecommunications network operator (under Article L33.1 of the French Code de
Postes et T elecommunications) and provider of voice telephony services to the
public (under Article L34.1 of the French Code de Postes et
T elecommunications). The license application was approved by both ART and the
relevant Minister during 1998. An extension of license was requested by Viatel
in order to obtain a nation-wide license. The application was sent to the ART on
June 21, 1999. We currently anticipate that the nation-wide license should be
obtained during the next four months; however, we can give no assurance that
this will be the case. In March 1999, we obtained interconnection arrangements
which allow customers in the greater Paris region to originate and terminate
calls throughout France and all countries serviced by us. Additional
interconnections to the Strasbourg and Amiens regions are expected to be
obtained in mid-1999.
We are subject to certain obligations 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.
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 currently overseen by a new Regulatory Authority
for Telecommunications and Post ("RegTP") that operates under the supervision of
the Ministry of Economics and has taken over the regulatory responsibilities of
the disbanded Ministry of Post and Telecommunications.
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. Viatel has been issued a
nationwide class 3 infrastructure license and a nationwide class 4 license for
the provision of voice telephony.
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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 FCC 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. Although
Viatel believes that it will be able to obtain a new interconnection agreement
with Deutsche Telekom prior to December 31, 1999, we cannot provide any
assurance that this will be the case or that the interconnection arrangement
obtained will contain terms which are as favorable to us as those contained in
our 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.
On July 24, 1998, Telecom Italia published its Reference Interconnect Offer,
which has been amended recently 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 must contribute to a universal service fund.
Such a requirement is to take effect in 1999 provided that Telecom Italia
demonstrates by March 31, 1999, 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. Both the Italian competition
agency and the European Commission are likely to recommend such an exemption
scheme to the Italian regulator. However, we cannot assess at this time any
possible impact of any such universal service obligations on its operating
margins.
THE NETHERLANDS. In the Netherlands the incumbent telecommunications
operator's monopoly regarding voice telephony was abolished effective July 1,
1997. Other community 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 radio frequencies, all licensing
requirements have been abolished by mandatory registration requirements with the
Independent Post and Telecommunications Authority. In February 1999, Viatel
obtained from the Independent Post and Telecommunications Authority
registrations to provide a public telecommunication service and to install and
provide a public telecommunications network.
SPAIN. Spain was required, under applicable EU 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 this process
was completed by the approval of subsequent regulations. Therefore, Spain has
complied with the December 1, 1998 deadline. Viatel was granted a nationwide
infrastructure and voice telephony license in March 1999. We expect to sign an
interconnection agreement with Telefonica de Espana in the fourth quarter of
1999.
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
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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). We are applying for a
concession as a facilities-based carrier.
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), requires that all U.K. licenses
that existed before January 1, 1998 to be in line with the Licensing Directive
prior to January 1, 1999 and that all new licenses granted after January 1, 1998
should 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.
Accordingly, secondary legislation is pending which will achieve this. The
Department of Trade and Industry advise that, subject to further consultation,
this legislation will convert 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 WTO 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.
Viatel UK has been granted an international simple voice resale standard
license and an international facilities license with code powers which allows
Viatel 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 Telecom.
OTHER EUROPEAN MARKETS. Our ability to expand in other countries will be
affected by the degree to which liberalization has been implemented in that
country. If for strategic reasons we decide to build out infrastructure in each
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 region,
with the result that our ability to offer such service is limited. Regulations
governing enhanced services (such as facsimile and 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
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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 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. A foreign ownership limit of 49% is
imposed under the 1996 "Minimal Law" for B-Band cellular, satellite and cable TV
services. 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 and
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 offer
such services as well as to apply for licenses to offer specialized limited
services, which include private line and data transmission services.
COLOMBIA. Under the Constitution adopted in 1991, the possibility of
private provision of public services was ratified in Colombia. 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 recently 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.
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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 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,
telenext, voicemail and faxmail) 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 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 Argentina 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
issues to prohibited call reorigination services. 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 service to, from and through
the United States generally is subject to regulation by the FCC. Section 214 of
the Communications Act requires a company to make application to, and receive
authorization from, the FCC to provide such international telecommunications
services. In May 1994, the FCC authorized us pursuant to Section 214 of the
Communications Act to resell public switched telecommunications services of
other United States carriers (the "Section 214 Switched Authorization"). The
Section 214 Switched 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 FCC to provide both
facilities-based services and resale services (including both the resale of
switched services and the resale of private lines for the provision of switched
services) to all permissible international points. Finally, in September 1996 we
also received final approval for another Section 214 authorization from the FCC
to provide facilities-based service between the United States and the United
Kingdom over the CANUS-1 and CANTAT-3 cable systems (the "Section 214 UK
Facilities Authorization").
EMPLOYEES
As of June 30, 1999, we had 603 full-time employees, approximately 255 of
whom were engaged in sales, marketing and customer service. None of our
employees is covered by a collective bargaining agreement. Our management
believes that our relationship with our employees is good.
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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.
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 office space in Somerset, New Jersey, which
serves as our U.S. Network Operations Center, Egham, England, which serves as
our European 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 years to 25 years.
We also maintain switching and transmission sites in several 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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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of Viatel as of July 14, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael J. Mahoney(1)(2)............................. 40 Chairman of the Board, Chief Executive Officer and
President
Allan L. Shaw........................................ 35 Senior Vice President, Finance; Chief Financial
Officer and Director
Lawrence G. Malone................................... 47 Senior Vice President, Global Sales and Marketing
Sheldon M. Goldman................................... 39 Senior Vice President, Business Affairs; General
Counsel and Secretary
Francis J. Mount..................................... 57 Senior Vice President, Engineering and Network
Operations and Director
John G. Graham(1)(2)(3).............................. 60 Director
Paul G. Pizzani(1)(2)(3)............................. 39 Director
</TABLE>
- ------------------------
(1) Member of the Directors Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
MICHAEL J. MAHONEY. Mr. Mahoney has served as Chairman of the Board of
Viatel since September 1998, as its Chief Executive Officer since September
1997, as its President since September 1996 and as a director since 1995. Mr.
Mahoney was also Chief Operating Officer of Viatel from September 1996 to
September 1997, Executive Vice President, Operations and Technology of Viatel
from July 1994 to September 1996 and Managing Director, Intercontinental of
Viatel from January 1996 to September 1996. From August 1990 to June 1994, Mr.
Mahoney was employed by SITEL Corporation, a teleservices company, most recently
as President, Information Services Group. From August 1987 to August 1990, Mr.
Mahoney was employed by URIX Corporation, a manufacturer of telecommunications
hardware and software, in a variety of sales and marketing positions.
ALLAN L. SHAW. Mr. Shaw has served as Senior Vice President, Finance of
Viatel since December 1997 and as its Chief Financial Officer since January
1996. Mr. Shaw has served as a director of Viatel since June 1996. Mr. Shaw was
Vice President, Finance of Viatel from January 1996 to December 1997 and
Treasurer of Viatel from September 1996 to April 1998. Prior to becoming Vice
President, Finance and Chief Financial Officer, Mr. Shaw served as Corporate
Controller from November 1994 to December 1995. From August 1987 to November
1994, Mr. Shaw was employed by Deloitte & Touche LLP, most recently as a
Manager. Mr. Shaw is a Certified Public Accountant and a member of the American
Institute, United Kingdom Society and New York State Society of Certified Public
Accountants.
LAWRENCE G. MALONE. Mr. Malone has served as Senior Vice President, Global
Sales and Marketing of Viatel since May 1997. Mr. Malone served as Vice
President and Managing Director, Intercontinental of Viatel from September 1996
to May 1997 and served as its Vice President of Sales for Carriers/Wholesale
from January 1995 to September 1996. From December 1993 to December 1994, Mr.
Malone was employed by Frame Relay Technologies, a communications equipment
manufacturer, as Director of Sales. From December 1987 to November 1993, Mr.
Malone was employed by Republic Telcom Systems, a voice/data networking company,
where he most recently served as Vice President of Sales and Marketing.
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SHELDON M. GOLDMAN. Mr. Goldman has served as Senior Vice President,
Business Affairs and General Counsel of Viatel since December 1997. Prior to
becoming Senior Vice President, Business Affairs and General Counsel of Viatel,
Mr. Goldman served as Vice President, Business and Legal Affairs from December
1996 to December 1997 and served as United States General Counsel of Viatel from
April 1996 to December 1996. From January 1987 to March 1996, Mr. Goldman was
associated with the law firm of Wien, Malkin & Bettex. Since March 1996, Mr.
Goldman has been Of Counsel to the law firm of Brief Kesselman Knapp & Schulman,
LLP.
FRANCIS J. MOUNT. Mr. Mount has served as Senior Vice President,
Engineering and Network Operations of Viatel since December 1997 and as a
Director of Viatel since June 1998. Prior to joining Viatel, Mr. Mount was
Senior Vice President, Business Initiatives of Primus Telecommunications Group
from October 1997 to December 1997, responsible for Internet telephony, European
operations and network quality. From June 1996 to October 1997, Mr. Mount was
Executive Vice President and Chief Operating Officer of Telepassport, Inc. and
was Vice President and Chief Operating Officer of Telepassport, Inc. from
January 1996 to June 1997. From 1990 to January 1996, Mr. Mount was employed by
MCI, most recently as Director, Global Technical Services, responsible for
international development, alliance management and all technical operations and
services outside the United States, including the construction and maintenance
of large networks such as Hyperstream, "Concert" and private networks for large
accounts such as J.P. Morgan, Proctor and Gamble and I.B.M. From March 1967 to
December 1989, Mr. Mount was employed by AT&T in various positions.
JOHN G. GRAHAM. Mr. Graham has served as a director of Viatel since June
1998. Mr. Graham has been the President and Chief Operating Officer of Utilities
Mutual Insurance Company since May 1, 1999, a position he assumed following his
retirement from GPU Service, Inc. From December 1998 to May 1999, Mr. Graham was
an Executive Vice President of GPU Service, Inc. and from 1987 to December 1998,
was Senior Vice President and Chief Financial Officer of GPU, Inc., a domestic
and international electric utility and independent power generation company. Mr
Graham was employed by GPU in various other capacities from 1976 to 1987. From
1970 to 1976, Mr. Graham was a Partner in the law firm of Ruprecht and Graham,
Newark, New Jersey. From 1993 to 1997, Mr. Graham served as a Director and
Chairman of the Audit Committee of Edisto Resources, Inc., which was engaged in
the exploration, production and marketing of natural gas and oil.
PAUL G. PIZZANI. Mr. Pizzani has served as a director of Viatel since April
1996. Mr. Pizzani is currently a partner at eVentures LLC. From November 1997 to
March 1999, Mr. Pizzani served as a Managing Director of Wasserstein Perella
Emerging Markets L.P. where he has been employed since November 1997. Prior to
November 1997, Mr. Pizzani was associated with COMSAT Corporation and its
subsidiaries in various capacities from November 1985 to October 1997, most
recently as Treasurer.
SENIOR MANAGEMENT
GLENN K. DAVIDSON. Mr. Davidson has served as Vice President, Corporate
Communications of Viatel since August 1998. Prior to joining Viatel, Mr.
Davidson was employed by the Computer & Communications Industry Association as
Executive Vice President, Chief Operating Officer and Corporate Secretary from
September 1995 to July 1998. From November 1994 to September 1995, Mr. Davidson
was an independent consultant. From May 1994 to November 1994, Mr. Davidson was
the Campaign Manager for Douglas Wilder's bid for election to the United States
Senate. From August 1991 to January 1994, Mr. Davidson was employed by the
Office of Governor, Commonwealth of Virginia, most recently as Chief of Staff.
From January 1990 to August 1991, Mr. Davidson was the Director of the Virginia
Liaison Office, Commonwealth of Virginia. From 1985 to 1990, Mr. Davidson was
employed by Computer & Communications Industry Association in various
capacities, most recently as Vice President and Chief of Staff.
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CHARLES T. FIELD. Mr. Field has served as Vice President and Treasurer of
Viatel since September 1998. Prior to becoming Vice President and Treasurer, Mr.
Field served as Treasurer from April 1998 to September 1998. Prior to joining
Viatel, Mr. Field was employed by Horsehead Industries, Inc., a diversified
manufacturing company, from August 1995 to April 1998. From October 1987 to
August 1995, Mr. Field was employed by Deloitte & Touche LLP, Independent
Certified Public Accountants, most recently as Manager. Mr. Field is a Certified
Public Accountant and a member of the American Institute, United Kingdom Society
and Illinois Society of Certified Public Accountants.
DEREK FOXWELL. Mr. Foxwell has served as Viatel's Vice President of
Infrastructure Programs since January 1999. Prior to becoming Vice President of
Infrastructure Programs, Mr. Foxwell served as Director of Infrastructure
Programs from May 1998 to January 1999. From December 1997 to May 1998, Mr.
Foxwell served as a consultant to Viatel providing advice to Viatel in
connection with the development of the Circe Network. Prior to joining Viatel as
a consultant, Mr. Foxwell was a consultant to Nynex Network Service (Flag Ltd.)
where he chaired the Flag Assignment, Routing & Restoration Subcommittee and
Sprint International (PTAT) and acted as the operations and maintenance manager
for PTAT systems. From 1972 to 1991, Mr. Foxwell was employed by British
Telecom, most recently as Transmission Engineering Planning Manager,
International Cable Network; International and National Elements. Mr. Foxwell is
a chartered engineer with more than 25 years of experience in international
telecommunications networks.
SIMON JOLYON GILLING. Mr. Gilling has served as Vice President, European
Legal Affairs of Viatel since May 1999. Prior to joining Viatel, Mr. Gilling was
a consultant from July 1998 to May 1999. From June 1990 to July 1998, Mr.
Gilling was Partnership Secretary and Head of Legal Affairs of Mercury Personal
Communications, a personal mobile telecommunications company. From 1985 to May
1990, Mr. Gilling was the company secretary and Senior Legal Adviser for Mercury
Communications Ltd., a wholly owned subsidiary of Cable and Wireless PLC.
PAUL K. HEUN. Mr. Heun has been Vice President, Operations of Viatel since
January 1998. Prior to joining Viatel, Mr. Heun was Vice President, Network
Services of Primus Telecommunications Group from October 1997 to January 1998.
From April 1996 to October 1997, Mr. Heun was Vice President, Network Services
of Telepassport, Inc. From January 1995 to April 1996, Mr. Heun was employed by
AT&T as Manager, Customer Connectivity. From April 1989 to January 1995, Mr.
Heun was employed by MCI, most recently as Senior Manager, Network Operations.
FRED HUGHES. Mr. Hughes has served as Vice President, Engineering of Viatel
since December 1997. From July 1994 to December 1997, Mr. Hughes was Vice
President, Operations-Europe of Viatel. From August 1993 to July 1994, Mr.
Hughes served as Director of Telephony of Viatel. From January 1991 to August
1993, Mr. Hughes was President of Communications Services Group, a
Connecticut-based voice and data communications consulting company. From August
1988 to January 1991, Mr. Hughes was Director of Engineering at Millicom
Telecommunications Services, Inc.
EVAN MILLER. Mr. Miller has served as Vice President of Business
Development of Viatel since February 1999. Prior to joining Viatel, Mr. Miller
was Director, Equity Research at Credit Suisse First Boston from March 1995 to
December 1998 and was Director, Equity Research at Lehman Brothers from December
1990 to February 1995. From April 1988 to November 1990, Mr. Miller was a member
of the Senior Management Group, Corporate Strategy at British Telecom.
WAYNE MYERS. Mr. Myers has been Vice President, European Sales of Viatel
since January 1999. Prior to becoming Vice President, European Sales, Mr. Myers
served as General Manager, European Sales of Viatel from July 1997 to January
1999. From February 1996 to June 1997, Mr. Myers was Channel Sales Director of
PSI Net. From November 1994 to February 1996, Mr. Myers was a Sales Director for
LDDS/WorldCom. From June 1993 to November 1994, Mr. Myers was President of the
Gold Club, a direct mail Company. From February 1988 to June 1993, Mr. Myers was
employed by
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Cable & Wireless Communications, Inc. in various capacities, most recently as a
National Account Director.
JAN S. PIAZZA. Ms. Piazza has been Vice President, Carrier Sales since
January 1999. Prior to becoming Vice President, Carrier Sales, Ms. Piazza served
as Viatel's General Manager, Carrier Sales from January 1998 to January 1999.
Prior to joining Viatel, Ms. Piazza was a Vice President of Primus
Telecommunications Group from October 1997 to December 1997. From September 1995
to October 1997, Ms. Piazza was a Vice President, Sales and Marketing of
Telepassport, Inc. From 1987 to August 1995, Ms. Piazza served in various
positions at a predecessor of WorldCom, most recently as Vice President of
Product Development and Carrier Sales. From 1983 until 1987, Ms. Piazza was
Director of Sales Administration and Customer Service for Argo Communications.
ELLEN S. RUDIN. Ms. Rudin has served as Vice President and Deputy General
Counsel of Viatel since September 1998 and as Assistant Secretary since
September 1997. Prior to becoming Vice President and Deputy General Counsel, Ms.
Rudin served as Assistant General Counsel from October 1997 to September 1998,
as Counsel from March 1997 to October 1997 and as a staff attorney from August
1996 to March 1997. From September 1987 to August 1996, Ms. Rudin was associated
with the law firm of Wien, Malkin & Bettex.
PETER STEPHENS. Mr. Stephens has been Vice President, Operations--Europe of
Viatel since January 1999. Prior to becoming Vice President, Operations--Europe,
Mr. Stephens served as Technical Director for MCI's operations in Europe, the
Middle East and Africa from January 1993 to December 1998. Prior to January
1993, Mr. Stephens was employed by Reuters in various capacities for
approximately 19 years, most recently as Communications Quality Director.
Viatel's Board of Directors is comprised of seven directorships, two of
which are currently vacant. The Board consists of three classes: Class A, Class
B and Class C. One of the three classes, comprising one-third of the directors,
is elected each year to succeed the directors whose terms are expiring.
Directors hold office until the annual meeting for the year in which their terms
expire and until their successors are elected and qualified unless, prior to
that date, they have resigned, retired or otherwise left office.
The Board of Directors has established three committees, a Compensation
Committee, an Audit Committee and a Directors Committee. The current members of
the Compensation Committee are Messrs. Mahoney, Graham and Pizzani, the current
members of the Audit Committee are Messrs. Graham and Pizzani and the current
members of the Directors Committee are Messrs. Mahoney, Graham and Pizzani. The
Compensation Committee reviews general policy matters relating to compensation
and benefits of employees and officers of Viatel and administers Viatel's Stock
Incentive Plan. The Audit Committee recommends to the Board the firm of
independent public accountants to audit Viatel's financial statements, reviews
with management and the independent accountants Viatel's interim and year-end
operating results, considers the adequacy of the internal controls and audit
procedures of Viatel and reviews the nonaudit services to be performed by the
independent accountants. The Directors Committee searches for and interviews
prospective directors, makes recommendations to the Board regarding the size of
the Board and candidates to fill vacancies on the Board, including vacancies
created by reason of an increase in the size of the Board and nominates
candidates for election to the Board.
Viatel pays an annual fee to non-employee directors of $30,000 (paid $15,000
in cash, in quarterly installments, and $15,000 in shares of restricted stock),
$1,200 for every board meeting attended and held separately and $600 for each
Board meeting or committee meeting participated in by telephone. Directors who
are also employees of Viatel are not separately compensated for serving on the
Board. All directors are reimbursed for out-of-pocket expenses incurred in
attending Board and committee meetings.
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SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to, any person acting
as Viatel's Chief Executive Officer during 1998, regardless of the amount of
compensation paid, and the other most highly compensated executive officers of
Viatel during 1998 whose aggregate cash and cash equivalent compensation
exceeded $100,000.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------- LONG TERM COMPENSATION
OTHER -------------------------
ANNUAL RESTRICTED SECURITIES ALL
COMPENSATION STOCK UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($) OPTIONS(#) COMPENSATION(2)
- ------------------------------------------ ---- --------- -------- ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Mahoney(3),.................... 1998 $ 289,583 $260,000 $ -- $ -- 360,771 $10,000
President and Chief Executive Officer 1997 212,500 125,000 -- -- -- 9,500
1996 166,458 183,129 102,825 299,997(4) 253,333 --
Allan L. Shaw,............................ 1998 172,917 107,500 -- -- 195,019 10,000
Senior Vice President, Finance and Chief 1997 140,000 60,000 -- -- 60,666 8,400
Financial Officer 1996 108,333 115,000 -- -- 43,333 --
Lawrence G. Malone,....................... 1998 155,833 110,000 -- -- 138,140 9,350
Senior Vice President, Global Sales and 1997 141,750 35,588 -- -- 73,533 8,505
Marketing 1996 98,333 88,147 -- -- -- --
Sheldon M. Goldman(5),.................... 1998 182,917 112,000 -- -- 162,500 10,000
Senior Vice President, Business Affairs 1997 143,750 60,000 -- -- 40,200 9,000
and General Counsel 1996 86,354 100,000 -- -- 20,000 --
Francis J. Mount(6),...................... 1998 175,000 107,500 -- -- 122,500 10,000
Senior Vice President, Engineering and
Network Operations
</TABLE>
- ------------------------
(1) The amount reflected for Mr. Mahoney includes $32,416 of tax equalization
payments, $28,227 of relocation expense reimbursement associated with Mr.
Mahoney's repatriation from London to New York and $9,263 of tax gross ups.
(2) Represents matching contributions under Viatel's 401(k) plan.
(3) Mr. Mahoney was appointed as Chief Executive Officer in September 1997.
(4) Calculated based on a value of $9.00 per share, the fair market value of the
common stock on December 31, 1996.
(5) Mr. Goldman began his employment with Viatel in March 1996.
(6) Mr. Mount began his employment with Viatel in December 1997.
STOCK OPTION GRANTS
The following table sets forth information regarding grants of options to
purchase common stock made by Viatel during the fiscal year ended December 31,
1998 to each of the executives named in the Summary Compensation Table. No stock
appreciation rights were granted during 1998.
76
<PAGE>
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------- AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED (#) 1998 (1) ($/SHARE)(2) DATE (5%) (10%)
- -------------------------------- ----------- ------------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Mahoney.............. 90,000(4)(5) 5.0% $ 5.00 01/01/2008 $ 282,600 $ 717,300
90,000(4)(6) 5.0 5.50 01/01/2008 311,400 789,300
180,771(4)(7) 10.1 10.25 09/18/2008 1,165,973 2,953,798
Allan L. Shaw................... 60,000(4)(5) 3.3 5.00 01/01/2008 188,400 478,200
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
75,019(4)(7) 4.2 10.25 09/18/2008 483,873 1,225,815
Lawrence G. Malone.............. 27,000(4)(5) 1.5 5.00 01/01/2008 84,780 215,190
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
51,140(4)(7) 2.9 10.25 09/18/2008 329,853 835,628
Sheldon M. Goldman.............. 60,000(4)(5) 3.3 5.00 01/01/2008 188,400 478,200
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
42,500(4)(7) 2.4 10.25 09/18/2008 274,125 694,450
Francis J. Mount................ 40,000(4)(5) 2.2 5.00 01/01/2008 125,600 318,800
60,000(4)(6) 3.3 5.50 01/01/2008 207,600 526,200
22,500(4)(7) 1.3 10.25 09/18/2008 145,125 367,650
</TABLE>
- ------------------------
(1) Viatel granted options to purchase a total of 1,793,736 shares of common
stock during 1998.
(2) The exercise price was equal to the fair market value of the shares of
common stock underlying the options on the grant date.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of options immediately prior to the expiration of their term
assuming the specified compounded rates of appreciation (5% and 10%) on the
common stock over the term of the options. These assumptions are based on
rules promulgated by the SEC and do not reflect Viatel's estimate of future
stock price appreciation. Actual gains, if any, on the stock option
exercises and common stock holdings are dependent on the timing of such
exercise and the future performance of the common stock. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the option
holder.
(4) In the event of certain Corporate Transactions (as defined) involving
Viatel, all unvested stock options become fully vested. See "--Stock
Incentive Plan." The options granted to the executives named in the Summary
Compensation Table also vest upon a change of control.
(5) Options to purchase shares of common stock vested and became exercisable as
to 33.34% of these options on January 1, 1999 and the remainder will vest
and become exercisable on each successive anniversary date thereafter to the
extent of 33.33% of these options.
(6) Options to purchase shares of common stock vested and became exercisable as
to 25% of these options on January 1, 1999 and the remainder will vest and
become exercisable on each successive anniversary date thereafter to the
extent of 25% of these options.
(7) Options to purchase shares of common stock will vest and become exercisable
as to 33.34% of these options on September 18, 1999 and the remainder will
vest and become exercisable on each successive anniversary date thereafter
to the extent of 33.33% of these options.
77
<PAGE>
On January 1, 1999, Viatel granted the following stock options, with an
exercise price of $22.875 per share: Michael J. Mahoney, 52,278 options; Allan
L. Shaw, 38,519 options; Lawrence G. Malone, 38,519 options; Sheldon M. Goldman,
38,519 options; and Francis J. Mount, 38,519 options.
On June 1, 1999, Viatel granted the following stock options, with an
exercise price of $43.00 per share, and shares of restricted stock: Michael J.
Mahoney, 38,196 options and 43,859 shares; Allan L. Shaw, 4,123 options and
16,123 shares; Lawrence G. Malone, 4,123 options and 16,123 shares; Sheldon M.
Goldman, 4,123 options and 16,123 shares; and Francis J. Mount, 4,123 options
and 16,123 shares.
YEAR-END OPTION VALUES
The following table sets forth information regarding the number and year end
value of unexercised options held at December 31, 1998 by each of the executives
named in the Summary Compensation Table. No stock appreciation rights were
exercised by these executives during fiscal 1998.
FISCAL 1998 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES "IN-THE-MONEY"
UNDERLYING UNEXERCISED OPTIONS AT FISCAL
SHARES VALUE OPTIONS AT FISCAL YEAR-END ($)
ACQUIRED ON REALIZED YEAR-END (#) EXERCISABLE/UNEXERCISABLE
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE (1)
- ----------------------------- ------------- ----------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Michael J. Mahoney........... 46,666 $ 662,891(2) 217,820/368,265 $3,372,766/$5,179,939
Allan L. Shaw................ -- -- 132,116/180,235 2,144,123/2,724,471
Lawrence G. Malone........... -- -- 105,249/149,757 1,713,119/2,298,995
Sheldon M. Goldman........... -- -- 81,805/179,414 1,330,560/2,219,277
Francis J. Mount............. -- -- 28,360/94,140 499,435/1,542,128
</TABLE>
- ------------------------
(1) Options are "in-the-money" if the fair market value of the underlying
securities exceeds the exercise price of the options. The amounts set forth
represent the difference between $22.875 per share, the fair market value of
the common stock issuable upon exercise of options at December 31, 1998 and
the exercise price of the option, multiplied by the applicable number of
options.
(2) The amounts set forth represent the difference between $19.00 per share, the
fair market value of the common stock issuable upon exercise of options at
July 27, 1998, and the exercise price of the option, multiplied by the
applicable number of options.
EMPLOYMENT AGREEMENTS
We intend to execute new employment agreements with Messrs. Mahoney, Shaw
and Goldman, pursuant to which Mr. Mahoney will continue to serve as President
and Chief Executive Officer of Viatel, Mr. Shaw will continue to serve as Senior
Vice President, Finance and Chief Financial Officer and Mr. Goldman will
continue to serve as Senior Vice President, Business Affairs and General Counsel
for Viatel. In addition, we intend to execute employment agreements with Messrs.
Lawrence Malone and Francis Mount, pursuant to which Mr. Malone will continue to
serve as Senior Vice President, Global Sales and Marketing and Mr. Mount will
continue to serve as Senior Vice President, Engineering and Network Operations.
The term of the Mahoney employment agreement will extend for a period of three
years, and the term of the employment agreement of each of Messrs. Shaw,
Goldman, Malone and Mount will extend for a period of two years, in each case
unless earlier terminated in accordance with the terms thereof. Each employment
agreement will be effective as of June 1, 1999. Pursuant to the respective
employment agreements, Mr. Mahoney will be entitled to receive an annual base
salary of $386,000 (subject to adjustments), Mr. Shaw will be entitled to
receive an annual base salary of $246,000, Mr. Goldman will be entitled to
receive an annual base salary of $257,000, Mr. Malone will be entitled to
recieve an annual base salary of $250,000 and Mr. Mount will
78
<PAGE>
be entitled to recieve an annual base salary of $246,000, subject, in each case,
to increases approved from time to time by the Board. In addition, Mr. Mahoney's
Employment Agreement will provide for an annual cash bonus payment equal to 100%
of his base salary multiplied by a bonus multiple ranging from 0.6 to 2.0
determined based upon a comparison of actual versus projected EBITDA and revenue
figures and each of Messrs. Shaw's, Goldman's, Malone's and Mount's employment
agreements will provide for an annual cash bonus payment equal to 80% of their
base salary multiplied by a bonus multiple ranging from 0.6 to 2.0 determined
based upon a comparison of actual versus projected EBITDA and revenue figures.
Each of the employment agreements will also (1) provide that the executive will
be entitled to receive annual grants of stock options or restricted stock in
amounts to be determined by the Board of Directors in its sole and absolute
discretion, (2) provide that following a change of control (as defined therein),
Viatel will be obligated to pay the executive an amount equal to the Severance
Amount (as defined therein), together with any applicable excise tax gross up on
such amount, if the executive chooses to terminate his employment, (3) include a
non-competition covenant and (4) contain a prohibition on the solicitation of
Viatel employees.
For purposes of each of the foregoing employment agreements, "change of
control" is defined to mean such time as (1) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act, becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 of the Securities
Exchange Act) of more than 50% of the total voting power of the then outstanding
voting stock of Viatel on a fully diluted basis or (2) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
(together with any new directors whose election by the Board or whose nomination
for election by Viatel's stockholders was approved by a vote of at least
two-thirds of the members of the Board then still in office who either were
members of the Board at the beginning of this period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board then in office.
STOCK INCENTIVE PLAN
Viatel has adopted the Amended Stock Incentive Plan (the "Stock Incentive
Plan") under which "non-qualified" stock options to acquire shares of common
stock may be granted to employees, directors and consultants of Viatel and
"incentive" stock options to acquire shares of common stock may be granted to
employees, including employee-directors. The Stock Incentive Plan also provides
for the grant of stock appreciation rights and shares of restricted common stock
to Viatel's employees, directors and consultants.
The Stock Incentive Plan, which is currently administered by the
Compensation Committee of the Board, allows for the issuance of up to a maximum
of approximately 3.4 million shares of common stock, of which approximately 0.2
million shares are available for future grants. Under the Stock Incentive Plan,
the option price of any incentive stock option may not be less than the fair
market value of a share of common stock on the date on which the option is
granted. The option price of a non-qualified stock option may be less than the
fair market value on the date the non-qualified stock option is granted if the
Board so determines. An incentive stock option may not be granted to a "ten
percent stockholder" (as that term is defined in Section 422A of the Internal
Revenue Code) unless the exercise price is at least 110.0% of the fair market
value of the common stock and the term of the option may not exceed five years
from the date of grant. Each option granted pursuant to the Stock Incentive Plan
is evidenced by a written agreement executed by Viatel and the grantee, which
contains the terms, provisions and conditions of the grant. Stock options may
not be assigned or transferred during the lifetime of the holder except as may
be required by law or pursuant to a qualified domestic relations order. Common
stock subject to a restricted stock purchase or bonus agreement is transferable
only as provided in that agreement. The maximum term of each stock option
granted to persons other than ten percent stockholders is ten years from the
date of grant.
79
<PAGE>
For options to qualify as incentive stock options, the aggregate fair market
value, determined on the date of grant, of the shares with respect to which the
incentive stock options are exercisable for the first time by the grantee during
any calendar year may not exceed $100,000. Payment by option holders upon
exercise of an option may be made in cash or, with the consent of the Board, in
whole or in part,
- with shares of common stock,
- by irrevocable direction to an approved securities broker to sell shares
and deliver all or a portion of the proceeds to Viatel,
- by delivery of a promissory note with any provisions that the Board
determines appropriate, or
- in any combination of these three possibilities.
In addition, the Board, in its sole discretion, may authorize the surrender
by an optionee of all or part of an unexercised stock option and authorize a
payment in consideration thereof of an amount equal to the difference between
the aggregate fair market value of the shares of common stock subject to this
stock option and the aggregate option price per share of such common stock. In
the Board's discretion, this payment may be made in cash, shares of common stock
with a fair market value on the date of surrender equal to the payment amount or
some combination of the two.
The Stock Incentive Plan provides that outstanding options, restricted
shares of common stock or stock appreciation rights vest in their entirety and
become exercisable, or with respect to restricted common stock, are released
from restrictions on transfer and repurchase rights, in the event of a
"Corporate Transaction." For purposes of the Stock Incentive Plan, a Corporate
Transaction includes any of the following stockholder-approved transactions to
which Viatel is a party:
- a merger or consolidation in which Viatel is not the surviving entity,
other than a transaction the principal purpose of which is to change the
state of Viatel's incorporation, or a transaction in which Viatel's
stockholders immediately prior to the merger or consolidation hold (by
virtue of securities received in exchange for their shares in Viatel)
securities of the surviving entity representing more than 50.0% of the
total voting power of that entity immediately after the transaction,
- the sale, transfer or other disposition of all or substantially all of
the assets of Viatel unless Viatel's stockholders immediately prior to
the sale, transfer or other disposition hold (by virtue of securities
received in exchange for their shares in Viatel) securities of the
purchaser or other transferee representing more than 50.0% of the total
voting power of that entity immediately after the transaction, or
- any reverse merger in which Viatel is the surviving entity but in which
Viatel's stockholders immediately prior to the merger do not hold (by
virtue of their shares in Viatel held immediately prior to such
transaction) securities of Viatel representing more than 50.0% of the
total voting power of Viatel immediately after the transaction.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the members of the Compensation Committee were Messrs. Pizzani,
Mahoney and Graham. Mr. Mahoney is Viatel's President and Chief Executive
Officer. None of the executive officers of Viatel currently serves on the
compensation committee of another entity or any other committee of the board of
directors of another entity performing functions similar to the Compensation
Committee. No interlocking relationships exist between Viatel's Board or its
Compensation Committee and the board of directors or compensation committee of
any other company.
80
<PAGE>
CERTAIN TRANSACTIONS
On June 3, 1998, we entered into a Mutual Cooperation Agreement with Martin
Varsavsky 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"), we 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, we
agreed to purchase $6.0 million of Jazz Telecom S.A. common stock, (3) we and
Jazz Telecom S.A. agreed to the purchase from the other international switched
minutes and we agreed 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) we 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) we agreed to release
any past claims which we had against either Jazz Telecom S.A. and Mr. Varsavsky
in exchange for their respective release of any claims against us, and (7) Mr.
Varsavsky agreed to pay us liquidated damages in the event that he violates
certain provisions of the agreement. We and Jazz Telecom S.A. are in discussions
concerning certain modifications to the terms of the Mutual Cooperation
Agreement. There can be no assurance, however, that the parties will reach an
agreement concerning any such modifications.
On June 4, 1999, Mr. Varsavsky entered into an agreement with us pursuant to
which he agreed that he would not, subject to certain exclusions, (1) offer,
pledge, sell or grant, any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of his
Viatel common stock or any securities which are exercisable, or convertible into
or exchangeable for such common stock, or (2) enter into any swap or other
arrangement that transfers to another any of the economic consequences of
ownership of his common stock, from June 23, 1999 through December 31, 1999;
provided, however, that he may, under certain circumstances, pledge all, but not
less than all of his shares to of Viatel common stock secure a loan of up to
$15.0 million. In exchange for his agreement to lock up his shares, we included
an aggregate of 1,293,000 shares of his Viatel common stock in the registration
statement for our recently completed June offering.
81
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Viatel's common stock, as of July 21, 1999, by (1) each person
known to Viatel to own beneficially more than 5% of its outstanding shares of
common stock, (2) each director of Viatel, (3) each person named in the Summary
Compensation Table, and (4) all executive officers and directors of Viatel, as a
group, together with their respective percentage ownership of such shares before
and after the offering. All information with respect to beneficial ownership has
been furnished to Viatel by the respective stockholders of Viatel.
<TABLE>
<CAPTION>
AMOUNT
AND
NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OF
BENEFICIAL OWNER OWNERSHIP(1) CLASS
- --------------------------------------------- --------- -------
<S> <C> <C>
Capital Group International, Inc. and
The Capital Guardian Trust Co.
11100 Santa Monica Boulevard
Los Angeles, CA 90025-3384(2).............. 2,695,700 8.3%
Martin Varsavsky
Parque Empresarial Edificio 2,
c/o Beatriz De Bobadilla
14,5 Ofic. B
Madrid, Spain.............................. 2,303,666 7.3
Michael J. Mahoney(3)........................ 346,947 1.1
Allan L. Shaw(3)............................. 183,250 *
Lawrence G. Malone(3)........................ 149,532 *
Sheldon M. Goldman(3)(4)..................... 119,098 *
Francis J. Mount(3).......................... 44,961 *
John G. Graham(3)............................ 3,463 *
Paul G. Pizzani(3)........................... 2,463 *
All directors and executive
officers as a group (7 persons)(6)......... 849,714 2.6%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
common stock.
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to
options and warrants held by that person that are currently exercisable or
exercisable within 60 days of July 21, 1999 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Except as indicated in the
footnotes to this table, the stockholder named in the table has sole voting
and investment power with respect to the shares set forth opposite such
stockholder's name.
(2) The Capital Group International, Inc. is the parent holding company of a
group of investment management companies, including The Capital Guardian
Trust Company. The amount reported reflects shares held by The Capital Group
Guardian Trust Company solely as the investment manager of various
institutional accounts. Capital Group International, Inc. does not have
investment power or voting power over any of these shares.
(3) Includes shares of common stock which these individuals have the right to
acquire through the exercise of options within 60 days of July 21, 1999, as
follows: Michael J. Mahoney 278,089; Allan L. Shaw 131,127; Lawrence G.
Malone 113,409; Sheldon M. Goldman 75,976; Francis J. Mount 12,838; John G.
Graham, 1,463; and Paul G. Pizzani, 1,463.
(4) Includes 1,000 shares owned by Mr. Goldman's wife. Mr. Goldman disclaims
"beneficial ownership" of such shares within the meaning of Rule 13d-3 under
the Securities Exchange Act.
82
<PAGE>
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 each series of existing notes and will issue the corresponding series of
exchange notes under indentures dated, as of March 19, 1999, between us and The
Bank of New York, as trustee. The terms of the exchange notes will include those
stated in the respective indentures and those made part of the indentures by
reference to the Trust Indenture Act. The exchange notes follow all those terms,
and we refer you to the indentures 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 indentures. It does not restate the indentures in their
entirety. We urge you to read the applicable indenture because it, and not this
description, defines your rights as holder of the respective series of exchange
notes. We have filed a copy of the indentures as exhibits 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 March 19, 1999 or from the most
recent interest payment date to which interest has been paid or provided for,
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 September
15, 1999. Interest is computed on the basis of a 360-day year of twelve 30-day
months.
If, by September 19, 1999, 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 .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,
1999, 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 Dollar notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. The Euro notes will be issued in registered form, without
coupons, and only in denominations of [EURO]1,000 of principal amount and in any
integral multiple of [EURO]1,000 above such number. 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 each of the indentures. Each series
of notes, any exchange notes of such series and any additional notes in such
series issued in the future will be treated as a single class for all purposes
under the relevant indenture.
83
<PAGE>
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 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 each of the Dollar notes and the Euro 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 relevant notes are listed or,
if the relevant 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 Dollar note of $1,000 in principal amount
or less, or Euro note of [EURO]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 each series of the existing notes for an issue of our senior
notes with terms identical to such series of 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 Dollar notes the U.S. 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 four scheduled interest payments
84
<PAGE>
due on the Dollar notes. In addition, we have purchased and pledged to the
trustee for the benefit of the holders of the Euro notes the Euro 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 four scheduled interest payments due on the Euro notes. The U.S. Pledged
Securities and the Euro Pledged Securities have been pledged by us to the
trustee for the benefit of the holders of the Dollar notes and the Euro notes,
respectively, pursuant to a pledge agreement and are being held by the trustee
in the U.S. Pledge Account and the Euro Pledge Account, respectively. 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 each of the Pledge Accounts proceeds
sufficient to pay interest then due on the respective 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 respective Pledge Account in like
amount. A failure to pay interest on the notes in a timely manner through the
first four scheduled interest payment dates will constitute an immediate Event
of Default under the respective indentures, with no grace or cure period.
Interest earned on the U.S. Pledged Securities or the Euro Pledged
Securities will be added to the respective Pledge Account. In the event that the
funds or Pledged Securities held in a Pledge Account exceed the amount
sufficient to provide for payment in full of the first four scheduled interest
payments due on the relevant 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 fourth scheduled
interest payment), the trustee will be permitted to release to us at our request
any such excess amount. The Dollar notes are secured by the U.S. Pledged
Securities and the related U.S. Pledge Account and, accordingly, the U.S.
Pledged Securities and the U.S. Pledge Account also secure repayment of the
principal amount of the Dollar notes to the extent of such security. The Euro
notes are secured by the Euro Pledged Securities and the related Euro Pledge
Account and, accordingly, the Euro Pledged Securities and the related Euro
Pledge Account also secure repayment of the principal amount of the Euro Notes
to the extent of such security.
Under the pledge agreement, assuming that we make the first four scheduled
interest payments on the notes in a timely manner, all of the remaining Pledged
Securities will be released from the Pledge Accounts and thereafter the notes
will be unsecured.
RANKING
Each series of notes is 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. As of
March 31, 1999, we had approximately $1.3 billion of indebtedness, $18.4 million
of which was secured, and $12.5 million of subordinated indebtedness, excluding
current liabilities. The notes are effectively subordinated to all existing and
future liabilities (including trade payables) of our subsidiaries. As of March
31, 1999, our subsidiaries had approximately $198.4 million of liabilities.
BOOK-ENTRY; DELIVERY AND FORM
All certificates representing the notes will be issued in fully registered
form without interest coupons. The Dollar notes sold in offshore transactions in
reliance on Regulation S under the Securities Act are currently represented by
temporary global Dollar notes in definitive, fully registered form without
interest coupons (each a "Temporary Regulation S Global Dollar Note") and were
deposited with the trustee as custodian for, and registered in the name of a
nominee of, The Depository Trust Company ("DTC") for the accounts of Euroclear
and Cedelbank. The Euro notes sold in offshore transactions in reliance on
Regulation S under the Securities Act are represented by one or more temporary
global Euro notes in definitive, fully registered form, without interest coupons
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(each a "Temporary Regulation S Global Euro Note", and together with the
Temporary Regulation S Global Dollar Note, the "Temporary Regulation S Global
Notes"), deposited with the trustee, as common depositary for, and registered in
the name of a nominee of, Euroclear and Cedelbank. The Temporary Regulation S
Global Notes may be exchangeable for one or more permanent global notes (each a
"Permanent Regulation S Global Note", and together with the Temporary Regulation
S Global Notes, the "Regulation S Global Notes") on or after April 28, 1999 upon
certification that the beneficial interests in such global Note are owned by
non-U.S. persons.
Notes sold in reliance on Rule 144A are represented by one or more permanent
global notes in definitive, fully registered form without interest coupons (each
a "Restricted Global Note" and together with the Regulation S Global Notes, the
"Global Notes") and were deposited with the trustee as custodian for, and
registered in the name of a nominee of, DTC. Each Global Note is subject to
certain restrictions on transfer set forth therein as described under "Transfer
Restrictions."
Notes transferred 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 or in accordance with Regulation S, 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 Global Note is limited to persons who
have accounts with DTC or Euroclear and Cedelbank ("participants"), or persons
who hold interests through participants. Ownership of beneficial interests in a
Global Note is shown on, and the transfer of that ownership is effected only
through, records maintained by DTC, Euroclear or Cedelbank, as applicable, or
their respective nominees (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 DTC, if they are participants in such
system, or indirectly through organizations which are participants in such
system.
Note holders may hold their interests in a Regulation S Global Note,
directly through Euroclear or Cedelbank, if they are participants in such
systems, or indirectly through organizations that are participants in such
systems.
So long as DTC, Euroclear or Cedelbank, as applicable, or any nominee, is
the registered owner or holder of a Global Note, DTC, Euroclear or Cedelbank, or
such nominee, as the case may be, will be considered the sole owner or holder of
the notes represented by such Global Note for all purposes under the indentures
pursuant to which the notes were issued. No beneficial owner of an interest in a
Global Note is permitted to transfer that interest except in accordance with
DTC's, Euroclear's or Cedelbank's applicable procedures, in addition to those
provided for under the indentures.
Payments made with respect to a Global Note are made to DTC, Euroclear or
Cedelbank, as applicable, or their nominees, as the registered owner thereof.
Neither Viatel, the trustee nor any paying agent has any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in a Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. If the Euro notes are included in the Regulated Unofficial Market
(Freiverkehr) of the Frankfurt Stock Exchange, Viatel will maintain a paying
agent and registrar in Germany.
We expect that DTC, Euroclear or Cedelbank, as applicable, or their
nominees, 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 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,
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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 Dollar notes are payable in U.S. dollars and
all amounts payable under the Euro notes are payable in Euro, except as may
otherwise be agreed between any applicable securities clearing system and any
holders and except as otherwise provided below. Payments are subject in all
cases to any fiscal or other laws and regulations applicable thereto. None of
Viatel, the trustee or any paying agent shall be liable to any holder of a
global Euro note or other person for any commissions, costs, losses or expenses
in relation to or resulting from any currency conversion or rounding effected in
connection therewith.
Qualified institutional buyers who hold beneficial interests in a Euro note
sold in reliance on Rule 144A (a "144 Euro Note"), directly or indirectly,
through DTC will be paid in U.S. dollars converted from such payments in Euro by
the paying agent unless the registered holder, on behalf of any such owner of
beneficial interests, elects to receive payments in Euro. All costs of
conversion, if any, will be borne by holders of beneficial interests in the 144A
Euro Notes, by deduction from such payments.
An owner of a beneficial interest in a 144A Euro Note may receive payment in
Euro by notifying the DTC participant through which its beneficial interest in
the 144A Euro Note is held on or prior to the record date of (i) such investor's
election to receive payment in Euro and (ii) wire transfer instructions to an
account entitled to receive the relevant payment. If complete instructions are
received by the DTC participant and forwarded by the DTC participant to DTC and
by DTC to the paying agent, each in a timely manner, such investor will receive
payment in Euro outside DTC; otherwise only U.S. dollar payments will be made by
the paying agent. All costs of such payment by wire transfer will be borne by
registered holders receiving such payments by deduction from such payments.
Holders may be subject to foreign exchange risks that may have important
economic and tax consequences to them.
Transfers between participants in DTC are effected in accordance with DTC's
procedures, and are settled in same-day funds. Transfers between participants in
Euroclear and Cedel Bank are effected in the ordinary way in accordance with
their respective rules and operating procedures. Transactions settled through
DTC, Euroclear and Cedelbank are settled on a T+3 basis.
We expect that DTC, Euroclear or Cedelbank, as applicable, 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 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, each of DTC, Euroclear or Cedelbank, as applicable, will exchange the
applicable Global Notes for Certificated Notes which it will distribute to its
participants and which may be legended as set forth under the heading "Transfer
Restrictions."
We understand that: DTC 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. DTC 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 DTC 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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We understand that: Euroclear and Cedelbank hold securities for
participating organizations and facilitate the clearance and settlement of
securities transactions between their respective participants through electronic
book-entry changes in accounts of such participants. Euroclear and Cedelbank
provide to their participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Cedelbank interface with
domestic securities markets. Euroclear and Cedelbank participants are financial
institutions such as underwriters, securities brokers and dealers, banks, trust
companies and certain other organizations. Indirect access to Euroclear or
Cedelbank is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodian relationship with a
Euroclear or Cedelbank participant, either directly or indirectly.
Subject to compliance with the transfer restrictions applicable to the
Global Notes, cross-market transfers between the participants in DTC, on the one
hand, and Euroclear or Cedelbank participants, on the other hand, are effected
through DTC in accordance with DTC's rules on behalf of each of Euroclear or
Cedelbank by its common depositary; however, such cross-market transactions
require delivery of instructions to Euroclear or Cedelbank by the counterparty
in such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Cedelbank
will, if the transaction meets its settlement requirements, deliver instructions
to its common depositary to take action to effect final settlement on its behalf
by delivering or receiving interests in the Global Notes in DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedelbank participants
may not deliver instructions directly to the common depositaries for Euroclear
or Cedelbank.
Because of time zone differences, the securities account of a Euroclear or
Cedelbank participant purchasing an interest in a Global Note from a participant
in DTC are credited, and any such crediting is reported to the relevant
Euroclear or Cedelbank participant, during the securities settlement processing
day (which must be a business day for Euroclear and Cedelbank) immediately
following the settlement date of DTC. Cash received in Euroclear or Cedelbank as
a result of sales of interest in a Global Note by or through a Euroclear or
Cedelbank participant to a participant in DTC are received with value on the
settlement date of DTC but are available in the relevant Euroclear or Cedelbank
cash account only as of the business day for Euroclear or Cedelbank following
DTC's settlement date.
Although DTC, Euroclear and Cedelbank are expected to continue to follow the
foregoing procedures in order to facilitate transfers of interests in a Global
Note among participants of DTC, Euroclear and Cedelbank, as the case may be,
they are under no obligation to continue to perform such procedures, and such
procedures may be discontinued at any time. None of Viatel, the trustee or any
paying agent has any responsibility for the performance by DTC, Euroclear or
Cedelbank or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a depositary, or
Euroclear and Cedelbank cease to be a clearing agency, for the 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 Global Notes. Holders of an interest in a Global Note may
receive Certificated Notes, which may also bear any required legend, in
accordance with DTC's rules and procedures in addition to those provided for
under the indentures.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the indentures. Reference is made to the
indentures for the definition of any other capitalized term used herein for
which no definition is provided.
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"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;
(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 SEC 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
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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 indentures 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,
(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,
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(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.
"Closing Date" means the date on which the notes are originally issued under
the indentures.
"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.
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"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 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).
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"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.
"European Government Obligations" mean the securities that are directly and
unconditionally obligations of the Belgian, Dutch, French, German or Swiss
governments which are not callable or redeemable at the option of the issuer
thereof (PROVIDED that at the time of determination the conversion rate between
the sovereign currency of such country and the Euro is fixed) and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such European Government Obligation or a specific payment of
interest on or principal of any such European Government Obligation held by such
custodian for the account of the holder of a depository receipt; PROVIDED that
(except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the European Government
Obligation or the specific payment of interest on or principal of the European
Government Obligation evidenced by such depository receipt.
"Euro Pledge Account" means an account established with the trustee pursuant
to the terms of the Pledge Agreement for the deposit of the Euro Pledged
Securities purchased by Viatel with a portion of the proceeds from the sale of
the Euro notes.
"Euro Pledged Securities" means the securities originally purchased by
Viatel with a portion of the proceeds from the sale of the Euro notes, which
consist of Government Securities, deposited in the Euro Pledge Account, all in
accordance with the terms of the Pledge Agreement.
"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.
"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
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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 relevant 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
relevant 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: (i) in connection with the U.S. 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, and (ii) in connection with the Euro Pledged Securities, the direct
obligations of, obligations fully guaranteed by, or participations in pools
consisting solely of German government securities.
"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.
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"Indebtedness" means, with respect to any Person at any date of
determination (without duplication),
(i) all indebtedness of such Person for borrowed money,
(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
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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 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
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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 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 exchange 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 of $1,000 or
[EURO]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
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each new note issued shall be in a principal amount of $1,000 or
[EURO]1,000 or an integral multiple thereof.
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;
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(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 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;
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(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;
(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 Accounts" means the U.S. Pledge Account and the Euro Pledge Account.
"Pledge Agreement" means the Collateral Pledge and Security Agreement, dated
as of the date of the indentures, 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.
"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.
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"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.
"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
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America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by S&P or Moody's, and
(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.
"U.S. Pledge Account" means an account established with the trustee pursuant
to the terms of the Pledge Agreement for the deposit of the U.S. Pledged
Securities purchased by Viatel with a portion of the proceeds from the sale of
the Dollars notes.
"U.S. Pledged Securities" means the securities originally purchased by
Viatel with a portion of the proceeds from the sale of the Dollar notes, which
shall consist of Government Securities, to be deposited in the U.S. Pledge
Account, all in accordance with the terms of the Pledge Agreement.
"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.
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"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.
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
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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;
(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
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(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;
(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;
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(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,
(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 SEC
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.
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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
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;
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(x) the repurchase of shares of the Series A Preferred 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 shares of the Series A Preferred;
(xi) 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;
(xii) the payment of cash dividends on the Series A Preferred, after April
15, 2003; and
(xiii) 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 (x) that is an Investment and is not
outstanding;
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 Indentures 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
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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
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
indentures 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;
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(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 or 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.
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.
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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;
(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
indentures 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;
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(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.
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 on or after the Closing Date
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
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(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
(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
Viatel 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 of the notes on the
relevant Payment Date, plus accrued interest, if any, to the Payment Date.
There can be no assurance that Viatel 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 securities of Viatel which might be outstanding at the time.
The above covenant requiring Viatel to repurchase the notes will, unless
consents are obtained, require Viatel 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
At all times from and after the earlier of (i) the date of the commencement
of an Exchange Offer or the effectiveness of a Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date, in
either case, whether or not Viatel is then required to file reports with the
SEC, Viatel shall file with the SEC all such reports and other information as it
would be required to file with the SEC by Sections 13(a) or 15(d) under the
Securities Exchange Act if it were subject thereto. Viatel 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 earlier of the date of the
registration and the date that is six months after the Closing Date, Viatel
shall, at its cost, deliver to each holder of the notes quarterly and annual
reports substantially equivalent to those which would be required by the
Securities Exchange Act. In addition, at all times prior to the registration,
upon the request of any holder or any prospective purchaser of the notes
designated by a holder, Viatel shall supply to such holder or such prospective
purchaser the information required under Rule 144A under the Securities Act.
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EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
indentures:
(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 four 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 relevant
indentures applicable to mergers, consolidations and transfers of all or
substantially all of the assets of Viatel or the failure to 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 indentures 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 any series of 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,
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(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 any indenture, the trustee or the holders of at least 25% in aggregate
principal amount of the relevant series of 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 relevant series of 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 relevant 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 of any series, by written notice to
Viatel and to the trustee, may waive all past defaults with respect to such
series of 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 of any series, 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 relevant 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 relevant
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 relevant notes. A holder may not pursue any remedy with respect
to the indentures 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 of the relevant series, 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 of the relevant series, 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.
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The indentures 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 indentures 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 is also obligated to notify the
trustee of any default or defaults in the performance of any covenants or
agreements under the indentures.
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 indentures;
(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
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FURTHER that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
DEFEASANCE
DEFEASANCE AND DISCHARGE
Each 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 relevant 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 relevant trustee, in trust, money
and/or U.S. Government Obligations in the case of the Dollar notes, or
European Government Obligations in the case of the Euro notes 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 relevant notes on the
Stated Maturity of such payments in accordance with the terms of the
relevant 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 relevant notes are listed on a national
securities exchange, Viatel has delivered to the relevant trustee an Opinion
of Counsel to the effect that the relevant notes will not be delisted as a
result of such deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
Each indenture further provides that the provisions of such 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"
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shall be deemed not to be Events of Default upon, among other things, the
deposit with the relevant trustee, in trust, of money and/or U.S. Government
Obligations, in the case of the Dollar notes, or European Government
Obligations, in the case of the Euro notes, 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 relevant notes on the Stated Maturity of such payments
in accordance with the terms of the relevant 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 relevant 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 an indenture with respect to any series of 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, in the case
of the Dollar notes, or European Government Obligations, in the case of the Euro
notes, on deposit with the relevant 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 each 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 Dollar notes or Euro notes, as the case may
be; 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 Dollar notes or Euro
notes, as the case may be, the consent of whose holders is necessary to
modify or amend the relevant 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
Dollar notes or Euro notes, as the case may be, 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 indentures provide 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 indentures, or in any of 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 indentures provide 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 such indentures. 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 indentures as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The indentures 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
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 United States federal income tax
consequences, as of the date hereof, of an exchange of the existing notes for
the exchange notes. This summary is based on current provisions of the Internal
Revenue Code, applicable 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 a contrary view,
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 exchange notes in light of their
personal investment or tax circumstances, or to certain types of investors
(including individual retirement accounts and other tax deferred accounts,
insurance companies, financial institutions, broker-dealers or tax-exempt
organizations) subject to special treatment under the U.S. federal income tax
laws. This discussion does not deal with special tax situations, such as the
holding of the exchange notes as part of a hedge or straddle with other
investments, or situations in which the functional currency of a holder is not
the U.S. dollar. In addition, except as otherwise provided, this discussion
deals only with exchange notes acquired in exchange for the existing notes which
were originally acquired at their initial issue prices in the offerings, 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 citizen or
resident of the U.S., a corporation, limited liability company or partnership
created or organized in the U.S. or under the laws of the U.S. 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 U.S. 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.
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 EXCHANGE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
THE EXISTING NOTES
The exchange of the existing notes for the exchange notes pursuant to the
exchange offers will not be a taxable event for U.S. federal income tax
purposes. Consequently, there will not be any material U.S. federal income tax
consequences to a holder who exchanges the existing notes for the exchange notes
pursuant to the exchange offers. Because each exchange note is a continuation of
the corresponding existing note, the term "note" refers to both the exchange
notes and the existing notes.
THE NOTES
Under applicable authorities, we intend to treat the notes as indebtedness
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 indebtedness of, Viatel. In the event that the notes
are treated as equity, the amount of any actual or constructive payments on any
such note would first be taxable to the holder as dividend income to the extent
of our current and accumulated earnings
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and profits, and next would be treated as a return of capital to the extent of
the holder's tax basis in the note with any remaining amount treated as gain
from the sale of a note. As a result, until such time as we have earnings and
profits as determined for U.S. federal income tax purposes, payments on any note
treated as equity will be a nontaxable return of capital and will be applied
against and reduce the adjusted tax basis of such note in the hands of its
holder (but not below zero) and any excess will be treated as gain from the sale
of the note. Further, payments on the notes treated as equity to Non-U.S.
Holders would not be eligible for the portfolio interest exception from U.S.
withholding tax, and dividends thereon would be subject to U.S. withholding tax
at a flat rate of 30% (or lower applicable treaty rate) and gain from their sale
or other taxable disposition might also be subject to U.S. tax in certain
circumstances. In addition, in the event of equity treatment, we would not be
entitled to deduct interest on the notes for U.S. federal income tax purposes.
The remainder of this discussion assumes that the notes will constitute
indebtedness of Viatel for such tax purposes.
PAYMENTS OF INTEREST ON THE NOTES
GENERAL
Interest paid on a note (whether in U.S. dollars or in foreign currency)
will generally be taxable to a U.S. Holder as ordinary interest income at the
time it accrues or is received, in accordance with the U.S. Holder's method of
accounting for federal income tax purposes.
FOREIGN CURRENCY DENOMINATED NOTES
A U.S. Holder of a Euro note will be required to include in income the U.S.
dollar value of the interest paid on a Euro note. The amount of interest income
so realized by a U.S. Holder that uses the cash method of tax accounting will be
the U.S. dollar value of the foreign currency payment based on the spot rate of
exchange on the date of receipt regardless of whether the payment in fact is
converted into U.S. dollars.
A U.S. Holder that uses the accrual method of tax accounting will accrue
interest income on a Euro note in foreign currency, and will translate the
accrued amount into U.S. dollars using the average rate of exchange for the
accrual period (generally, the simple average of the spot exchange rates for
each business day of such period or other average exchange rate for the period
reasonably derived and consistently applied by the holder) or, with respect to
an accrual period that spans two taxable years, at the average rate for the
partial period within the taxable year. At the time the interest so accrued in a
prior accrual period is received, the U.S. Holder will realize exchange gain or
loss equal to the difference, if any, between the amount determined by
converting the amount of the payment received into U.S. dollars at the spot rate
in effect on the date such payment is received and the amount of interest income
previously accrued for such period. Such exchange gain or loss, if any, will be
ordinary gain or loss and generally will not be treated as interest income or
expense, except to the extent provided by administrative pronouncements of the
Internal Revenue Service.
A U.S. Holder may elect to translate accrued interest income into U.S.
dollars at the spot rate on the last day of the interest accrual period (or, in
the case of a partial accrual period, the spot rate on the last day of the
taxable year) or, if the date of receipt is within five business days of the
last day of the interest accrual period, the spot rate on the date of receipt. A
U.S. Holder that makes such an election must apply it consistently to all debt
instruments from year to year and cannot change the election without the consent
of the Internal Revenue Service.
For purposes of this discussion, the "spot rate" generally means a rate that
reflects a fair market rate of exchange available to the public for currency
under a "spot contract" in a free market and involving representative amounts. A
"spot contract" is a contract to buy or sell a currency on or before two
business days following the date of the execution of the contract. If such a
spot rate cannot be demonstrated, the Internal Revenue Service has the authority
to determine the spot rate.
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MARKET DISCOUNT
GENERAL
If a U.S. Holder acquires a note for an amount that is less than its stated
redemption price at maturity, 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 U.S.
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 U.S. Holder
elects to accrue market discount on a constant yield method based on compounding
interest. A U.S. 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 U.S. Holder may elect to include market discount in income currently as it
accrues (either on a straight-line basis or, if the U.S. Holder so elects, on a
constant-yield basis), in which case the interest deferral rule set forth in the
preceding paragraph will not apply. Such an election will apply to all market
discount bonds acquired by the U.S. 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.
EURO DENOMINATED NOTES
A U.S. Holder of Euro notes that elects not to include market discount, if
any, in income currently as it accrues, must translate such market discount into
U.S. dollars at the spot rate on the date that the Euro notes are disposed of.
No part of such accrued market discount is treated as exchange gain or loss. A
U.S. Holder that elects to include market discount in income currently as it
accrues must translate such market discount at the average exchange rate for the
accrual period.
AMORTIZATION OF BOND PREMIUM
GENERAL
A U.S. 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 U.S. 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 U.S. 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 U.S. Holder does not elect to amortize
bond premium, the amount of such premium will be included in the U.S. Holder's
tax basis for purposes of computing gain or loss in connection with a taxable
disposition of the note.
EURO DENOMINATED NOTES
Amortizable bond premium in respect of a Euro note will be computed in, and,
if an election is made to amortize such premium, will reduce interest income in,
units of foreign currency. At the time amortized bond premium offsets interest
income, exchange gain or loss, which will be taxable as ordinary income or loss,
will be realized with respect to amortized bond premium on such Euro note based
on the difference between the spot rate of exchange on the date or dates such
premium is recovered through interest payments on such note and the spot rate of
exchange on the date on which
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the U.S. Holder acquired the Euro note. With respect to a U.S. Holder that does
not elect to amortize bond premium, the amount of bond premium will constitute a
market loss when the Euro note matures.
MANDATORY AND OPTIONAL REDEMPTIONS
In the event of a change of control, we will be required to offer to redeem
all of the notes at redemption prices specified elsewhere herein. In the event
that we receive net proceeds from one or more sales of certain kinds of its
capital stock, we may, at any time prior to March 15, 2002, use all or a portion
of such net proceeds to redeem the notes in amounts and at redemption prices
specified elsewhere herein. Under Treasury Regulations issued under provisions
of the Internal Revenue Code relating to original issue discount (the "OID
Regulations"), computation of yield and maturity of the notes is not affected by
such redemption rights and obligations if, based on all the facts and
circumstances as of the issue date, payments on the notes are significantly more
likely than not to occur in accordance with the stated payment schedule of the
notes (which does not reflect a change of control or sales of certain kinds of
our capital stock). We believe, based on all of the facts and circumstances as
of the issue date, that the stated payment schedule is significantly more likely
than not to occur with respect to the notes. Therefore, we will not take the
redemption rights and obligations into account in determining the yield and
maturity of the notes.
We may redeem the notes, in whole or in part, at any time on or after March
15, 2004, at redemption prices specified elsewhere herein, plus accrued and
unpaid interest to the date of redemption. The OID Regulations contain rules for
determining the yield and maturity of any instrument that may be redeemed prior
to its stated maturity date at the option of the issuer. Under the OID
Regulations, solely for purposes of the accrual of original issue discount, it
is assumed that the issuer will exercise any option to redeem a debt instrument
if such exercise will lower the yield-to-maturity of the debt instrument. We
believe that it will not be presumed to redeem the notes prior to their stated
maturity under the foregoing rules because the exercise of such option would not
lower the yield-to-maturity of the notes.
SALE OR OTHER DISPOSITION
GENERAL
In general, upon the sale, exchange or redemption of a note, a U.S. 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) and (ii) the U.S. Holder's
adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note
generally will be equal to the cost of the note to such U.S. Holder increased by
the amount of any market discount previously included in income by the U.S.
Holder and reduced by the amount of any amortized bond premium and all payments
received by the U.S. Holder, other than payments of qualified stated interest.
Subject to the discussion of market discount above, gain or loss realized on
the sale, exchange or redemption of a note will be capital gain or loss. Capital
gain recognized by certain non-corporate U.S. Holders, including individuals,
generally will be subject to a maximum federal income tax rate of 20% if the
U.S. Holder held the note for more than one year. The deductibility of capital
losses is subject to limitations.
EURO NOTES
To the extent that the exchange rate on the date of the sale, exchange or
redemption of a Euro note differs from the exchange rate on the date the U.S.
Holder acquired the note, the U.S. Holder will realize exchange gain or loss,
which will be ordinary income or loss and which will not be treated
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as interest income or expense. Such foreign currency gain or loss will be
realized only to the extent of the total gain or loss realized by a U.S. Holder
on the sale, exchange or redemption of the Euro note. A U.S. Holder will have a
tax basis in any foreign currency received on the sale, exchange or redemption
of a Euro note equal to the U.S. dollar value of such foreign currency,
determined at the time of such sale, exchange or redemption.
In addition, foreign currency exchange gain or loss, if any, must be
recognized by a U.S. Holder upon conversion of Euros received as interest
payments into U.S. Dollars.
NON-U.S. HOLDERS
In general, payments of interest 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 (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 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 unless
(i) such Non-U.S. Holder is an individual who is present in the U.S. for 183
days or more in the taxable year of sale, exchange or other disposition, and
certain conditions are met, (ii) such gain is effectively connected with the
conduct by the Non-U.S. Holder of a trade or business in the U.S. and, 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; and
A note held by an individual who is not a citizen or resident of the U.S. at
the time of his death will not be subject to U.S. estate tax as a result of such
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 U.S.
To satisfy the certification requirements referred to above, (i) the
beneficial owner of a note must certify, under penalties of perjury, to us or
our paying agent, as the case may be, that such owner is a Non-U.S. Holder and
must provide such owner's name and address, and U.S. taxpayer identification
number ("TIN"), if any, or (ii) a securities clearing organization, bank or
other financial institution that holds customers securities in the ordinary
course of its trade or business (a "Financial Institution") and holds the note
on behalf of the beneficial owner thereof must certify, under penalties of
perjury, to us or our paying agent, as the case may be, that such certificate
has been received from the beneficial owner and must furnish the payor with a
copy thereof. Such requirement will be fulfilled if the beneficial owner of a
note certifies on IRS Form W-8BEN, under penalties of perjury, that it is a Non-
U.S. Holder and provides its name and address, and any Financial Institution
holding the note on behalf of the beneficial owner files a statement with the
withholding agent to the effect that it has received such a statement from the
beneficial owner (and furnishes the withholding agent with a copy thereof).
For payments made after December 31, 2000, in the case of notes held by a
foreign partnership, the partnership, in addition to providing an IRS Form
W-8IMY, must attach an IRS Form W-8BEN received from each partner.
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If a Non-U.S. Holder of a note is engaged in a trade or business in the
U.S., and if interest on the note or gain realized on the sale, exchange or
other disposition of the note is effectively connected with the conduct of such
trade or business (and, if a tax treaty applies, is attributable to a U.S.
permanent establishment maintained by the Non-U.S. Holder in the United States),
the Non-U.S. Holder, although exempt from U.S. federal withholding tax (provided
that certification requirements are met), will generally be subject to regular
U.S. income tax on such interest 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), such a Non-U.S. Holder will be required,
under currently effective Treasury Regulations, to provide us 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 such 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. For purposes of the branch profits tax, interest on a note and any
gain recognized on the sale, exchange or other disposition of a note will be
included in the earnings and profits of such Non-U.S. Holder if such interest or
gain is effectively connected with the conduct by a Non-U.S. Holder of a trade
or business in the United States.
In the event the notes were treated as equity, the periodic payments
received by a Non-U.S. Holder on the notes would not qualify for the portfolio
interest exemption from U.S. federal income tax described above. Rather, the
periodic payments would be subject to a 30% U.S. federal withholding tax (or
reduced rate under an applicable tax treaty) if income on the notes was not
effectively connected with a U.S. trade or business of such Non-U.S. Holder.
Under currently effective Treasury Regulations, a withholding agent would be
required to withhold tax from all payments made on the stock regardless of our
earnings and profits, but holders could apply for refunds if such stock's share
of our earnings and profits were less than the amount of the payments. Under the
New Regulations, and with respect to payments made after December 31, 2000, a
company may reduce the amount of withholding required under the foregoing rule
if it elects to make a reasonable estimate of its current and accumulated
earnings and profits.
Non-U.S. Holders should consult with their tax advisors regarding U.S. and
foreign tax consequences with respect to the notes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding at a rate of 31% may apply to payments made in respect 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 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 such Non-U.S. Holder has
furnished 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 a paying
agent has actual knowledge 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 a U.S. person, a controlled foreign corporation or 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 U.S.,
are currently subject to certain information reporting requirements, but not
back-up withholding, unless the payee is an exempt recipient or such broker has
evidence in its records that the payee is a Non-U.S. Holder and
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no actual knowledge 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 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 such holder's U.S. federal income tax, provided that the required
information is furnished to the Internal Revenue Service.
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 , 1999, 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 the exchange offers 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 the exchange offers 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, New York, New York.
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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.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We are subject to the informational requirements of the Securities Exchange
Act and will be required to 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 existing notes and the exhibits thereto, as
well as reports and other information filed or to be filed by us with the SEC,
may be inspected without charge, 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 will also be 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 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
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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 Sheet as of March 31, 1999................................................. F-22
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1998 and March 31,
1999.................................................................................................... F-23
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and March 31,
1999.................................................................................................... F-24
Notes to Condensed Consolidated Financial Statements...................................................... F-25
</TABLE>
F-1
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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 50,000,000 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.
(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
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)
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.
(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.
F-10
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(2) INVESTMENTS IN DEBT SECURITIES (CONTINUED)
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.
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>
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)
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,
----------------------
<S> <C> <C>
1997 1998
---------- ----------
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
---------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
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
- -------------------------------- --------------- ---------- ----------- --------------------- -----------
$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 SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................................... $ 442,042
Restricted cash equivalents......................................................................... 23,530
Restricted marketable securities, current........................................................... 90,430
Marketable securities, current...................................................................... 56,713
Trade accounts receivable, less allowance for doubtful accounts of $2,966........................... 47,107
Other receivables................................................................................... 14,463
Prepaid expenses.................................................................................... 8,512
------------
Total current assets............................................................................ 682,797
------------
Restricted marketable securities, non-current......................................................... 115,836
Property and equipment, net........................................................................... 409,909
Cash securing letters of credit for network construction.............................................. 121,239
Intangible assets, net................................................................................ 70,579
Other assets.......................................................................................... 11,630
------------
$ 1,411,990
------------
------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accrued telecommunications costs.................................................................... $ 41,913
Accounts payable and other accrued expenses......................................................... 25,379
Property and equipment purchases payable............................................................ 141,361
Accrued interest.................................................................................... 27,288
Liability under joint construction agreement........................................................ 9,631
Current installments of notes payable and obligations under capital leases.......................... 10,008
------------
Total current liabilities....................................................................... 255,580
------------
Long-term liabilities:
Long-term debt...................................................................................... 1,256,196
Notes payable and obligations under capital leases, excluding current installments.................. 36,286
------------
Total long-term liabilities..................................................................... 1,292,482
Series A Redeemable Convertible Preferred Stock, $.01 par value; authorized 718,042 shares; issued and
outstanding 472,791................................................................................. 48,298
------------
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 50,000,000 shares, issued and outstanding 23,193,265
shares............................................................................................ 232
Additional paid-in capital.......................................................................... 128,403
Accumulated other comprehensive loss................................................................ (15,082)
Accumulated deficit................................................................................. (297,923)
------------
Total stockholders' deficiency.................................................................. (184,370)
------------
$ 1,411,990
------------
------------
</TABLE>
See accompanying notes to 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 THREE MONTHS
ENDED MARCH 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
Revenue:
Communication service revenue....................................................... $ 21,239 $ 48,395
Capacity sales...................................................................... -- 13,246
---------- ----------
Total revenue................................................................. 21,239 61,641
---------- ----------
Operating expenses:
Cost of services and sales........................................................ 19,105 51,048
Selling, general and administrative............................................... 8,955 18,763
Depreciation and amortization..................................................... 2,911 9,603
---------- ----------
Total operating expenses...................................................... 30,971 79,414
---------- ----------
Other income (expense):
Interest income................................................................... 510 6,828
Interest expense.................................................................. (3,781) (26,166)
---------- ----------
Net loss............................................................................ (13,003) (37,111)
Dividend on redeemable convertible preferred stock................................ -- (1,177)
---------- ----------
Net loss attributable to common stockholders........................................ $ (13,003) $ (38,288)
---------- ----------
---------- ----------
Net loss per common share attributable to common stockholders....................... $ (0.57) $ (1.65)
---------- ----------
---------- ----------
Weighted average common shares outstanding.......................................... 22,783 23,186
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................... $ (13,003) $ (37,111)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................ 2,911 9,603
Accreted interest expense on long term debt.......................................... 3,447 10,330
Provision for losses on accounts receivable.......................................... 754 1,600
Earned compensation.................................................................. 16 --
Changes in assets and liabilities:
Increase in accounts receivable...................................................... (2,732) (18,936)
Increase in accrued interest expense on senior notes................................. -- 15,049
Increase in prepaid expenses and other receivables................................... (1,248) (8,855)
Decrease (increase) in other assets and intangible assets............................ 555 (947)
Decrease (increase) in accrued telecommunication costs, accounts payable and other
accrued expenses................................................................... (1,471) 7,689
---------- -----------
Net cash used in operating activities............................................ (10,771) (21,578)
---------- -----------
Cash flows from investing activities:
Purchase of property, equipment and software........................................... (2,716) (101,691)
Payment for business acquired, excluding cash acquired................................. (5,000) --
Purchase of marketable securities...................................................... (3,510) (194,058)
Cash securing letters of credit for network construction............................... -- (121,239)
Issuance of notes receivable........................................................... -- (4,390)
Proceeds from maturity of marketable securities........................................ 27,681 220,954
---------- -----------
Net cash provided by (used in) investing activities.............................. 16,455 (200,424)
---------- -----------
---------- -----------
Cash flows from financing activities:
Proceeds from issuance of senior notes................................................. -- 365,471
Deferred financing costs............................................................... -- (12,880)
Proceeds from issuance of common stock................................................. 421 46
Repayment of notes payable and bank credit line........................................ (577) (682)
Payments under capital leases.......................................................... (53) (300)
---------- -----------
Net cash (used in) provided by financing activities.............................. (209) 351,655
---------- -----------
Effects of exchange rate changes on cash................................................. (109) (3,902)
---------- -----------
Net increase in cash equivalents......................................................... 5,366 125,751
Cash and cash equivalents at beginning of period......................................... 21,096 339,821
---------- -----------
Cash and cash equivalents at end of period............................................... $ 26,462 $ 465,572
---------- -----------
---------- -----------
Supplemental disclosures of cash flow information:
Interest paid.......................................................................... $ 334 $ 231
---------- -----------
Assets acquired under capital lease obligations........................................ -- $ 13,550
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(1) DESCRIPTION OF BUSINESS
Viatel Inc. and subsidiaries (collectively, the "Company") is a global
integrated services provider of high quality, competitively priced, long
distance communication and data services to end users, carriers and
resellers. The Company operates one of Europe's largest pan-European
networks with points of presence in 45 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 state-of-the art, high quality, high capacity rings utilizing the
synchronous digital hierarchy standard for digital transmission which will
connect major cities in six European countries (the "Circe Network").
(2) BASIS OF PRESENTATION
The consolidated financial statements as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998, 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. Operating results for the three months ended March
31, 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.
Revenues from the sale of network capacity are recognized in the period
that the rights and obligations of ownership transfer to the purchaser.
Cost of IRU 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 network.
NEW PRONOUNCEMENTS
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, during the three months ended March 31, 1999.
SOP 98-5 requires that certain start-up expenditures and organization costs
previously capitalized must now be expensed. The adoption of this statement
did not have material effect on our consolidated financial statements.
F-25
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(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 March 31, 1999.
The following is a summary of the amortized cost, which approximates fair
value, of restricted securities held to maturity at March 31, 1999 (in
thousands):
<TABLE>
<S> <C>
U.S. Treasury obligations......................................... $ 148,859
German government obligations..................................... 57,407
---------
Total........................................................... $ 206,266
---------
---------
</TABLE>
The following is a summary of the amortized cost, which approximates fair
value, of securities held to maturity at March 31, 1999 (in thousands):
<TABLE>
<S> <C>
U.S. corporate debt securities..................................... $ 34,043
German corporate debt securities................................... 22,670
---------
Total............................................................ $ 56,713
---------
---------
</TABLE>
The amortized cost, which approximates fair value, of restricted securities
held to maturity at March 31, 1999 are shown below (in thousands):
<TABLE>
<S> <C>
Due within one year............................................... $ 90,430
Due after one through two years................................... 115,836
---------
Total........................................................... $ 206,266
---------
---------
</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 MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Communication system.............................................................. $ 326,511
Construction in progress.......................................................... 89,067
Furniture, equipment and other.................................................... 17,742
Leasehold improvements............................................................ 6,695
----------
440,015
Less accumulated depreciation and amortization.................................... 30,106
----------
$ 409,909
----------
----------
</TABLE>
At March 31, 1999, construction in progress primarily represents
construction of the Circe Network. For the three month periods ended March
31, 1998 and 1999, $0 and $2.3 million of interest were capitalized,
respectively.
In connection with the Company's joint construction of the civil works
associated with a national communications network being constructed in
Germany, the Company was required to obtain a letter of credit of
approximately $121.2 million (DM219.1 million) in support of its
obligations.
(5) INTANGIBLE ASSETS
Intangible assets consist of the following as of (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
Deferred financing and registration fees........................................... $ 44,427
Licenses, trademarks and servicemarks.............................................. 9,464
Goodwill........................................................................... 20,270
Purchased software................................................................. 3,096
Other.............................................................................. 140
-----------
77,397
Less accumulated amortization...................................................... 6,818
-----------
$ 70,579
-----------
-----------
</TABLE>
The Company recognized its obligation to pay contingent consideration for
its 1998 acquisition of Flat Rate based upon key operating performance
targets which were met during the period ended March 31, 1999. Such
contingent consideration has been recorded as goodwill.
(6) LONG TERM DEBT
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
F-27
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(6) LONG TERM DEBT (CONTINUED)
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 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 Debentures are mandatorily convertible in the event the
closing price of the Company's common stock exceeds certain predetermined
annual price targets. On May 13, 1999, the conditions for mandatory
conversion were met for both the Series A Preferred and the Subordinated
Debentures. The Series A Preferred and Subordinated Debentures conversion
rates are $13.20 and DM24.473, at the then applicable exchange rate,
respectively.
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.
On March 19, 1999, the Company completed a high yield offering through
which it raised approximately $365.5 million of gross proceeds. A portion
of the proceeds from this offering were used to purchase securities which
were pledged as security for the first four interest payments on the notes
issued.
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 Debentures were
issued also required that the Company offer to repurchase the debentures at
101% of the principal amount in the event of a change of control.
F-28
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(6) LONG TERM DEBT (CONTINUED)
Long term debt consists of the following as of (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
------------
<S> <C>
11.25% Senior Notes............................................................. $ 400,000
11.15% Senior Notes ([EURO]91,010).............................................. 98,389
11.50% Senior Notes............................................................. 200,000
11.50% Senior Notes ([EURO]150,000)............................................. 162,162
12.50% Senior Discount Notes, less discount of $193,664......................... 306,336
12.40% Senior Discount Notes ([EURO]115,552), less discount of $48,093
([EURO]44,486)................................................................ 76,828
10% Subordinated convertible debentures ([EURO]11,545).......................... 12,481
------------
$ 1,256,196
------------
------------
</TABLE>
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 March 31, 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.
(7) STOCK INCENTIVE PLAN
The Amended Stock Incentive Plan (the "Stock Incentive Plan") allows for
the issuance of approximately 3,636,000 shares of the Company's common
stock.
Stock option activity for the three months ended March 31, 1999 under the
Stock Incentive Plan is shown below (number of shares in thousands):
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER OF
EXERCISE PRICES SHARES
----------------- -----------
<S> <C> <C>
Outstanding at December 31, 1998................................ $ 7.41 2,594
Granted......................................................... 22.88 573
Exercised....................................................... 5.27 (9)
------ -----------
Outstanding at March 31, 1999................................... $ 10.22 3,158
------ -----------
------ -----------
</TABLE>
As of March 31, 1999, 950,471 options were exercisable under the Stock
Incentive Plan.
F-29
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(8) COMPREHENSIVE LOSS
The Company's comprehensive loss is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
MARCH 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
Net loss.............................................................. $ (13,003) $ (37,111)
Foreign currency translation adjustment............................... (517) (8,836)
---------- ----------
Comprehensive loss.................................................... $ (13,520) $ (45,947)
---------- ----------
---------- ----------
</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.
The Company groups its products and services by wholesale, retail, and
capacity. The information below summarizes revenue by customer type for the
three months ended March 31, 1998 and 1999, respectively (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Wholesale............................................................... $ 9,477 $ 21,061
Retail.................................................................. 11,762 27,334
Capacity................................................................ -- 13,246
--------- ---------
Consolidated............................................................ $ 21,239 $ 61,641
--------- ---------
--------- ---------
</TABLE>
The information below summarizes revenue by geographic area for the three
months ended March 31, 1998 and 1999, respectively (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Western Europe.......................................................... $ 11,228 $ 41,449
North America........................................................... 5,707 17,252
Latin America........................................................... 3,694 2,897
Asia/Pacific Rim and other.............................................. 610 43
--------- ---------
Consolidated............................................................ $ 21,239 $ 61,641
--------- ---------
--------- ---------
</TABLE>
F-30
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE PERIODS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(9) SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
The information below summarizes long lived assets by geographic area as of
March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Western Europe.................................................................... $ 381,712
North America..................................................................... 98,558
Latin America..................................................................... 218
----------
Consolidated...................................................................... $ 480,488
----------
----------
</TABLE>
(10) SUBSEQUENT EVENTS
CONVERSION
On May 13, 1999, the Series A Preferred Stock and its Subordinated
Debentures converted into shares of the Company's common stock. The
conversion was based upon maintenance of the Company's stock price above a
certain per share price for a specified time period. The Preferred Stock
and the Subordinated Debentures converted at a conversion price equal to
$13.20 and DM24.473, at the then applicable exchange rate, respectively.
Accordingly, the Company will issue approximately 4.6 million shares of
common stock and will pay cash for any fractional shares due upon
conversion, which is deemed to be immaterial.
EQUITY OFFERING
On June 29, 1999, the Company completed an offering in which it sold
4,315,000 shares of its common stock to the public at $47.00 per share. The
net proceeds from this sale, after deducting offering expenses and
underwriting discounts and commissions, totaled approximately $192.2
million. The company will use the net proceeds from the offering
principally to fund the further development of its network as well as for
working capital and general corporate purposes.
RELATED PARTY TRANSACTIONS
On June 4, 1999, Martin Varsavsky entered into an agreement with the
Company pursuant to which he agreed that he would not, subject to certain
exclusions, (1) offer, pledge, sell or grant, any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of his Company common stock or any securities which
are exercisable, or convertible into or exchangeable for such common stock,
or (2) enter into any swap or other arrangement that transfers to another
any of the economic consequences of ownership of his common stock, from
June 23, 1999 through December 31, 1999; provided, however, that he may,
under certain circumstances, pledge all, but not less than all, of his
shares of common stock to secure a loan of up to $15.0 million. In exchange
for his agreement to lock up his shares, the Company included an aggregate
of 1,293,000 shares of his Company common stock in its recently completed
June offering.
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 is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify any person under such
Section in connection with a proceeding by or in the right of the corporation to
procure judgment in its favor, as provided in the preceding sentence, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action, except that no
indemnification shall be made with respect thereto unless, and then only to the
extent that, a court of competent jurisdiction shall determine upon application
that such person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
present or former directors and officers who are successful on the merits or
otherwise in defense of any action, suit or proceeding or in defense of any
claim, issue or matter in any proceeding, by reason of the fact that he is or
was a director, officer, employee or agent of the corporation or is or was
serving at the request of the corporation, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. A Delaware corporation may pay for the expenses (including attorneys'
fees) incurred by an officer or director in defending a proceeding in advance of
the final disposition upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation. Article Tenth of
the Registrant's Amended and Restated Certificate of Incorporation and Article X
of the Registrant's Amended and Restated Bylaws provide for indemnification of
directors and officers to the fullest extent permitted by Section 145 of the
DGCL.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) with respect to certain unlawful dividend
payments or stock redemptions or repurchases or (iv) for any transaction from
which the director derived an improper personal benefit. Article Ninth of the
Registrant's Amended and Restated Certificate of Incorporation eliminates the
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the DGCL.
Section 145 of the DGCL permits a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other employee against any liability asserted against
such person and incurred by such person in such capacity, or arising out of
their status as such, whether or not the corporation would have the power to
indemnify directors and officers against such liability. The
II-1
<PAGE>
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>
3(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; 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).
3(ii)* Second Amended and Restated Bylaws of Viatel, Inc. (incorporated herein by reference to Exhibit 3(ii)
of Viatel, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 1997, File No.
000-21261).
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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
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 11.50% Senior Notes due 2009 (including form of 11.50% Senior Note)
(incorporated by reference to Exhibit 4.9 of 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 11.50% Senior Euro Notes due 2009 (including form of 11.50% Senior Euro
Note) (incorporated by reference to Exhibit 4.10 of Viatel's February 1999 Form S-3).
4.7* Registration Rights Agreement, dated as of March 12, 1999, among Viatel, Inc. and the Initial
Purchasers (incorporated by reference to Exhibit 4.11 of Viatel's February 1999 Form S-3).
4.8** Purchase Agreement, dated March 12, 1999, among Viatel, Inc. and the Initial Purchasers.
5.1** Opinion of Kelley Drye & Warren LLP.
10.1* 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).
10.2* Shareholders' Agreement, dated as of April 5, 1994, and as amended as of November 22, 1994 and
December 21, 1994, by and among Viatel, Inc., Martin Varsavsky, Juan Manuel Aisemberg and COMSAT
Investments, Inc. (incorporated herein by reference to Exhibit 10.19 to Viatel's 1995 Form S-4).
10.3* Shareholders' Agreement, dated as of September 30, 1993, as amended as of December 9, 1993 and as
further amended as of April 5, 1994, November 22, 1994 and December 21, 1994, by and among Viatel,
Inc., Martin Varsavsky and S-C V-Tel Investments, L.P. (incorporated herein by reference to Exhibit
10.21 to Viatel's 1995 Form S-4).
10.4* 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).
10.5* 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
Form S-4).
10.6* 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).
10.7*+ 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")).
10.8*+ Amended Stock Incentive Plan (incorporated herein by reference to Exhibit 4.10 to Viatel, Inc.'s Form
10-Q for the fiscal quarter ended September 30, 1998, File No. 000-21261).
10.9*+ Employment Agreement between Viatel, Inc. and Allan L. Shaw (incorporated herein by reference to
Exhibit 10.14 to Viatel's 1997 Form 10-K).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.10*+ Employment Agreement between Viatel, Inc. and Sheldon M. Goldman (incorporated herein by reference to
Exhibit 10.15 to Viatel's 1997 Form 10-K).
10.11* 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).
10.12* 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).
10.13* Agreement of Lease, dated June 24, 1998, between 685 Acquisition Corp. and Viatel, Inc., as amended a
letter agreement, dated July 27, 1998 (incorporated herein by reference to Exhibit 10.17 to Viatel's
1998 Form S-4).
10.14* 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).
10.15*++ Software License Agreement, dated October 22, 1998, between Viatel, Inc. and Lucent Technologies Inc.
(incorporated 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").
10.16*++ Engineering, Procurement and Construction Contract, dated as of November 10, 1998, between Viatel
Global Communications, Inc. and Alcatel Submarine Network S.A. (incorporated by reference to Exhibit
10.20 of Viatel's 1998 Form 10-K).
10.17*++ Equipment Purchase Agreement, dated December 31, 1998, between Viatel, Inc. and Nortel plc.
(incorporated by reference to Exhibit 10.21 to Viatel's 1998 Form 10-K).
10.18*++ Project Services Agreement, dated as of January 11, 1999, between Viatel, Inc. and Bechtel Limited
(incorporated 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").
10.19*++ Development Agreement by and among Vicaine 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 by reference to Exhibit 10.23 to
Viatel's March 1999 Form 10-Q).
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.
24** Powers of Attorney (included on signature page).
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.
25.2** Statement of Eligibility of The Bank of New York on Form T-1 relating to Viatel, Inc.'s 11.50% Senior
Euro Notes due 2009.
99.1** Letter of Transmittal relating to Viatel, Inc.'s 11.50% Senior Dollar Notes due 2009 and the 11.50%
Senior Euro Notes due 2009 (DTC Held).
99.2** Letter of Transmittal relating to Viatel, Inc.'s 11.50% Senior Euro Notes due 2009 (Non-DTC Held).
99.3** Notice of Guaranteed Delivery relating to Viatel, Inc.'s 11.50% Senior Dollar Notes due 2009 and
11.50% Senior Euro Notes due 2009 (DTC Held).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
99.4** Notice of Guaranteed Delivery relating to Viatel, Inc.'s 11.50% Senior Euro Notes due 2009 (Non-DTC
Held).
</TABLE>
- ------------------------
* Incorporated herein by reference.
** Filed herewith.
+ Management contract or compensatory plan or arrangement.
++ Confidential treatment granted as to certain portions of these exhibits.
(b) Supplemental Financial Statement Schedules:
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
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.
II-5
<PAGE>
(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 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-6
<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 13th day of July, 1999.
VIATEL, INC.
BY: /S/ MICHAEL J. MAHONEY
----------------------------------------
Michael J. Mahoney
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
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 Sheldon M.
Goldman, 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 July 13, 1999.
SIGNATURE TITLE
- ------------------------------ ---------------------------
Chairman of the Board,
/s/ MICHAEL J. MAHONEY President and Chief
- ------------------------------ Executive Officer
Michael J. Mahoney (Principal Executive
Officer)
Senior Vice President,
/s/ ALLAN L. SHAW Finance, Chief Financial
- ------------------------------ Officer and Director
Allan L. Shaw (Principal Financial and
Accounting Officer)
/s/ PAUL G. PIZZANI Director
- ------------------------------
Paul G. Pizzani
/s/ FRANCIS J. MOUNT Director
- ------------------------------
Francis J. Mount
/s/ JOHN G. GRAHAM Director
- ------------------------------
John G. Graham
II-7
<PAGE>
VIATEL, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATIONS AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS CHANGES OF PERIOD
- ----------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Reserves and allowances deducted from asset accounts
(in thousands):
Allowances for uncollectible accounts receivable
Year ended December 31, 1996....................... $ 473 $ 2,225 $ 2,096 -- $ 602
Year ended December 31, 1997....................... 602 2,733 2,294 -- 1,041
Year ended December 31, 1998....................... 1,041 4,225 2,173 -- 3,093
Allowances for asset impairment
Year ended December 31, 1996....................... 560 -- -- -- 560
Year ended December 31, 1997....................... 560 -- -- -- 560
Year ended December 31, 1998....................... 560 -- -- -- 560
</TABLE>
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
3(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; 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).
3(ii)* Second Amended and Restated Bylaws of Viatel, Inc. (incorporated herein by reference to Exhibit
3(ii) of Viatel, Inc.'s quarterly report on Form 10-Q for the quarter ended September 30, 1997, File
No. 000-21261).
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 11.50% Senior Notes due 2009 (including form of 11.50% Senior Note)
(incorporated by reference to Exhibit 4.9 of 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 11.50% Senior Euro Notes due 2009 (including form of 11.50% Senior Euro
Note) (incorporated by reference to Exhibit 4.10 of Viatel's February 1999 Form S-3).
4.7* Registration Rights Agreement, dated as of March 12, 1999, among Viatel, Inc. and the Initial
Purchasers (incorporated by reference to Exhibit 4.11 of Viatel's February 1999 Form S-3).
4.8** Purchase Agreement, dated March 12, 1999, among Viatel, Inc. and the Initial Purchasers.
5.1** Opinion of Kelley Drye & Warren LLP.
10.1* 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).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.2* Shareholders' Agreement, dated as of April 5, 1994, and as amended as of November 22, 1994 and
December 21, 1994, by and among Viatel, Inc., Martin Varsavsky, Juan Manuel Aisemberg and COMSAT
Investments, Inc. (incorporated herein by reference to Exhibit 10.19 to Viatel's 1995 Form S-4).
10.3* Shareholders' Agreement, dated as of September 30, 1993, as amended as of December 9, 1993 and as
further amended as of April 5, 1994, November 22, 1994 and December 21, 1994, by and among Viatel,
Inc., Martin Varsavsky and S-C V-Tel Investments, L.P. (incorporated herein by reference to Exhibit
10.21 to Viatel's 1995 Form S-4).
10.4* 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).
10.5* 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 Form S-4).
10.6* 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).
10.7*+ 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")).
10.8*+ Amended Stock Incentive Plan (incorporated herein by reference to Exhibit 4.10 to Viatel, Inc.'s
Form 10-Q for the fiscal quarter ended September 30, 1998, File No. 000-21261).
10.9*+ Employment Agreement between Viatel, Inc. and Allan L. Shaw (incorporated herein by reference to
Exhibit 10.14 to Viatel's 1997 Form 10-K).
10.10*+ Employment Agreement between Viatel, Inc. and Sheldon M. Goldman (incorporated herein by reference
to Exhibit 10.15 to Viatel's 1997 Form 10-K).
10.11* 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).
10.12* 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).
10.13* Agreement of Lease, dated June 24, 1998, between 685 Acquisition Corp. and Viatel, Inc., as amended
a letter agreement, dated July 27, 1998 (incorporated herein by reference to Exhibit 10.17 to
Viatel's 1998 Form S-4).
10.14* 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).
10.15*++ Software License Agreement, dated October 22, 1998, between Viatel, Inc. and Lucent Technologies
Inc. (incorporated 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").
10.16*++ Engineering, Procurement and Construction Contract, dated as of November 10, 1998, between Viatel
Global Communications, Inc. and Alcatel Submarine Network S.A. (incorporated by reference to Exhibit
10.20 of Viatel's 1998 Form 10-K).
10.17*++ Equipment Purchase Agreement, dated December 31, 1998, between Viatel, Inc. and Nortel plc.
(incorporated by reference to Exhibit 10.21 to Viatel's 1998 Form 10-K).
10.18*++ Project Services Agreement, dated as of January 11, 1999, between Viatel, Inc. and Bechtel Limited
(incorporated 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").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.19*++ Development Agreement by and among Vicaine 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 by reference to Exhibit
10.23 to Viatel's March 1999 Form 10-Q).
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.
24** Powers of Attorney (included on signature page).
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.
25.2** Statement of Eligibility of The Bank of New York on Form T-1 relating to Viatel, Inc.'s 11.50%
Senior Euro Notes due 2009.
99.1** Letter of Transmittal relating to Viatel, Inc.'s 11.50% Senior Dollar Notes due 2009 and the 11.50%
Senior Euro Notes due 2009 (DTC Held).
99.2** Letter of Transmittal relating to Viatel, Inc.'s 11.50% Senior Euro Notes due 2009 (Non-DTC Held).
99.3** Notice of Guaranteed Delivery relating to Viatel, Inc.'s 11.50% Senior Dollar Notes due 2009 and
11.50% Senior Euro Notes due 2009 (DTC Held).
99.4** Notice of Guaranteed Delivery relating to Viatel, Inc.'s 11.50% Senior Euro Notes due 2009 (Non-DTC
Held).
</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 4.8
VIATEL, INC.
$200,000,000 OF 11 1/2% SENIOR DOLLAR NOTES DUE 2009
Euro 150,000,000 OF 11 1/2% SENIOR EURO NOTES DUE 2009
PURCHASE AGREEMENT
March 12, 1999
<PAGE>
VIATEL, INC.
PURCHASE AGREEMENT
March 12, 1999
Morgan Stanley & Co. Incorporated
ING Baring Furman Selz LLC
c/o 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 the initial purchasers named in Schedule I hereto (the
"Initial Purchasers") an aggregate of $200 million of 11 1/2% Senior Dollar
Notes Due 2009 of the Company (the "Senior Dollar Notes") to be issued pursuant
to the provisions of an indenture (the "Senior Dollar Notes Indenture") to be
dated as of the Closing Date (as defined below) between the Company and the Bank
of New York, as trustee (in such capacity, the "Trustee"), and an aggregate of
Euro 150 million of 11 1/2% Senior Euro Notes Due 2009 of the Company (the
"Senior Euro Notes"; and together with the Senior Dollar Notes, collectively,
the "Notes") to be issued pursuant to the provisions of an indenture (the
"Senior Euro Notes Indenture"; and together with the Senior Dollar Notes
Indenture, the "Indentures") to be dated as of the Closing Date between the
Company and the Trustee.
The Senior Dollar Notes Indenture will provide that on the
Closing Date the Company will purchase and pledge to the Trustee for the benefit
of the registered holders of the Senior Dollar Notes (collectively, the "Dollar
Note Holders"), pursuant to the terms of the Pledge Agreement, the U.S. Pledged
Securities 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 four scheduled interest payments on the Senior Dollar Notes. The Senior
Euro Notes Indenture will provide that on the Closing Date the Company will
purchase and pledge to the Trustee for the benefit of the registered holders of
the Senior Euro Notes (collectively, the "Euro Note Holders"; and together with
the Dollar Note Holders, the "Holders"), pursuant to the terms of the Pledge
Agreement, the Euro Pledged Securities 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 four scheduled interest payments on the Senior Euro
Notes.
<PAGE>
2
Capitalized terms used herein without definition have the
respective meanings specified in the Offering Memorandum (as defined below).
The 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 and outside the United States in compliance with Regulation S
under the Securities Act ("Regulation S").
The Initial Purchasers 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 Notes, the Company has
prepared an offering memorandum dated March 12, 1999 (the "Offering Memorandum")
setting forth or including a description of the terms of the 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 Offering Memorandum sent to investors will 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 any Initial Purchaser furnished to the
Company in writing by such Initial Purchaser expressly for use therein.
(b) 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.
<PAGE>
3
(c) Each subsidiary of the Company is listed on Exhibit B
hereto (each a "Subsidiary" and, collectively, the "Subsidiaries"). 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 good standing would not have a Material
Adverse Effect (defined below) on the Company and the Subsidiaries,
taken as a whole; 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 Notes have been duly authorized by the Company and,
when issued and authenticated in accordance with the respective
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement and the respective
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 respective Indenture pursuant to which
such Notes are to be issued and the Registration Rights Agreement and
the Pledge Agreement.
(f) Each of the Indentures and the Registration Rights
Agreement has been duly authorized by the Company and, when duly
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 and except that (x) rights to indemnification and
contribution may be limited by public policy and (y) provisions of the
Indentures, 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.
<PAGE>
4
(g) The Pledge 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.
(h) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing the U.S. Pledged Securities and the
Euro Pledged Securities, the pledge of and grant of a security interest
in the U.S. Pledged Securities and the Euro Pledged Securities for the
benefit of the Trustee and the Holders, as the case may be, will
constitute a first priority security interest in the U.S. Pledged
Securities and the Euro Pledged Securities, enforceable against all
creditors of the Company (and any persons purporting to purchase any of
the U.S. Pledged Securities or Euro Pledged Securities from the
Company).
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement,
the Indentures, the Registration Rights Agreement, the Pledge Agreement
and the Notes (collectively, the "Transaction Documents") and the
issuance, sale and delivery of the 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 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
(as defined below) on the Company and its Subsidiaries, taken as a
whole, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under the Transaction
Documents, 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, (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.
(j) 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 of the Company and its Subsidiaries, taken as a whole (a
"Material Adverse Effect"), from that set forth in the
<PAGE>
5
draft of the Offering Memorandum attached as Exhibit C. Furthermore,
(i) other than the transactions contemplated hereby, 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 (3)
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.
(k) 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.
(l) 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 Notes in a manner that would require
the registration under the Securities Act of the 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 Notes in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
(m) 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 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.
(n) Assuming the accuracy of the Initial Purchasers'
representations contained herein and the Initial Purchasers' compliance
with their agreements
<PAGE>
6
hereunder, it is not necessary to register the Notes under the
Securities Act or to qualify the Indentures under the Trust
Indenture Act of 1939, as amended.
(o) 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.
(p) 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.
(q) The Notes satisfy the requirements set forth in
Rule 144A(d)(3) under the Securities Act.
(r) None of the Company, its Affiliates or any person acting
on its or their behalf (other than the Initial Purchasers) has engaged
in any directed selling efforts (as that term is defined in Regulation
S under the Securities Act) with respect to the Notes, and the Company
and its Affiliates and any person acting on its or their behalf (other
than the Initial Purchasers) have complied with the offering
restrictions requirement of Regulation S.
(s) 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, authorizations, approvals, orders, certificates or permits or
make such
<PAGE>
7
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.
(t) 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.
(u) 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.
(v) 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
<PAGE>
8
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.
(w) (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 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.
(x) 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.
(y) The Notes and the Indentures conform in all material
respects to the descriptions thereof contained in the Offering
Memorandum under the heading "Description of the Notes."
(z) 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
<PAGE>
9
Company and its Subsidiaries, the Year 2000 Problem will have a
material adverse effect on the condition, financial or otherwise,
or on the earnings, business or operations of 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 condition, financial or
otherwise, or on the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees
to sell to the several Initial Purchasers, and the Initial Purchasers upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agree, severally and not jointly, to purchase
from the Company the amount of Senior Dollar Notes and Senior Euro Notes set
forth in the Schedule hereto opposite their names at a purchase price of $970
per $1,000 Senior Dollar Notes (the "Senior Dollar Purchase Price") and Euro 970
per Euro 1,000 of Senior Euro Notes (the "Senior Euro Purchase Price" and,
together with the Senior Dollar Purchase Price, collectively, the "Purchase
Price") plus accrued interest, if any, on the Notes from March 19, 1999 to the
Closing Date.
The Company hereby agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Initial
Purchasers, 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 Notes (other than the sale of the Notes
under this Agreement).
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 Senior Dollar Notes
shall be made to the Company in federal or other funds immediately available in
New York City against delivery of such Notes and payment for the Senior Euro
Notes shall be made to the Company in the Euro against delivery of such Notes at
the closings (the "Closings") to be held at the office of Shearman & Sterling,
599 Lexington Avenue, New York, New York, at 6:00 A.M. and 10:00 A.M.,
respectively, local time, on March 19, 1999, or at such other time
<PAGE>
10
on the same or such other date, not later than April 1, 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 Initial Purchasers duly paid,
against payment of the Purchase Price therefor.
5. CONDITIONS TO THE INITIAL PURCHASER'S OBLIGATION. The
several obligations of the Initial Purchasers 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 for a possible change
that does not indicate the direction of the possible change,
in the rating accorded 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 and its Subsidiaries, 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 Initial Purchasers 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
<PAGE>
11
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 Initial Purchasers shall have received on the Closing
Date an opinion of Kelley Drye & Warren LLP, outside counsel to the
Company, dated the Closing Date, to the effect set forth in Exhibit D.
Such opinion shall be rendered to the Initial Purchasers at the request
of the Company and shall so state therein.
(d) The Initial Purchasers 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, to the effect set forth in Exhibit E or as to such
other form as agreed to by the Initial Purchasers. Such opinions shall
be rendered to the Initial Purchasers at the request of the Company and
shall so state therein.
(e) The Initial Purchasers 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
Initial Purchasers at the request of the Company and shall so state
therein.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion of Shearman & Sterling, counsel to the Initial
Purchasers, dated the Closing Date, in form and substance satisfactory
to you.
(g) The Initial Purchasers shall have received on or prior to
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 Initial
Purchasers, 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; PROVIDED that the letter delivered on the Closing
Date shall use a "cut-off date" not earlier than the date hereof.
(h) The Pledge Agreement shall be executed and in full force
and effect.
<PAGE>
12
(i) No event shall have occurred which limits the ability of
the Company and the Initial Purchasers to settle the Senior Euro Notes
as provided in the Offering Memorandum.
(j) The Initial Purchasers shall have received such other
documents and certificates as are reasonably requested by you or your
counsel.
In addition, the several obligations of the Initial Purchasers
to purchase and pay for the Senior Dollar Notes and Senior Euro Notes
is subject to the prior or contemporaneous purchase of Senior Euro
Notes or Senior Dollar Notes, respectively.
6. COVENANTS OF THE COMPANY. In further consideration of the
agreements of the Initial Purchasers contained in this Agreement, the Company
covenants with the Initial Purchasers as follows:
(a) To use its best efforts to furnish to you in New York
City, without charge, prior to 10:00 a.m. New York City time on
Wednesday, March 17, 1999 and during the period mentioned in Section
6(c), as many copies of the Offering Memorandum and any supplements and
amendments thereto 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.
(c) If, during such period after the date hereof and prior to
the date on which all of the Notes shall have been sold by the Initial
Purchasers, 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 Initial Purchasers
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 Initial Purchasers, 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.
<PAGE>
13
(d) To endeavor to qualify the 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 Notes, (iii) the
fees and disbursements of the Company's counsel and accountants and the
Trustee and its counsel, (iv) the qualification of such 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 Initial Purchasers in connection therewith and in
connection with the preparation of any Blue Sky or legal investment
memoranda, (v) the printing and delivery to the Initial Purchasers 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 Initial Purchasers (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 Notes for trading in the Private Offerings,
Resales and Trading through Automatic Linkages Market ("PORTAL") 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,
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 Initial Purchasers will pay all of their costs and
expenses, including fees and disbursements of their counsel, transfer
taxes payable on resale of any of the Notes by them and any advertising
expenses connected with any offers they may make.
<PAGE>
14
(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 Notes in a manner which would require the
registration under the Securities Act of such Notes.
(g) Neither the Company nor any Subsidiary will solicit any
offer to buy or offer or sell the 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 Notes remain "restricted securities"
within the meaning of Rule 144 under the Securities Act, to make
available, upon request, to any seller of such 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 Securities Exchange Act of 1934 (the "Exchange Act").
(i) Except as may be contemplated by the Registration Rights
Agreement, none of the Company, its Affiliates or any person acting on
its or their behalf (other than the Initial Purchasers) will engage in
any directed selling efforts (as that term is defined in Regulation S)
with respect to the Notes and the Company and its Affiliates and each
person acting on its or their behalf (other than the Initial
Purchasers) will comply with the offering restrictions of Regulation S.
(j) To refuse, and to cause the Trustee or the registrar and
transfer agent, as the case may be, to refuse, to register any transfer
of the Notes sold pursuant to Regulation S if such transfer is not made
in accordance with the provisions of Regulation S and the Indentures.
(k) To use its reasonable best efforts to permit the 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.
(l) The Company shall not, and shall use its best efforts to
cause its Affiliates not to, purchase and then resell or otherwise
transfer any Notes.
(m) It will use reasonable best efforts to permit the
inclusion of the Euro Notes in the regulated unofficial market
(Freiverkehr) on the Frankfurt Stock
<PAGE>
15
Exchange, or another European Stock Market, within six months
after the Closing Date.
7. OFFERING OF NOTES; RESTRICTIONS ON TRANSFER. (a) Each
Initial Purchasers, severally and not jointly, represents and warrants that
such Initial Purchaser is a qualified institutional buyer as defined in Rule
144A under the Securities Act (a "QIB"). Each Initial Purchaser agrees with
the Company that (i) it will not solicit offers for, or offer or sell, 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 will solicit offers for Notes only from, and will offer such
Notes only to, persons that it reasonably believes to be (A) in the case of
offers inside the United States, other QIBs and (B) in the case of offers
outside the United States, to persons other than U.S. persons ("foreign
purchasers," which term shall include dealers or other professional
fiduciaries in the United States acting on a discretionary basis for foreign
beneficial owners (other than an estate or trust)) in reliance upon
Regulation S under the Securities Act that, in each case, in purchasing such
Notes are deemed to have represented and agreed as provided in the Offering
Memorandum under the caption "Transfer Restrictions."
(b) Each Initial 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) such Initial 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 Notes have not been and will not be registered under
the Securities Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Rule 144A under the Securities Act or pursuant to
another exemption from the registration requirements of the Securities
Act;
<PAGE>
16
(iv) such Initial Purchaser has offered the Notes and will
offer and sell the Notes (A) as part of their distribution at any time
and (B) otherwise until 40 days after the Closing Date, only in
accordance with Rule 903 of Regulation S or as otherwise permitted in
Section 7(a); accordingly, neither such Initial Purchaser, its
Affiliates nor any persons acting on its or their behalf have engaged
or will engage in any directed selling efforts (within the meaning of
Regulation S) with respect to the Notes, and any such Initial
Purchaser, its Affiliates and any such persons have complied and will
comply with the offering restrictions requirement of Regulation S;
(v) such Initial 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;
(vi) such Initial 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; and
(vii) such Initial Purchaser agrees that, at or prior to
confirmation of sales of the Notes, it will have sent to each
distributor, dealer or person receiving a selling concession, fee or
other remuneration that purchases Notes from it during the restricted
period a confirmation or notice to substantially the following effect:
<PAGE>
17
"The Notes covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered and sold
within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their
distribution at any time or (ii) otherwise until 40
days after the Closing Date with respect to the Notes
and one year after the Closing Date, except in either
case in accordance with Regulation S (or Rule 144A if
available) under the Securities Act. Terms used above
have the meaning given to them by Regulation S."
Terms used and not defined in this Section 7(b) have the meanings given
to them by Regulation S.
8. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless each Initial Purchaser, and each person, if any, who
controls such Initial 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 will 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 any Initial Purchaser furnished to
the Company in writing by such Initial Purchaser expressly for use therein.
(b) Each Initial Purchaser agrees, severally and not jointly,
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 such Initial Purchaser, but only
with reference to information relating to such Initial Purchaser furnished to
the Company in writing by such Initial Purchaser expressly for use in the
Offering Memorandum or any amendments or supplements thereto.
<PAGE>
18
(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 Section 8(a) or 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 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
<PAGE>
19
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
Section 8(a) or 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 Initial
Purchasers, 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, on the one hand, and the Initial Purchasers, 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 benefits received by the Company, on the one
hand, and the Initial Purchasers, on the other hand, in connection with the
offering of the Notes shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Notes (net of
discounts and commissions but before deducting expenses) received by the
Company and the total discounts and commissions received by the Initial
Purchasers in respect thereof bear to the aggregate offering price of the
Notes. The relative fault of the Company, on the one hand, and of the Initial
Purchasers, on the other hand, 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 Initial Purchasers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(e) The Company and the Initial 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 Initial Purchasers shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Notes resold by it in the initial placement of such Notes were offered to
investors exceeds the amount of any damages that such Initial 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
<PAGE>
20
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 any Initial Purchaser or any person
controlling the Initial Purchaser or by or on behalf of the Company, its
officers or directors or any person controlling the Company and (iii)
acceptance of and payment for any of the Notes.
9. TERMINATION. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the
case may be, any of the New York Stock Exchange, the American Stock Exchange,
the National Association of Securities Dealers, Inc., the Chicago Board of
Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of
Trade, (ii) trading of any securities of the Company shall have been
suspended on any exchange or in any over-the-counter market, (iii) a general
moratorium on commercial banking activities in New York shall have been
declared by either federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses 9(a)(i) through 9(a)(iv), such event singly or together with any
other such event makes it, in your judgment, impracticable to market the
Notes on the terms and in the manner contemplated in the Offering Memorandum.
10. EFFECTIVENESS. This Agreement shall become effective upon
the execution and delivery hereof by the parties hereto.
11. MISCELLANEOUS. If, on the Closing Date any one or more of
the Initial Purchasers shall fail or refuse to purchase Notes that it or they
have agreed to purchase hereunder on such date, and the amount of Notes which
such defaulting Initial Purchaser or Initial Purchasers agreed but failed or
refused to purchase is not more than one-tenth of the aggregate amount of Notes
to be purchased on such date, the other Initial Purchasers shall be obligated
severally in the proportions that the amount of Notes set forth opposite their
respective names in Schedule I bears to the aggregate amount of Notes set forth
opposite the names of all such non-defaulting Initial Purchasers, or in such
other proportions as you may specify, to purchase the Notes which such
defaulting Initial Purchaser or Initial Purchasers
<PAGE>
21
agreed but failed or refused to purchase on such date; PROVIDED that in no
event shall the amount of Notes that any Initial Purchaser has agreed to
purchase pursuant to Section 2 be increased pursuant to Section 11 by an
amount in excess of one-ninth of such amount of Notes without the written
consent of such Initial Purchaser. If, on the Closing Date, any Initial
Purchaser or Initial Purchasers shall fail or refuse to purchase Notes which
it or they have agreed to purchase hereunder on such date and the aggregate
amount of Notes with respect to which such default occurs is more than
one-tenth of the aggregate amount of Notes to be purchased on such date and
arrangements satisfactory to you and the Company for the purchase of such
Notes are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Initial
Purchaser or the Company. In any such case either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Offering
Memorandum or in any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Initial
Purchaser from liability in respect of any default of such Initial Purchaser
under this Agreement.
If this Agreement shall be terminated by the Initial Purchasers, or any of them,
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
Initial Purchasers), the Company will reimburse the Initial Purchasers or such
Initial Purchasers who have so terminated this Agreement for all out-of-pocket
expenses (including the fees and disbursements of their counsel) reasonably
incurred by such Initial Purchaser in connection with this Agreement or the
offering contemplated hereunder.
12. 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 Initial Purchaser:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attention: Ken Pott
<PAGE>
22
(b) If to the Company:
Viatel, Inc.
685 Third Avenue
New York, New York 10017
Attention: Sheldon M. Goldman
Senior Vice President,
Business Affairs and General Counsel
with a copy to:
Kelley Drye & Warren LLP
101 Park Ave.
New York, NY 10178
Attention: James P. Prenetta
13. 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.
14. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
15. 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 Initial Purchasers.
Very truly yours,
VIATEL, INC.
By: /s/ ALLAN L. SHAW
-----------------------------
Name: Allan L. Shaw
Title: Senior Vice President, Finance
Agreed, March 12, 1999
MORGAN STANLEY & CO. INCORPORATED
ING BARING FURMAN SELZ LLC
By: MORGAN STANLEY & CO. INCORPORATED
In its individual capacity and as representative
of the other Initial Purchasers
By: /s/ JAMES D. ALLEN
-----------------------------
Name: James D. Allen
Title: Vice President
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
- -----------------------------------------------------------------------------------------------------------------
Principal Amount of Principal Amount of
11.5% Senior Dollar Notes 11.5% Senior Euro Notes To
Initial Purchasers To Be Purchased Be Purchased
- ------------------ ------------------------- --------------------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated ...... $175,000,000.00 Euro 133,335,000.00
ING Baring Furman Selz LLC ............. $ 25,000,000.00 Euro 16,665,000.00
Total ................................ $200,000,000.00 Euro 150,000,000.00
</TABLE>
<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 Spain Limited England and Wales
Viatel (I) Limited England and Wales
Viatel Staines Limited 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
Viaphone GmbH Germany
Viatel AG Switzerland
Viaphone AG Switzerland
Viatel Global Communications B.V. Netherlands
Viafoperations Communications B.V. Netherlands
Viacol Ltd. 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>
<TABLE>
<S> <C>
Viatel Development Company Delaware
Viatel Finance Company L.L.C. Delaware
Viatel Global Communications, Ltd. Delaware
Viatel New Jersey, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT C
DRAFT OFFERING MEMORANDUM
<PAGE>
EXHIBIT D
Form of Opinion of
Kelley Drye & Warren LLP
Pursuant to Section 5(c) 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 Purchase Agreement has been duly authorized, executed
and delivered by the Company;
(C) the Pledge Agreement has been duly authorized, executed
and delivered by the Company, and assuming due authorization, execution
and delivery by the Trustee, the Pledge Agreement will constitute a
valid and legally binding obligation 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);
(D) upon the delivery to the Trustee of the certificates or
instruments, if any, representing the U.S. Pledged Securities and the
Euro Pledged Securities, the pledge of and grant of a security interest
in the U.S. Pledged Securities and the Euro Pledged Securities for the
benefit of the Trustee and the holders of the Senior Dollar Notes and
the Senior Euro Notes will constitute a first priority security
interest in the U.S. Pledged Securities and the Euro Pledged
Securities, enforceable as against all creditors of the Company (and
any person purporting to purchase any of the U.S. Pledged Securities or
Euro Pledged Securities from the Company);
<PAGE>
D-2
(E) 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 respective 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 respective Indenture, the Registration Rights Agreement and the
Pledge Agreement;
(F) each of the Indentures 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 Indentures, 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;
(G) 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 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 Indentures 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
<PAGE>
D-3
governmental body or agency is required for the performance by the
Company of its obligations under the Transaction Documents;
(H) 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;
(I) 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;
(J) 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;
(K) 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; and
(L) based upon the representations, warranties, and agreements
of the Company in the Purchase Agreement and of the Initial 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
Initial Purchasers under the Purchase Agreement or in connection with
the initial resale of such Notes by the Initial Purchasers solely in
accordance with Section 7 of the Purchase 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.
<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, 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 March 12, 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 F
Form of U.S. Regulatory Counsel Opinion
Pursuant to Section 5(e) of the Purchase Agreement, Morrison & Forester
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
<PAGE>
F-3
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 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 5.1
KELLEY DRYE & WARREN LLP
101 Park Avenue
New York, New York 10178
July 14, 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 Offers") $200,000,000 principal amount of its 11.50%
Senior Dollar Notes Due 2009 and E150,000,000 principal amount of its 11.50%
Senior Euro Notes Due 2009 (collectively, the "Exchange Notes") for a like
aggregate principal amount of its outstanding 11.50% Senior Dollar Notes Due
2009 and 11.50% Senior Euro Notes Due 2009 (collectively, the "Existing Notes")
which have not been registered under the Act. The Exchange Notes will be issued
pursuant to the respective Indenture, each dated as of March 19, 1999, between
the Company and The Bank of New York, as Trustee, pursuant to which the
corresponding series of Existing Notes was originally issued (collectively, the
"Indentures"). 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
Offers.
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 Second 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 each of the Indentures;
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 Indentures 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 respective 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 whose consent is required under Section 7
of the Act or the rules and regulations of the Commission promulgated
thereunder.
This opinion is furnished to you in connection with the filing of the
Registration Statement and is not to be used, circulated, quoted or otherwise
relied upon for any other purpose.
Very truly yours,
/s/ KELLEY DRYE & WARREN LLP
<PAGE>
EXHIBIT 12.1
VIATEL, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
1994 1995 1996 1997 1998 3/31/98 3/31/99
---------- ---------- ---------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Loss....................... $(12,495) $(28,476) $(38,375) $(43,044) $(130,605) $(13,003) $(38,288)
Interest-Expensed**............ 772 8,856 10,848 12,450 79,177 3,781 26,166
-------- -------- -------- -------- --------- -------- --------
Earnings..................... (11,723) (19,620) (27,527) (30,594) (51,428) (9,222) (12,122)
-------- -------- -------- -------- --------- -------- --------
-------- -------- -------- -------- --------- -------- --------
Fixed Charges:
Interest-Expensed**............ 772 8,856 10,848 12,450 79,177 3,781 26,166
Interest-Capitalized........... -- 508 67 164 3,322 -- 2,276
-------- -------- -------- -------- --------- -------- --------
Fixed Charges................ 772 9,364 10,915 12,614 82,499 3,781 28,442
-------- -------- -------- -------- --------- -------- --------
-------- -------- -------- -------- --------- -------- --------
Ratio of Earnings to Fixed
Charges...................... -15.19 -2.10 -2.52 -2.43 -0.62 -2.44 -0.43
Deficiency of Earnings to
Fixed Charges................ (12,495) (28,476) (38,375) (43,044) (130,605) (13,003) (38,288)
</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
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.
The ratio of earnings to fixed charges for the years ended 1994, 1995, 1996,
1997 and 1998 and the three months ended March 31, 1998 and 1999 are less
than 1 and therefore the earnings are inadequate to cover the fixed charges
by $12.5 million, $28.5 million, $38.4 million, $43.0 million, $130.6 million,
$13.0 million and $38.3 million, respectively.
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF VIATEL, INC.
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
Viatel, Inc. 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. Delaware
Viatel Sales U.S.A., Inc. Delaware
Viatel Sweden, Inc. Delaware
Viatel Virginia, Inc. Delaware
YYC Communications, Inc. Delaware
Viaphone NV/SA Belgium
Viatel Belgium NV/SA Belgium
Viacol Ltda. Colombia
Viatel (I) Limited England and Wales
Viatel Belgium Limited England and Wales
Viatel Spain Limited England and Wales
Viatel U.K. Limited England and Wales
Viatel UK Holding Ltd. (formerly
Viatel Staines Ltd. England and Wales
Viatel Operations, S.A. France
Viatel S.A. France
</TABLE>
1
<PAGE>
SUBSIDIARIES OF VIATEL, INC.
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION
NAME OF SUBSIDIARY OR ORGANIZATION
- ------------------ ---------------
<S> <C>
VPN S.A.R.L. France
Viaphone GmbH Germany
Viatel GmbH Germany
Viatel Global Communications S.p.A.
(formerly Viaphone S.R.L.) Italy
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>
2
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' REPORT ON SCHEDULE AND CONSENT
The Board of Directors and Stockholders
Viatel, Inc. and Subsidiaries:
The audits referred to in our report dated February 26, 1999, included the
related consolidated 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 consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our
audits. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
We consent to the use of our reports included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG LLP
New York, New York
July 14, 1999
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
New York, New York 10017
(Address of principal executive offices) (Zip code)
---------------------------
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Address
- ---------------------------------------------------------------- --------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York, N.Y.
New York 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
</TABLE>
(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.
2
<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 9th day of July, 1999.
THE BANK OF NEW YORK
By: /S/ILIANA A. ARCIPRETE
-----------------------------------
Name: ILIANA A. ARCIPRETE
Title: ASSISTANT TREASURER
3
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
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 March 31, 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
In Thousands
<S> <C>
ASSETS Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.. $4,508,742
Interest-bearing balances........................... 4,425,071
Securities:
Held-to-maturity securities......................... 836,304
Available-for-sale securities....................... 4,047,851
Federal funds sold and Securities purchased under
agreements to resell................................ 1,743,269
Loans and lease financing receivables:
Loans and leases, net of unearned
income...............39,349,679
LESS: Allowance for loan and
lease losses............603,025
LESS: Allocated transfer risk
reserve........................15,906
Loans and leases, net of unearned income,
allowance, and reserve............................ 38,730,748
Trading Assets......................................... 1,571,372
Premises and fixed assets (including capitalized
leases)............................................. 685,674
Other real estate owned................................ 10,331
Investments in unconsolidated subsidiaries and
associated companies................................ 182,449
Customers' liability to this bank on acceptances
outstanding......................................... 1,184,822
Intangible assets...................................... 1,129,636
Other assets........................................... 2,632,309
-----------
Total assets........................................... $61,688,578
-----------
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES
Deposits:
In domestic offices................................. $25,731,036
Noninterest-bearing.......................10,252,589
Interest-bearing..........................15,478,447
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 18,756,302
Noninterest-bearing..........................111,386
Interest-bearing..........................18,644,916
Federal funds purchased and Securities sold under
agreements to repurchase............................ 3,276,362
Demand notes issued to the U.S.Treasury................ 230,671
Trading liabilities.................................... 1,554,493
Other borrowed money:
With remaining maturity of one year or less......... 1,154,502
With remaining maturity of more than one year
through three years............................... 465
With remaining maturity of more than three years.... 31,080
Bank's liability on acceptances executed and
outstanding......................................... 1,185,364
Subordinated notes and debentures...................... 1,308,000
Other liabilities...................................... 2,743,590
-----------
Total liabilities...................................... 55,971,865
-----------
-----------
EQUITY CAPITAL
Common stock........................................... 1,135,284
Surplus................................................ 764,443
Undivided profits and capital reserves................. 3,807,697
Net unrealized holding gains (losses) on
available-for-sale securities....................... 44,106
Cumulative foreign currency translation adjustments....
(34,817)
-----------
Total equity capital................................... 5,716,713
-----------
Total liabilities and equity capital................... $61,688,578
-----------
-----------
</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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 25.2
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
New York, New York 10017
(Address of principal executive offices) (Zip code)
---------------------------
11.50% Senior Euro 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------- --------------------------------------------
Name Address
- -------------------------------------------------------- --------------------------------------------
<S> <C>
Superintendent of Banks of the State of New York 2 Rector Street, 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
</TABLE>
(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.
2
<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 9th day of July, 1999.
THE BANK OF NEW YORK
By: /s/ILIANA A. ARCIPRETE
---------------------------------
Name: ILIANA A. ARCIPRETE
Title: ASSISTANT TREASURER
3
<PAGE>
Exhibit 7
- --------------------------------------------------------------------------------
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 March 31, 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
In Thousands
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.. $4,508,742
Interest-bearing balances........................... 4,425,071
Securities:
Held-to-maturity securities......................... 836,304
Available-for-sale securities....................... 4,047,851
Federal funds sold and Securities purchased under
agreements to resell................................ 1,743,269
Loans and lease financing receivables:
Loans and leases, net of unearned
income...............39,349,679
LESS: Allowance for loan and
lease losses............603,025
LESS: Allocated transfer risk
reserve........................15,906
Loans and leases, net of unearned income,
allowance, and reserve............................ 38,730,748
Trading Assets......................................... 1,571,372
Premises and fixed assets (including capitalized
leases)............................................. 685,674
Other real estate owned................................ 10,331
Investments in unconsolidated subsidiaries and
associated companies................................ 182,449
Customers' liability to this bank on acceptances
outstanding......................................... 1,184,822
Intangible assets...................................... 1,129,636
Other assets........................................... 2,632,309
-----------
Total assets........................................... $61,688,578
-----------
-----------
<PAGE>
LIABILITIES
Deposits:
In domestic offices................................. $25,731,036
Noninterest-bearing.......................10,252,589
Interest-bearing..........................15,478,447
In foreign offices, Edge and Agreement
subsidiaries, and IBFs............................ 18,756,302
Noninterest-bearing..........................111,386
Interest-bearing..........................18,644,916
Federal funds purchased and Securities sold under
agreements to repurchase............................ 3,276,362
Demand notes issued to the U.S.Treasury................ 230,671
Trading liabilities.................................... 1,554,493
Other borrowed money:
With remaining maturity of one year or less......... 1,154,502
With remaining maturity of more than one year
through three years............................... 465
With remaining maturity of more than three years.... 31,080
Bank's liability on acceptances executed and
outstanding......................................... 1,185,364
Subordinated notes and debentures...................... 1,308,000
Other liabilities...................................... 2,743,590
-----------
Total liabilities...................................... 55,971,865
-----------
-----------
EQUITY CAPITAL
Common stock........................................... 1,135,284
Surplus................................................ 764,443
Undivided profits and capital reserves................. 3,807,697
Net unrealized holding gains (losses) on
available-for-sale securities....................... 44,106
Cumulative foreign currency translation adjustments.... (34,817)
-----------
Total equity capital................................... 5,716,713
-----------
Total liabilities and equity capital................... $61,688,578
-----------
-----------
</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>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
VIATEL, INC.
Offer to Exchange all Outstanding
11.50% Senior Dollar Notes Due 2009 and
11.50% Senior Euro Notes Due 2009 (DTC Held)
for
11.50% Senior Dollar Notes Due 2009 and
11.50% Senior Euro Notes Due 2009 (DTC Held)
Which Have Been Registered Under
the Securities Act of 1933
Pursuant to the Prospectus, dated , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME (10:00 P.M.,
LONDON TIME), ON , 1999 UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS FOR EXCHANGE MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY
TIME (10:00 P.M., LONDON 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) 815-2824
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Reorganization Section (212) 815-4699
101 Barclay Street, Floor 7 East CONFIRM BY TELEPHONE:
New York, New York 10286 (212) 815-2824
Attention: Tolutope Adeyoju
</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 , 1999 (the
"Prospectus"), of Viatel, Inc., a Delaware corporation (the "Company" or the
"Issuer"), relating to its offer to exchange (i) up to $200,000,000 aggregate
principal amount of its 11.50% Senior Dollar Notes Due 2009 (the "Dollar
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 Dollar Notes")
from the registered holders thereof (the "Dollar Note Holders") and (ii) its
11.50% Senior Euro Notes Due 2009 (the "Euro Exchange Notes"), which have been
registered under the Securities Act, for a like principal amount of its issued
and outstanding 11.50% Senior Euro Notes Due 2009 (the "Existing Euro Notes").
The Prospectus and this Letter of Transmittal together constitute the Company's
offers to exchange (the "Exchange Offers") (i) its Dollar Exchange Notes for a
like principal amount of its Existing Dollar Notes from the Dollar Note Holders
and (ii) its Euro Exchange Notes which are to be deposited with a custodian for,
and registered in the name of, The Depository Trust Company ("DTC") or its
nominee (the "Exchange DTC Euro Notes") for a like principal amount of Existing
Euro Notes which have been deposited with a custodian for, and registered in the
name of, DTC or its nominee (the "Existing DTC Euro Notes") from the registered
holders thereof (the "DTC Euro Note Holders" and, together with the Dollar Note
Holders, the "Holders"). For the purposes of this Letter of Transmittal, the
Dollar Exchange Notes and the Exchange DTC Euro Notes are collectively referred
to as the "Exchange Notes," and the Existing Dollar Notes and the Existing DTC
Euro Notes are collectively referred to as the "Existing Notes."
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 March 19, 1999. Accordingly,
registered Holders of Exchange Notes on the relevant record date for the first
interest payment date following the consummation of the Exchange Offers will
receive interest accruing from the most recent date to which interest has been
paid or, if no interest has been paid, from March 19, 1999. Existing Notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the Exchange Offers. 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 Offers.
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 DTC (the "Book-Entry
Transfer Facility") pursuant to the procedures set forth in "The Exchange
Offers--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 Offers--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.
<PAGE>
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>
- -----------------------------------------------------------------------------------------------------
DESCRIPTION OF EXISTING NOTES
- -----------------------------------------------------------------------------------------------------
(1) (2) (3)
AGGREGATE
PRINCIPAL
NAME(S) AND ADDRESS(ES) AMOUNT OF PRINCIPAL
OF REGISTERED HOLDER(S) CERTIFICATE EXISTING AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* 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 or [EURO]1,000, as
applicable, and any integral multiple thereof. See Instruction 1.
/ / 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 Offers, 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 Offers are 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 Offers 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 Offers 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 Offers 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 Offers 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 Offers for
use in connection with any resale of such Exchange Notes. By accepting the
Exchange Offers, each broker-dealer that receives Exchange Notes pursuant to the
Exchange Offers 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 Offers.
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
Offers--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 ___________________________________________________________________ , 1999
x ___________________________________________________________________ , 1999
____________________________________________________________________________
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: ______________________________________________________________ , 1999
(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
(10:00 P.M., LONDON TIME), ON THE EXPIRATION DATE.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFERS FOR THE
11.50% SENIOR DOLLAR NOTES DUE 2009 AND 11.50% SENIOR EURO NOTES DUE 2009 (DTC
HELD)
OF VIATEL INC. IN EXCHANGE FOR THE
11.50% SENIOR DOLLAR NOTES DUE 2009 AND 11.50% SENIOR EURO NOTES DUE 2009 (DTC
HELD)
OF VIATEL INC., WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
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 Offers--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 or [EURO]1,000, as applicable, 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
Offers-- 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 (10:00 p.m. London 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 Offers" 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
OFFERS, 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
Offers 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 from backup
withholding, such tendering Holder may be subject to a $50 penalty imposed by
the Internal Revenue Service. In addition, delivery to such tendering Holder of
Exchange Notes may result in 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.
Exempt Holders of Existing Notes (including, among others, all corporations
and certain foreign individual) 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, under penalties of perjury, that the TIN provided is correct (or
that such Holder is awaiting a TIN) and that (i) the Holder is exempt from
backup withholding, or (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 Offers. 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 Offers, 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 of a series may be withdrawn at any time prior to
5:00 P.M., New York City time (10:00 p.m., London time), on the Expiration Date
with respect to such series.
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 (10:00 p.m., London time), on
the Expiration Date with respect to such series. 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 Offers 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 Offers--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 Offers. 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 (10:00 p.m., London time),
on the Expiration Date with respect to such series of Existing Notes.
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 am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER backup withholding, and
("TIN") AND CERTIFICATION (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>
EXHIBIT 99.2
LETTER OF TRANSMITTAL
VIATEL, INC.
Offer to Exchange all Outstanding
11.50% Senior Euro Notes Due 2009 (Non-DTC Held)
for
11.50% Senior Euro Notes Due 2009 (Non-DTC Held)
Which Have Been Registered Under
the Securities Act of 1933
Pursuant to the Prospectus, dated , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME (10:00 P.M.,
LONDON TIME), ON , 1999 UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERS FOR EXCHANGE MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY
TIME (10:00 P.M., LONDON 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: 44 171 893-7284
The Bank of New York Facsimile Transmission Number:
Corporate Trust Services 44 171 893-6369/7294
30 Cannon Street CONFIRM BY TELEPHONE:
Lower Ground Floor 44 171 893-7284
London EC4M 6XH
Attention: Linda Read/Deborah Cumner-Price
</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 , 1999 (the
"Prospectus"), of Vitel, Inc., a Delaware corporation (the "Company" or the
"Issuer"), relating to its offer to exchange (i) up to $200,000,000 aggregate
principal amount of its 11.50% Senior Dollar Notes Due 2009 (the "Dollar
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 Dollar Notes")
from the registered holders thereof (the "Dollar Note Holders") and (ii) its
11.50% Senior Euro Notes Due 2009 (the "Euro Exchange Notes"), which have been
registered under the Securities Act, for a like principal amount of its issued
and outstanding 11.50% Senior Euro Notes Due 2009 (the "Existing Euro Notes").
The Prospectus and this Letter of Transmittal together constitute the Company's
offer to exchange (the "Exchange Offer") its Euro Exchange Notes (except those
which are to be deposited with a custodian for, and registered in the name of,
The Depository Trust Company) (the "Exchange Notes") for a like principal amount
of Existing Euro Notes (except those which have been deposited with a custodian
for, and registered in the name of, The Depository Trust Company) (the "Existing
Notes") from the registered holders thereof (the "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 March 19, 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 March 19, 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 Euroclear and Cedel
Bank (the "Book-Entry Transfer Facility") pursuant to the procedures set forth
in "The Exchange Offers-- 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 Offers--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.
<PAGE>
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>
- -----------------------------------------------------------------------------------------------------
DESCRIPTION OF EXISTING NOTES
- -----------------------------------------------------------------------------------------------------
(1) (2) (3)
AGGREGATE
PRINCIPAL
NAME(S) AND ADDRESS(ES) AMOUNT OF PRINCIPAL
OF REGISTERED HOLDER(S) CERTIFICATE EXISTING AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* 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 [EURO]1,000 and any integral
multiple thereof. See Instruction 1.
/ / 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
Offers--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 ___________________________________________________________________ , 1999
x ___________________________________________________________________ , 1999
____________________________________________________________________________
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: ______________________________________________________________ , 1999
(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
(10:00 P.M., LONDON TIME), ON THE EXPIRATION DATE.
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
11.50% SENIOR EURO NOTES DUE 2009 (NON-DTC HELD)
OF VIATEL, INC. IN EXCHANGE FOR THE
11.50% SENIOR EURO NOTES DUE 2009 (NON-DTC HELD)
OF VIATEL, INC., WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
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 Offers--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 [EURO]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
Offers--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 (10:00 P.M., London 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 Offers" 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
<PAGE>
Date. ALL OF THE EXISTING NOTES DELIVERED TO THE EXCHANGE AGENT WILL BE DEEMED
TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
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.
<PAGE>
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 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 from backup withholding, such tendering
Holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, delivery to such tendering Holder of Exchange Notes may result in
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.
Exempt Holders of Existing Notes (including, among others, all corporations
and certain foreign individual) 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, under penalties of perjury, that the TIN provided is correct (or
that such Holder is awaiting a TIN) and that (i) the Holder is exempt from
backup withholding, or (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.
<PAGE>
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.
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 of a series may be withdrawn at any time prior to
5:00 P.M., New York City time (10:00 P.M., London time), on the Expiration Date
with respect to such series.
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 (10:00 P.M., London time), on
the Expiration Date with respect to such series. 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 Offers--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 (10:00 P.M., London time),
on the Expiration Date with respect to such series of Existing Notes.
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 am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYOR'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER backup withholding, and
("TIN") AND CERTIFICATION (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 OFFER.
<PAGE>
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
FOR
VIATEL, INC.
11.50% SENIOR DOLLAR NOTES DUE 2009
AND
11.50% SENIOR EURO NOTES DUE 2009 (DTC HELD)
This form or one substantially equivalent hereto must be used to accept the
Exchange Offers of Viatel, Inc. (the "Issuer" or the "Company") made pursuant to
the Prospectus, dated , 1999 (the "Prospectus"), if certificates (as
applicable) for outstanding 11.50% Senior Dollar Notes Due 2009 (the "Existing
Dollar Notes") of the Issuer or for outstanding 11.50% Senior Euro Notes Due
2009 (which have been deposited with a custodian for, and registered in the name
of, The Depository Trust Company ("DTC") or its nominee) (the "Existing DTC Euro
Notes" and, together with the Existing Dollar Notes, 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 (10:00 P.M., London
time), on the Expiration Date of the Exchange Offers. 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 Offers, a
completed, signed and dated Letter of Transmittal (or facsimile thereof)
relating to the tender for exchange of Existing Dollar Notes or Existing DTC
Euro Notes (the "Letter of Transmittal") must also be received by the Exchange
Agent prior to 5:00 P.M., New York City time (10:00 P.M., London 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) 815-2824
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Reorganization Section (212) 815-4699
101 Barclay Street, Floor 7 East
New York, New York 10286 CONFIRM BY TELEPHONE:
Attention: Tolutope Adeyoju (212) 815-2824
</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 Offers--Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<CAPTION>
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 Offers--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 (10:00 P.M., London 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 OF 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 Offers.
<PAGE>
EXHIBIT 99.4
NOTICE OF GUARANTEED DELIVERY
FOR
VIATEL, INC.
11.50% SENIOR EURO NOTES DUE 2009 (NON-DTC HELD)
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 , 1999 (the "Prospectus"), if certificates (as
applicable) for outstanding 11.50% Senior Euro Notes Due 2009 (except those
which have been deposited with a custodian for, and registered in the name of,
The Depository Trust Company) (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 (10:00 P.M., London 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 (10:00 P.M., London 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: 44 171 893-7284
The Bank of New York FACSIMILE TRANSMISSION NUMBER:
Corporate Trust Services 44 171 893-6369/7294
30 Cannon Street
Lower Ground Floor
London EC4M 6XH
Attention: Linda Read/Deborah Cumner-Price CONFIRM BY TELEPHONE:
44 171 893-7284
</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 Offers--Guaranteed
Delivery Procedures" section of the Prospectus.
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF
KNOWN) OF EXISTING NOTES
OR ACCOUNT NUMBER AT THE
BOOK-ENTRY TRANSFER AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL AMOUNT
FACILITY REPRESENTED TENDERED (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
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 Euroclear and Cedel Bank pursuant to the procedures set forth in
"The Exchange Offers-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
(10:00 P.M., London 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 OF 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.
