##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 _______________________ FORM 20-F _______________________ (Mark One)  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934 OR  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the fiscal year ended December 31, 2004___
 OR   ̈
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from ______to ______
 Commission File Number: 000-50556 VIATEL HOLDING (BERMUDA) LIMITED  Not applicable
(Translation of Registrants Name Into English) Bermuda
(Jurisdiction of Incorporation or Organization) Inbucon House
Wick Road
Egham, Surrey TW20 0HR
United Kingdom
(Address of principal executive offices) Securities to be registered pursuant to Section 12(b) of the Act: None Securities registered or to be registered pursuant to Section 12(g) of the Act: Common Stock, Par Value US$ 0.01 Per Share
(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None As of December 31, 2004, 10,630,000 shares of the registrants common stock were outstanding. Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Company was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes  ̈ No Indicate by check mark which financial statement item the registrant has elected to follow.
 ̈ Item 17 þ Item 18 Indicate by check mark whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.  ̈ Yes þ No   1




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TABLE OF CONTENTS PagePART I
    
    
    5Item 1. Identity of Directors, Senior Management and Advisers
    
    
    5Item 2. Offer Statistics and Expected Timetable
    
    
    5Item 3. Key Information
    
    
    5Item 4. Information on the Company
    
    
    18Item 5. Operating and Financial Review and Prospects
    
    
    45Item 6. Directors, Senior Management and Employees
    
    
    57Item 7. Major Shareholders and Related Party Transactions
    
    
    64Item 8. Financial Information
    
    
    67Item 9. The Listing
    
    
    69Item 10. Additional Information
    
    
    71Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    85PART II
    
    
    87Item 12. Description of Securities other than Equity Securities
    
    
    87Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    88Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    88Item 15. Controls and Procedures
    
    
    88Item 16A. Audit Committee Financial Expert
    
    
    90Item 16B. Code of Ethics
    
    
    90Item 16C. Principal Accountant Fees and Services
    
    
    90PART III
    
    
    91Item 17. Financial Statements
    
    
    91Item 18. Financial Statements
    
    
    91Item 19. Exhibits
    
    
    91Financial Statements
    
    
    F-1Exhibit 1.4Exhibit 4.4Exhibit 4.5Exhibit 4.6Exhibit 4.7Exhibit 8Exhibit 12.1Exhibit 12.2Exhibit 13
  
 Presentation of Financial Information The Companys financial statements included in this Form 20-F are presented in United States
Dollars. In this Form 20-F, references to United States Dollars, U.S. Dollars, US$ or $ are
to the currency of the United States of America, references to Pounds Sterling, Pounds, GBP,
£, pence or p are to the currency of the United Kingdom, references to Swiss Francs or CHF are to 2




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the currency of Switzerland,
references to Euros or  are to the European single currency,
and references to Bermuda Dollars are references to the currency of Bermuda. The Company prepares its financial statements using accounting principles generally accepted
in the United States of America (U.S. GAAP). Predecessor and Successor References in this Form 20-F to the Group, Viatel, the Successor Company, the
Successor, the Company, we, our or us refer to Viatel Holding (Bermuda) Limited and, to
the extent the context allows, its subsidiaries. References in this Form 20-F to the Predecessor Company or the Predecessor refer to
Viatel, Inc. and, to the extent the context allows, its subsidiaries as at or prior to June 7, 2002
(the Effective Date), the effective date of the First Amended Joint Chapter 11 Plan of
Reorganization of Viatel, Inc. and Certain of Its Subsidiaries (the Plan of Reorganization). Comparability of Financial Information As a result of the implementation of the Plan of Reorganization, the associated fundamental
differences in the scope and scale of business operations between the Predecessor Company and the
Successor Company, the adoption of fresh start reporting and the substantial debt reduction
resulting from implementation of the Plan of Reorganization, historical results of operations and
balance sheet data for the Predecessor Company are not comparable to those of the Successor
Company. See Item 3. Key Information  Selected financial data, Item 5.  Operating and
Financial Review and Prospects  General  Fresh Start Reporting and footnote (3) to our
consolidated financial statements included elsewhere in this Form 20-F. Forward-Looking Statements The United States Securities and Exchange Commission (the U.S. SEC) encourages companies to
disclose forward-looking information so that investors can understand a companys future prospects
and make informed investment decisions. This Form 20-F contains forward-looking statements within the meaning of Section 27A of the
U.S. Securities Act of 1933, as amended (the Securities Act) and Section 21E of the U.S.
Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements in
this Form 20-F include, among other things, statements about:  
    
    the beliefs and expectations of management;
    
    our business plan, its advantages and our strategy for implementing the business plan;
    
    our expectations as to future revenues, margins, expenses and capital requirements;
    
    our ability to raise additional cash from borrowings or other financings to fund
operations; 3




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
    
    our ability to maintain a viable cash and balance sheet position or to become cash
flow positive in our operations with additional funding;
    
    our ability to control costs and become profitable;
    
    our ability to generate revenues or positive cash flows;
    
    the composition of revenues and cost of sales, including operating margins and the
use of professional, consultancy and/or contractor services provided by third parties. Words such as anticipate, estimate, expect, project, intend, plan, believe,
could, may and words and terms of similar substance used in connection with any discussion of
operating or financial performance, transactions or business initiatives, identify forward-looking
statements. Although the Company believes that these forward-looking statements are reasonable, it can
give no assurance that its expectations will prove to be correct. Forward-looking statements are
based on the Companys present expectations of future events. They are not guarantees of future
performance. As such, you should not place undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date they are made. The Company is under no
obligation, and expressly disclaims any obligation, to update or alter any forward-looking
statements, whether as a result of new information, future events or otherwise. Forward-looking
statements are subject, among other things, to the risks and uncertainties set out in Item 3. Key
Information  Risk Factors and other financial, regulatory, and industry growth trends, any or all
of which could cause actual results to differ materially from the results contemplated and/or
implied by the forward-looking statements. The most important factors affecting whether we will be able to achieve our stated goals
include, but are not limited to:  
    
    our ability to obtain financing on acceptable terms and sufficiently to fund our
working capital requirements and business plan;
    
    our vulnerability to adverse general economic and industry conditions;
    
    the adverse effect of a highly competitive market for our products and services; and
    
    our ability to retain the services of key management personnel. For additional information about factors that could affect future financial and operating
results, see Viatels other filings with the U.S. SEC, including the factors set forth from time to
time in reports on Form 20-F, Form 8-K and Form 6-K. 4




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PART I 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. 
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 ITEM 3. KEY INFORMATION Selected financial data The following tables present our selected historical consolidated financial data (including
selected historical financial data for the Predecessor for the period prior to the Effective Date).
You should read the following financial data in conjunction with Item 5. Operating and Financial
Review and Prospects, our consolidated financial statements, including the related footnotes, and
the other financial and operating data included elsewhere in this Form 20-F. The selected
historical consolidated financial data included in the following tables are derived from the
audited consolidated financial statements of the Successor Company and the Predecessor Company for
the relevant periods. The audited financial statements at December 31, 2004 and 2003 and for the
years ended December 31, 2004 and 2003 and for the periods from January 1, 2002 to June 7, 2002 and
from June 7, 2002 to December 31, 2002 were audited by Deloitte & Touche LLP, Independent
Registered Public Accounting Firm, as indicated in their report included in this Form 20-F. The
consolidated statement of operations data, other consolidated financial data and consolidated
balance sheet data as of and for the years ended December 31, 2000 and 2001 are derived from the
consolidated financial statements of the Predecessor, which have been audited by KPMG LLP. The selected financial data should be read in conjunction with the consolidated financial
statements for the year ended December 31, 2004, the related notes, and the Report of Independent
Registered Public Accounting Firm, which contains an explanatory paragraph stating that the
Companys recurring net losses and its difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations raise substantial doubt about the Companys ability to
continue as a going concern, included in this Form 20-F. The consolidated financial statements and
the selected financial data do not include any adjustments that might result from the outcome of
that uncertainty. The Successor succeeded to certain business operations and assets of the Predecessor Company
as a consequence of the Plan of Reorganization. See Item 4. Information on the Company  Chapter
11 Reorganization and - Emergence from Chapter 11. We adopted fresh-start reporting in accordance with American Institute of Certified Public
Accountants Statement of Position 90-7 (SOP 90-7), Financial Reporting By Entities in
Reorganization Under the Bankruptcy Code. Under fresh start reporting, a new entity is deemed
created for financial reporting purposes on the Effective Date and the consolidated financial
statements have been prepared on that basis. As a result of the implementation of the Plan of
Reorganization, the associated fundamental differences in the scope and scale of business
operations between the Predecessor Company and the Successor Company, the adoption of fresh start
reporting and the substantial debt reduction resulting from implementation of the Plan of
Reorganization, historical results of operations 5




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and balance sheet data for the
Predecessor Company are not comparable to those of the Successor Company presented in its
financial statements contained in this Form 20-F. The consolidated financial statements in this Form 20-F are reported in United States Dollars
(thousands of). Successor
    
    
    Successor
    
    
    Successor
    
    
    
    Predecessor
    
    
    Predecessor
    
    
    PredecessorYear
    
    
    From June
    
    
    
    FromYear Ended
    
    
    Ended
    
    
    7, 2002 to
    
    
    
    January 1,
    
    
    Year Ended
    
    
    Year EndedDecember
    
    
    December
    
    
    December
    
    
    
    2002 to June
    
    
    December
    
    
    December31, 2004
    
    
    31, 2003
    
    
    31, 2002
    
    
    
    7, 2002
    
    
    31, 2001
    
    
    31, 2000Revenue:Communication services revenues
    
    
    26,962
    
    
    
    17,205
    
    
    
    2,793
    
    
    
    
    1,216
    
    
    
    240,092
    
    
    
    646,470Operations and maintenance fee revenue
    
    
    1,828
    
    
    
    1,707
    
    
    
    1,371
    
    
    
    
    1,451
    
    
    
    4,239
    
    
    
    4,455Capacity sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,298
    
    
    
    102,983Total revenue
    
    
    28,790
    
    
    
    18,912
    
    
    
    4,164
    
    
    
    
    2,667
    
    
    
    256,629
    
    
    
    753,908Operating expenses:Cost of services and sales
    
    
    (16,538
    )
    
    
    (10,015
    )
    
    
    (1,506
    )
    
    
    
    (1,518
    )
    
    
    (170,463
    )
    
    
    (552,110
    )Selling, general and administrative
(including non-cash stock compensation
(income) / expense of $(48), $(27), $75
(Successor), $4,567 (Predecessor), 2001
- $(5,819)
    
    
    (67,797
    )
    
    
    (51,225
    )
    
    
    (30,840
    )
    
    
    
    (26,502
    )
    
    
    (115,245
    )
    
    
    (358,729)
    )Gain on amounts due from bankruptcy
estates
    
    
    3,105
    
    
    
    358
    
    
    
    25,003
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring and impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )
    
    
    (1,278,640)
    )
    
    
    (899,999
    )Depreciation and amortization
    
    
    (9,140
    )
    
    
    (7,181
    )
    
    
    (2,458
    )
    
    
    
    (1,736
    )
    
    
    (119,920
    )
    
    
    (303,168
    )Total operating expenses (net)
    
    
    (90,370
    )
    
    
    (68,063
    )
    
    
    (9,801
    )
    
    
    
    (30,664
    )
    
    
    (1,684,268
    )
    
    
    (2,114,006
    )Other operating income
    
    
    17,780Operating loss before reorganization items
    
    
    (43,800
    )
    
    
    (49,151
    )
    
    
    (5,637
    )
    
    
    
    (27,997
    )
    
    
    (1,427,639
    )
    
    
    (1,360,098
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,662,669
    
    
    
    
    
    
    
    Operating (loss) / income
    
    
    (43,800
    )
    
    
    (49,151
    )
    
    
    (5,637
    )
    
    
    
    2,634,672
    
    
    
    (1,427,639
    )
    
    
    (1,360,098
    )Other income / (expense):Interest and other income
    
    
    775
    
    
    
    1,557
    
    
    
    986
    
    
    
    
    1,007
    
    
    
    8,019
    
    
    
    31,981Interest expense
    
    
    (4,395
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    (63
    )
    
    
    (83,965
    )
    
    
    (212,630
    )Net (loss) / income before taxation
    
    
    (47,420
    )
    
    
    (47,594
    )
    
    
    (4,662
    )
    
    
    
    2,635,616
    
    
    
    (1,503,585
    )
    
    
    (1,540,747
    )Taxation
    
    
    241
    
    
    
    217
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) / income
    
    
    (47,179
    )
    
    
    (47,377
    )
    
    
    (4,662
    )
    
    
    
    2,635,616
    
    
    
    (1,503,585
    )
    
    
    (1,540,747
    )Dividends on convertible preferred
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,293
    )
    
    
    (32,954
    )Net (loss) / income attributable to common
stockholders
    
    
    (47,179
    )
    
    
    (47,377
    )
    
    
    (4,662
    )
    
    
    
    2,635,616
    
    
    
    (1,517,878
    )
    
    
    (1,573,701
    )Net (loss) / income per common share
attributable to common shareholders, basic
and diluted
    
    
    (4.42
    )
    
    
    (4.43
    )
    
    
    (0.44
    )
    
    
    
    51.72
    
    
    
    (29.72
    )
    
    
    (31.53
    )Weighted average common shares outstanding,
basic and diluted
    
    
    10,680
    
    
    
    10,705
    
    
    
    10,560
    
    
    
    
    50,963
    
    
    
    51,072
    
    
    
    49,905
 6




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Successor
    
    
    Successor
    
    
    Successor
    
    
    
    Predecessor
    
    
    Predecessor
    
    
    PredecessorYear
    
    
    From June
    
    
    
    FromYear Ended
    
    
    Ended
    
    
    7, 2002 to
    
    
    
    January 1,
    
    
    Year Ended
    
    
    Year EndedDecember
    
    
    December
    
    
    December
    
    
    
    2002 to June
    
    
    December
    
    
    December31, 2004
    
    
    31, 2003
    
    
    31, 2002
    
    
    
    7, 2002
    
    
    31, 2001
    
    
    31, 2000Other
Consolidated
Financial Data:Net cash used in operating
activities
    
    
    (48,824
    )
    
    
    (25,116
    )
    
    
    (13,765
    )
    
    
    
    (7,856
    )
    
    
    (219,854
    )
    
    
    (271,698
    )Net cash provided by (used
in) provided by
investing
activities
    
    
    (3,847
    )
    
    
    (2,952
    )
    
    
    (1,667
    )
    
    
    
    (6,670
    )
    
    
    65,408
    
    
    
    (565,332
    )Net cash (used
in) /
financing
activities
    
    
    44,158
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    (73,300
    )
    
    
    762,765
 Successor Company at December 31,
    
    
    
    Predecessor Company at December 31,2004
    
    
    2003
    
    
    
    2002
    
    
    2001
    
    
    2000Consolidated Balance Sheet Data:Cash and cash equivalents
    
    $
    22,820
    
    
    $
    30,378
    
    
    
    $
    53,408
    
    
    $
    65,933
    
    
    $
    305,293Restricted cash equivalents and
restricted marketable
securities, current and
non-current
    
    
    486
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,936Cash securing letters of credit
for network construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,728Other current assets
    
    
    18,008
    
    
    
    21,179
    
    
    
    
    22,766
    
    
    
    43,541
    
    
    
    239,890Property and equipment, net
    
    
    37,986
    
    
    
    39,899
    
    
    
    
    37,947
    
    
    
    30,774
    
    
    
    1,385,917Intangible assets, net
    
    
    2,198
    
    
    
    3,330
    
    
    
    
    
    
    
    
    61,865
    
    
    
    120,692Other assets
    
    
    7,630
    
    
    
    96
    
    
    
    
    6,930
    
    
    
    776
    
    
    
    11,931Total assets
    
    
    99,680
    
    
    
    94,882
    
    
    
    
    121,051
    
    
    
    202,889
    
    
    
    2,155,387Total current liabilities
    
    
    27,671
    
    
    
    33,115
    
    
    
    
    12,691
    
    
    
    2,411,059
    
    
    
    2,611,633Total long-term liabilities
    
    
    36,617
    
    
    
    304
    
    
    
    
    10,676
    
    
    
    
    
    
    
    91,860Series B mandatorily redeemable
(in 2015) cumulative convertible
preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    338,259
    
    
    
    328,616Predecessor-obligated
mandatorily redeemable (in 2015)
convertible preferred securities
of subsidiary grantor trust
whose sole assets are junior
subordinated debentures of
Predecessor
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180,000Stockholders equity (deficiency)
    
    
    35,392
    
    
    
    61,463
    
    
    
    
    97,684
    
    
    
    (2,546,429
    )
    
    
    (1,056,722
    )
 Capitalization and indebtedness Not applicable. Reasons for the offer and use of proceeds Not applicable. 7




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Risk Factors In addition to the other information contained in this Form 20-F, you should carefully
consider the following risk factors. If any of the possible events described below occurs, our
business, prospects, financial condition or results of operations could be materially and adversely
affected. We cannot assure you that we will be able to fund our operations without further debt
financing, which may not be available on attractive terms or at all. On April 21, 2004 the Company completed financing with a group of eight investors
(the Investors) under which the Company received an amount of US$52.25 million by way of the sale
and issuance of 8% convertible senior secured notes due 2014 (the April 2004 Financing). The
completion of the April 2004 Financing and related materials were filed as exhibits to the Form 6-K
of the Company dated April 28, 2004 (the April 28
6-K). Such exhibits to the April 28 6-K  are
hereby incorporated by reference in this Form 20-F. As of May 31, 2005, we had approximately US$8.7 million of unrestricted cash available to fund
future operations. On June 23, 2005 we executed binding documentation providing for further debt
financing in the amount of US$16 million from two of the Investors, Morgan Stanley & Co.
Incorporated (Morgan Stanley) and Värde Partners, Inc. (Värde); this financing is to be placed
by way of the purchase by Morgan Stanley and Värde of, respectively, US$12,937,799 million and
US$3,062,201 million 12% increasing rate senior secured notes due June 2007 (the June 2005
Financing) and is conditional upon the filing of this Form 20-F in a form satisfactory to Morgan
Stanley and Värde and other conditions customary for transactions of this nature, in
particular, the delivery of local legal opinions. In the event that such conditions are not
satisfied and as a result the June 2005 Financing is not consummated, this would have a material
adverse effect on our business, financial condition and results of operations. The investment
agreement related to the June 2005 Financing is filed as an exhibit to this Form 20-F. No assurance can be given that the June 2005 Financing, together with existing cash reserves,
will provide us with sufficient liquidity to continue to fund our operations until such time as
they are cash flow positive. The Company expects to seek refinancing of the June 2005 Financing and
to seek additional financing in the fall of 2005 (the Further Financing). Morgan Stanley and
Värde have advised the Company that they will consider providing such refinancing and/or additional
financing. It is currently contemplated that any such Further Financing would involve an investment
of an additional US$16 million, with such additional amount to be reduced by the proceeds of any
asset sales by the Company entered into prior to the Further Financing, and to be further reduced
to the extent that the Companys then performance against budget does not demonstrate a need for
such additional financing. No assurance can be given that the intended Further Financing will be
consummated or that alternative sources of financing would be available on attractive terms, or at
all. Neither Morgan Stanley nor Värde is under any obligation to participate in the Further
Financing or any other financing, other than the June 2005 Financing to the extent contemplated by
the terms and conditions thereof. If the obtaining of Further Financing and/or any additional or alternate financing were not
possible, we might have to sell our assets under circumstances that might not yield the highest
prices, or default on debt obligations which would permit the holders of our senior secured notes
to accelerate their maturity dates and/or enforce their security over the Company. Refinancing on
unattractive terms could lead to higher interest rates and a greater use of cash flows and reserves
to service the refinancing debt. Ultimately, our inability to raise suitable further debt
financing, if required, would likely make the - 8 -




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Company insolvent. For further details of the April 2004 Financing, the June 2005 Financing and the contemplated
Further Financing  see Item 4. Information on the Company  Description of Certain Indebtedness. Our substantial level of debt may adversely affect our operations and financial conditions. As at December 31, 2004, our total indebtedness under the April 2004 Financing was
US$52.2 million of principal plus US$1 million of additional notes issued in satisfaction of
accrued interest. Such indebtedness does not appear entirely within
liabilities reflected on the Companys balance sheet due to the requirement to account for the
convertible elements of the senior secured notes through reserves. In addition, the Companys
indebtedness will increase through the issue of the US$16 million senior secured notes in
connection with the June 2005 Financing. Our level of indebtedness could affect us in materially adverse ways, such as:  
    
    limiting our ability to obtain additional financing for our capital
expenditures, acquisitions, working capital or other general requirements;
    
    limiting our flexibility in planning for, or reacting to, changes in our
business, the competitive environment and the telecommunications industry;
    
    placing us at a competitive disadvantage to competitors with less debt;
    
    making us more vulnerable to economic downturns, which could weaken our ability
to compete effectively and could reduce our flexibility in responding to changing
economic conditions; and
    
    limiting our ability to take advantage of new business opportunities. Our debt covenants limit our financing and other activities. Our senior secured notes contain, and the terms of future indebtedness may also contain,
restrictive covenants that significantly limit or prohibit our ability to, among other things:  
    
    incur indebtedness;
    
    make prepayments of certain indebtedness;
    
    pay dividends;
    
    make investments;
    
    engage in transactions with stockholders and affiliates;
    
    issue capital stock;
    
    create liens;
    
    sell assets; - 9 -




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
    
    engage in mergers and consolidations;
    
    change the Chief Executive Officer; and
    
    increase the size of the Board. If we fail to comply with the restrictive covenants in these notes our obligations to repay
such notes may be accelerated, in which event we would likely become insolvent. In addition, these
covenants and related provisions of the Companys bye-laws (the Bye-Laws) may make it impossible
for us to obtain any further financing without the approval of a majority in interest of the
Investors. The Investors are holders of the Special Share which provides the Investors with approval
rights over material actions by the Company. With respect to the taking of any material actions that will require the approval of the
Investors, to the extent that any such actions may, under Bermuda law, require the approval of the
Companys shareholders in general meeting, (one common share of
the Company designated a special share, the Special Share) has been granted weighted voting
rights (nine votes for every one vote cast by other Shareholders) to ensure it can carry any
relevant vote; to the extent that a vote of the shareholders is required by Bermuda law, such
actions are able to be taken with the consent alone of the holder of
the Special Share. See  Item 10. Additional Information. 
Since the Investors are the holders of the Special Share, such
approval rights may make it impossible for us to obtain any further financing without the approval
of a majority in interest of the Investors. We have a history of operating losses and expect these losses to continue. We have incurred operating losses and negative cash flows from operations since the
Effective Date. The Predecessor also incurred significant losses prior to its filing for
bankruptcy protection under Chapter 11 (Chapter 11) of the U.S. Bankruptcy Code (the Bankruptcy
Code). We expect to continue to incur significant operating losses and negative cash flows while
we implement our business plan (the New Viatel Business Plan)  see Item 4. Information on the
Company  New Viatel Business Plan. No assurance can be given that our operations will ever
become profitable or that we will ever have positive cash flows. If we cannot raise alternative
capital, grow revenues, sustain profitability and begin to generate positive cash flows, we will
probably not be able to meet our ongoing operating costs. If this happens, then we would likely
become insolvent. Our future operating results may be subject to significant fluctuation. Our future operating results may be subject to substantial fluctuations as a result of
any of a number of factors, including:  
    
    our ability to raise additional financing;
    
    general economic conditions;
    
    the conditions of the European telecommunications industry in general;
    
    further price decreases in the European telecommunications industry;
    
    continuing overcapacity leading to a reduction in demand for, in
particular, our wholesale - 10 -




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products and services;
    
    our ability to introduce new products and services;
    
    our ability to attract and retain customers;
    
    our ability to operate and develop in new markets, in particular that for consumer
broadband and Voice over IP (VoIP);
    
    changes in the mix of services sold or channels through which services are sold;
    
    capital expenditure requirements and costs relating to our network;
    
    the outcome of legal proceedings; and
    
    the effects of government regulation and regulatory changes. Fluctuations in our future operating results could have a material adverse effect on our
business, financial condition and results of operations. We cannot assure you that we will be able to retain or find qualified replacements for members
of our senior management team and other key personnel. Our operations and business prospects will depend, in large part, on the performance of
our senior management team and other key personnel. There can be no assurance that we will be able
to retain our senior management team or other key personnel or find qualified replacements for any
of these individuals if their services were no longer available. The loss of one or more members
of our senior management team or other key personnel could have a material adverse effect on our
business, financial condition and results of operations. Our exposure to exchange rate fluctuations may have a material adverse effect on our ability
to meet certain obligations. The majority of our operating revenues are denominated in Pounds Sterling and Swiss
Francs, while the majority of our operating expenses are denominated in Pounds Sterling and Euros.
Any appreciation in the Euro relative to the Pound Sterling or Swiss Franc could have a material
adverse effect on our business margins and our ability to meet ongoing operational expenses. Our
debt financing may also expose us to exchange rate fluctuations because payment of principal and
interest will be made and/or calculated in U.S. Dollars while part of our future cash flows used to
service these payments will be denominated in other currencies. In the past, we have sought to
manage currency exchange rate exposure through the use of hedging transactions and natural hedging
strategies through our treasury planning function, and it is anticipated that we will continue to
do so. We cannot, however, provide any assurance that exchange rate fluctuations will not have a
material adverse effect on our ability to meet ongoing operational expenses and/or to service our
debt payments and obligations. We are subject to risks associated with operating in multiple countries. We operate in several jurisdictions across Western Europe, each of which is subject to
special - 11 -




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risks, including foreign currency fluctuations, government regulation, taxation and labor
strikes. These, and other risks outside our control, may limit or disrupt our operations in some or all
of these jurisdictions, which could result in our loss of contract rights, increased taxation or
our inability to continue operations in such jurisdiction(s). We cannot assure you that we will be able to enter into sales contracts sufficient to meet our
working capital requirements. Our ability to achieve our future business objectives will depend, in significant part,
upon our ability to enter into new contracts. In the last four years, the market for
telecommunications services and capacity has experienced a significant slow-down and significant
price declines. If these market conditions continue or worsen, we may not be able to meet our
sales projections for 2005 or beyond. Furthermore, even if our sales projections are realized,
additional declines in market demand for our products and services may result in further price
decreases which would limit our operating profitability and ability to generate sufficient cash
flow to meet our working capital needs. Our failure to sell services or capacity on our network in
sufficient quantities and at sufficient prices could have a material adverse effect on our
business, financial condition and results of operations. We cannot assure you that we will be able to retain or expand our existing customer base. Our future success will depend, in large part, on our ability to retain a significant
portion of our existing customer base and expand our business relationships with such customers.
We cannot assure you that we will be able to achieve these objectives. Our failure to retain a
significant portion of our existing customer base or to grow our existing customer base could have
a material adverse effect on our business, financial condition and results of operations. We may not have the ability to support and develop new services and product lines. Over the last year we have developed new services and product lines not previously
offered by us, in particular with respect to the provision of MPLS enabled Virtual Private Networks
(MPLS VPN), Ethernet, VoIP and the provision of a broadband service to the consumer market
through sporting organizations which effectively act as virtual Internet service providers
(VISP). (See Item 4. Information on the Company  New Viatel Business Plan). The development
and success of these and/or other new services and product lines is critical to our ability
ultimately to generate sufficient net positive cash flow to finance our operations for the
foreseeable future, absent a significant improvement in market conditions surrounding the sale of
our pre-existing products and services. Our ability successfully to develop and market such new
services and products will depend upon, among other things, our ability to:  
    
    generate customer acceptance of such new services and product offerings;
    
    integrate necessary equipment and software into our network;
    
    enhance our billing, back-office and information systems required to accommodate
these new services and products; and - 12 -




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
    
    identify and sell other services and products for which we believe there is a
significant potential demand. Our failure to develop, market and sell successfully these new services and products to
existing
and new customers, in particular with respect to both the provision of our VISP service where
we have committed certain minimum revenue guarantees, and the provision of VoIP which is a new
technology in the market and therefore potentially subject to consumer inertia in favour of more
traditional voice telephony services, could have a material adverse effect on our business,
financial condition and results of operations. System disruptions or failures could have a material adverse effect on our business. Our network and other operational systems are subject to several risks that are outside
our control, such as the risk of damage to software and hardware resulting from:  
    
    fire and flood;
    
    power loss;
    
    natural disasters; and
    
    general transmission failures caused by a number of additional factors. Any failure of our network or other operational systems or hardware that results in
significant interruptions to our operations could have a material adverse effect on our business,
financial condition and results of operations. Failure of key suppliers could affect our ability to operate our business. We are reliant on a consistent and effective supply chain to meet our business plan
commitments and to continue to maintain our network. The economic scenario that both
telecommunications service providers and equipment suppliers presently face has led to a heightened
risk of:  
    
    delays in new products and features from suppliers, impacting our product
development programs;
    
    discontinuance of products or services, impacting our ability to deliver our
products and services;
    
    deteriorating support quality, affecting operational and customer service; and
    
    higher volatility with regard to our demands on suppliers, and in stock levels
affected by customer returned equipment. Although we do not rely on any one supplier for a significant portion of our equipment needs
and believe that we could find other suppliers of similar pricing and quality to replace existing
suppliers, no assurance can be made that a broad economic failure or decline in quality of
equipment suppliers in our industry will not occur; any such occurrence could have a material
adverse effect on our business, - 13 -




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financial condition and results of operations. Electronic attack from hackers or computer viruses could disrupt our business. Our network and other operational systems rely heavily on the operation and efficiency of
our computer systems. Although our systems are protected by firewalls, there is a risk that our
business could be disrupted by hackers or viruses gaining access to our systems. Our exposure to
liabilities from our customers, particularly with respect to our provision of Internet service,
where case law is developing quickly, is generally risk-managed through contract conditions. No
assurance can be made that these contract conditions will be enforced or found to be enforceable or
that such contract conditions, if capable of enforcement, would be sufficient to protect the
Company from any liabilities arising in such circumstances; any such liabilities could have a
material adverse effect on our business, financial condition and results of operations. Rapid technological changes. The telecommunications industry is subject to rapid and significant changes in
technology. The introduction of new products or technologies may reduce the cost or increase the
supply of certain products or services that we provide or result in changes to the rates at which
we depreciate equipment. As a result, we may be required to accelerate the write down of equipment
to the extent rendered obsolete by changes in technology. Similarly, our competitors may be able
to develop or deploy technologies that provide them with lower costs or other competitive and
operating advantages relative to the Company. Furthermore, we cannot predict the extent to which
technological changes, such as changes relating to emerging wireline and wireless transmission
technologies, may impact on our ability to sell our products. Technological changes and the
resulting competition could have a material adverse effect on our business, financial condition and
results of operations. The European telecommunications industry is highly competitive. Our market share, net sales
or net income could decline due to vigorous price and other competition. The European telecommunications industry is highly competitive and significantly affected
by regulatory changes, marketing and pricing decisions of the larger industry participants and the
introduction of new services and transmission methods made possible by technological advances. Our
future success depends on our ability to compete with a variety of communications providers
including: (1) incumbent public telephone operators (PTOs) such as British Telecom and SwissCom;
(2) alternative operators such as Global Crossing, Cable & Wireless, Energis, MCI, COLT Telecom
Group and Level 3; (3) Internet service providers (ISPs) such as Easynet, PipeX, Bulldog, Tiscali
and Yahoo; and (4) providers of VoIP such as Telappliant, Voipfone, Inclarity, alwaysON, Vonage and
Gradwell. Most of our competitors have greater financial, marketing and other resources than we do and
may be able to deploy more extensive networks and withstand pricing and other market pressures
better than we can. PTOs generally have additional competitive advantages, including controlling
access to local networks, economies of scale and relationships with national regulatory authorities
(NRAs). In addition, certain competitors may be willing to reduce prices and accept lower profit
margins to compete with us. As a result, we may be unable to gain sufficient market share to
support our working capital needs, which would have a material adverse effect on our business,
financial condition and results of operations. - 14 -




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Government regulation could adversely affect our ability to provide services in markets in
which we operate. The telecommunications industry is still regulated in all the countries where we provide
services. Our ability to continue to carry on our business and operate our networks depends on
complying with the appropriate regulatory regime in each country, and in particular our ongoing
ability to obtain, maintain or renew all necessary permits, licenses and authorizations and/or to
make relevant notifications. To the extent that we are unable to comply with the applicable regulatory regimes, obtain and
maintain all such permits, licenses and authorizations or to make relevant notifications, this may
have a material impact on our ability to continue to operate in certain of the countries in which
our infrastructure is located and/or where we currently provide services, which, in turn, could
have a material adverse effect on our business, financial condition and results of operations. We may be subject to burdensome regulatory requirements placed on us by regulatory authorities
and/or governments, such as the obligations to contribute to universal service funds, and other
regulatory fees and taxes associated with the use of our network or with rights of way (ROW). In
particular, it is possible that government regulations in France may adversely impact on our
interests in current litigation where we are disputing the amount of rights of way fees to be paid
to certain public and other bodies. In the event that we were to lose all, or any of, such
proceedings, it is likely that we would be required to continue to pay fees which could make our
future operation of all, or any part of, our French network uneconomical. To the extent that we rely on the utilization of the networks and services of operators who
retain market power, we are reliant on appropriate and fair regulation, and adequate enforcement
thereof, to ensure the availability of such services on fair and reasonable terms. In March 2002, the European Parliament and Council adopted the main elements of a new
regulatory framework for converging electronic communications technologies designed to increase
harmonisation across European Union Member States (EU Member States) and to improve
competitiveness. The directives concerned (the EU Directives) were required to be transposed
into national law not later than July 24, 2003. Some EU Member States have yet fully to adopt and
implement this new regulatory framework. The EU Directives, to be effective, need to be implemented
in each country at a local legislative level. This is significantly changing the regulatory regime
in all EU Member States. Moreover, in line with the principle of subsidiarity, there is a degree
of inconsistency in the way in which individual EU Member States are transposing the EU Directives
and the way in which the individual NRAs are interpreting and applying the regulations. This
regulatory framework is due to be reviewed in 2006. Switzerland is not required to follow the EU Directives, but has implemented a broadly similar
legal and regulatory framework for telecommunications. Our business may suffer as a result of regulatory uncertainties and possible delays,
inconsistencies and adverse changes relating to the implementation of the new regulatory package. Changes in the regulation of Voice over IP could adversely affect our ability to meet some
obligations. One specific area of regulation which is still developing in a number of European
jurisdictions is the regulation of VoIP services. Under the European regulatory framework, ordinary
voice services - 15 -




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provided to end users are required to comply with a number of obligations, including
the obligation to maintain secure access to emergency calls and, in some cases, to provide
interception capabilities. This presents complex problems for VoIP services due to their nomadic
nature, difficulties in providing caller line identification and the fact that calls are generally
provided over a non-powered connection. A number of NRAs, including the UK regulator, are therefore
considering their approach to these issues. To the extent that our VoIP services are provided to
the public, we may be required in the future to comply with relevant end user obligations. This may
materially affect our ability to continue to provide certain customer services or may require the
modification of our network and/or services in order for us to be able to comply. Because we are a Bermuda holding company and a foreign private issuer for purposes of U.S.
securities laws, persons who own our common shares may have more difficulty in protecting their
interests than persons who are shareholders of a U.S. corporation. The Predecessor was a Delaware corporation subject to the filing and reporting
requirements of the Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder as well as the Delaware General Corporation Law. We emerged from bankruptcy under the
Plan of Reorganization as a Bermuda company. The Companies Act 1981 of Bermuda (the Bermuda
Act), which applies to us, differs in certain material respects from laws generally applicable to
U.S. corporations and their shareholders. We have been advised by our Bermuda counsel, Appleby Spurling Hunter, that there is currently
no treaty in force between the United States and Bermuda providing for the reciprocal recognition
and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the
payment of money rendered by any federal or state court in the United States based on civil
liability, whether or not based solely on United States federal or state securities laws, would not
automatically be enforceable in Bermuda. A final and conclusive judgment obtained in a court of
competent jurisdiction in the United States under which a sum of money is payable as compensatory
damages may be the subject of an action in the Bermuda court under the common law doctrine of
obligation, by action on the debt evidenced by the United States court judgment without
examination of the merits of the underlying claim. In order to maintain an action in debt
evidenced by the United States court judgment, the judgment creditor must establish that: (i) the
court that gave the judgment over the defendant was competent to hear the claim in accordance with
private international law principles as applied in the court of Bermuda; and (ii) the judgment is
not contrary to public policy in Bermuda, has not been obtained by fraud or in proceedings contrary
to the rules of natural justice in Bermuda and is not based on an error in Bermuda law. The majority of our directors and officers reside outside the United States, and all or a
substantial portion of their assets and our assets may be located in jurisdictions outside the
United States. Therefore, it may be difficult for investors to effect service of process within
the United States upon non-U.S. directors and officers or to recover against our company, or
non-U.S. directors and officers, on judgments of U.S. courts, including judgments predicated upon
the civil liability provisions of the U.S. federal securities laws. Set forth in Item 10. Additional Information in this Form 20-F is a summary of certain
additional significant provisions of the Bermuda Act applicable to us, which differ in certain
respects from provisions of the Delaware General Corporation Law; being a summary, the information
provided does not purport to deal with all aspects of Bermuda law that may be relevant to the
Company and our - 16 -




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shareholders. We cannot assure you that an active trading market will develop or continue for our common
shares. Our common stock, US$0.01 par value per share, referred to throughout this Form 20-F as
our common shares or our ordinary shares, is currently traded on the over-the-counter market
under the symbol VTLAF.PK. We can make no assurances regarding the continued existence of an
active market for our common shares, price volatility with respect to our common shares, the
liquidity of the market for our common shares or the price at which any sales may occur. The conversion, or even the prospect of conversion, of our convertible debt securities could
have a depressive effect on the trading activity of our common shares. If all, or a large portion, of our convertible notes are converted in accordance with
their terms, the number of our common shares will increase substantially, significantly diluting
the proportionate ownership interests and voting power of the existing holders of common shares who
do not own any convertible notes. Adjustments to the conversion price of any issued notes, or
payments of interest on any such notes in the form of additional notes, would further dilute the
proportionate ownership interests and voting power of the existing holders of common shares who do
not own any convertible notes. Holders of the Companys convertible notes will become significant holders of the Companys
common shares upon conversion of all, or a large portion of, such notes and as such will, in
principle, have significant voting power with respect to their common shares. In this regard it should be noted that under the terms of the June 2005 Financing, and more
specifically under the terms of a letter agreement entered into by the Investors as a condition to
the June 2005 Financing dated June 23, 2005 (the
Letter Agreement), if so requested by the holders of a
majority of the Existing Notes, the Investors will convert their notes issued in connection with the April 2004 Financing
into common shares of the Company, par value US$0.01 per share, at the then applicable conversion
price as determined by reference to the April 2004 Financing documentation. Any such conversion
will take place on a date to be selected by the holders of a majority of the Existing Notes. The
Letter Agreement is filed as an exhibit to this Form 20-F within the June 2005 Financing exhibits. For the reasons set out above, the actual or potential conversion of our convertible notes
could have a depressive effect on the market price of, and reduce trading activity in, our common
shares. Such downward pressure could in turn encourage short sales, or similar trading, with
respect to the common shares which could in itself place further downward pressure on the market
price of our common shares. We cannot assure you that you will receive dividends on our common shares in the foreseeable
future. We do not anticipate paying dividends on our common shares in the foreseeable future. Our reputation may be adversely impacted by the Predecessors bankruptcy proceeding. There has been some adverse publicity and coverage regarding the Company and its
subsidiaries as a result of the Predecessors declaration of bankruptcy and related Chapter 11
proceedings. Such negative publicity could adversely impact our efforts to establish and promote
name recognition and a positive image as well as adversely impact our ability to raise additional
financing in sufficient amounts - 17 -




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or on acceptable terms. The Company may have potential liability with respect to past non-compliance of the Predecessor
under the Exchange Act. The Predecessor ceased preparing and furnishing reports to the U.S. SEC under the
Exchange Act prior to its Chapter 11 filing in 2001, although under the Exchange Act and related
rules and regulations it was obligated to do so. The Company filed its first Form 20-F on March 22,
2004 with respect to the fiscal year ended December 31, 2002 (the 2002 Form 20-F). Such filing
did not satisfy the non-compliance for the prior period. Under the Exchange Act and related rules
and regulations as interpreted by the staff of the U.S. SEC, the Company may be deemed to be
subject to the Exchange Act to the same extent as the Predecessor, and has accordingly taken action
to comply with such requirements. Notwithstanding, liability
for past non-compliance may still arise. Enforcement or civil actions against the Company or
certain of its officers and directors relating to this past non-compliance could have a material
adverse effect on our business, financial condition and results of operations. Some members of our Board of Directors may have conflicts of interest with us, and some of
these conflicts may be resolved in a manner adverse to us. Two of the members of our Board of Directors (the Board) are affiliated with Morgan
Stanley, one of our major shareholders and also the lead Investor in both the April 2004 Financing
and the June 2005 Financing. See Item 4. Information on the Company  Description of Certain
Indebtedness, Item 6. Directors, Senior Management and Employees and Item 7  Major
Shareholders and Related Party Transactions. Although we believe that these directors have
fulfilled, and will continue to be able to fulfil, their fiduciary duties to the Company in their
capacities as directors, and note that they recused themselves from the Companys decision-making
process with respect to our negotiation and approval of both the April 2004 Financing and the June
2005 Financing, there could be additional future conflicts of interest when they are faced with
decisions that could have different implications for our Company and for Morgan Stanley as the
major shareholder and/or majority Investor. 
 ITEM 4. INFORMATION ON THE COMPANY Business Overview  New Viatel Organization The Company, commercially known as Viatel, was incorporated under the laws of Bermuda on
January 4, 2002. Our registered office is located at Canons Court, 22 Victoria Street, Hamilton
HM12 Bermuda. Our principal executive offices are located at Inbucon House, Wick Road, Egham,
Surrey TW20 0HR, United Kingdom where the main telephone number is +44 (0) 1784 494 200. We are a multinational corporate group (see Item 4. Information on the Company 
Organizational Structure) and operate a pan-European telecommunications network comprised of
advanced fiber-optic cable extending over approximately 6,800 kilometres and connecting to 19
principal cities in 6 countries in Western Europe (the European Network). We offer data
communication services to a range of customers that includes the consumer market, small and medium
enterprises (SMEs), major corporations, carriers, resellers and systems integrators services, and
we operate in a single segment: telecommunications. - 18 -




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Our business initially developed out of the Plan of Reorganization whereby, and through a
series of share and asset transfers following the Effective Date, we became the ultimate parent
company of certain European operating subsidiaries (the European Subsidiaries) previously held,
directly or indirectly by the Predecessor, and became the owner of the property (the Debtors
Property) of the Predecessor and certain of its subsidiaries (the Debtors) that had not
otherwise been distributed under the Plan of Reorganization. Our initial business plan included in the Plan of Reorganization focused on the provision of
services on a wholesale basis to established carriers, PTOs and ISPs over the European Network 
the carriers carrier model. Although beginning in September 2002, certain efforts were made
(both through organic growth and corporate acquisition) to target the retail market, this was
effectively the business model which was applied from the Effective Date until May 2003. Since May 2003, with the appointment of Lucy Woods as our new Chief Executive Officer, a
series of changes, both structural and commercial, have been implemented which have fundamentally
changed the scope and emphasis of the Viatel organization and business. Principal among the
changes was the introduction and adoption of the New Viatel Business Plan and the making of a
number of senior appointments, creating a new senior management team. The New Viatel Business Plan was the product of a detailed commercial and strategic review
undertaken by a team headed up by Lucy Woods shortly after her appointment. Its goal was to
establish Viatel as a leading pan-European provider of Managed Internet Protocol (IP) services,
with focus on the sale and provision of IP connectivity and IP value-added services, with
particular emphasis on the SME market. The New Viatel Business Plan was adopted by the Board in
August 2003. See Item 4. Information on the Company  New Viatel Business Plan for a more
detailed description. Implementation of the New Viatel Business Plan was and remains dependent upon, among other
things, successful financing to fund the Company whilst it experiences negative cash flow. Since
the inception of the New Viatel Business Plan, the Companys new management has undertaken
significant work in seeking and obtaining appropriate funding in this respect. This activity
initially included the proposal of various amendments to the Bye-Laws intended to remove provisions
which would have inhibited the possibility of securing any additional third party financing. These
amendments were adopted by shareholders resolution at the second annual general meeting of the
Company on December 29, 2003. Subsequent to the amendment of the Bye-Laws, and following discussions with a wide range of
financial institutions (which discussions commenced in July 2003) both in the United Kingdom and
the United States, the Company completed the April 2004 Financing under which the Company received
an amount of US$52.25 million by way of the sale and issuance of 8% convertible senior secured
notes (the Existing Notes). Additional funding, in an amount of US$16 million is to be provided
by way of the further sale and issuance of 12% increasing rate senior secured notes due 2007 (the
New Notes) upon completion of the June 2005 Financing; these New Notes initially carry a 12%
interest rate rising at 0.5% per annum on each interest payment date, beginning on January 15,
2006. (See Item 4. Information on the Company  Description of Certain Indebtedness  June 2005
Financing and the Proposed Further Financing). - 19 -




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The Company expects to seek refinancing of the June 2005 Financing and to seek additional
financing in the fall of 2005. It is currently contemplated that such Further Financing would
involve an investment of an additional US$16 million (such additional amount to be reduced by the
proceeds of any asset sales by the Company or any of the group since the June 2005 Financing and to
be further reduced to the extent that the Companys then performance against budget does not
demonstrate a need for such additional financing). It is currently
contemplated that any such Further Financing would involve rolling the New Notes issued in
connection with the June 2005 Financing into a new issue of convertible notes subject to, among
other things, prior conversion of the Existing Notes. It is anticipated that such notes issued in
connection with such Further Financing would be subject to materially the same terms and conditions
as are applicable to the Existing Notes. However, assuming the completion of the Further
Financing, no assurance can be made that the Company will then have sufficient funds to become cash
flow positive from its ongoing operations. No assurance can be given that the intended Further
Financing will be consummated or that alternative sources of financing would be available on
attractive terms, or at all. The following sets out the history of the Predecessor, a description of the Chapter 11
reorganization and its impact upon, in particular, the size and scope of the Predecessors business
and a more detailed description of our business and its evolution following the Effective Date
(including a description of the New Viatel Business Plan). A detailed description is also provided
as to the scope of, and certain of the conditions attaching to, both the April 2004 Financing and
the June 2005 Financing; additionally, further detail is provided as to the likely scope of any
Further Financing, should it be concluded. History of the Predecessor The Predecessor was founded as a Delaware corporation in 1991 for the purpose of capitalizing
on resale opportunities in the South American international calling card business. It subsequently
expanded into the call re-origination business in South America, South Africa, Asia and Europe. By
1993, the Predecessor was engaged in the call re-origination business in over 40 countries
worldwide. From 1993 through 1997, the Predecessor made substantial investments in order to expand its
market presence and develop the capacity to provide international communications within and between
Western Europe and North America. Between April 1998 and April 2000, the Predecessor raised approximately US$1.5 billion in the
high-yield debt markets and approximately US$700 million in the equity markets to fund: (1) network
construction; (2) its purchase of interests in trans-Atlantic cable capacity systems; and (3)
operating losses. During this period, the Predecessor also completed two major acquisitions. In
December 1999, the Predecessor acquired Viatel Communications, Inc. (formerly known as Destia
Communications, Inc. and Econophone, Inc.), a facilities-based provider of domestic and
international long distance telecommunications services in North America, Europe and Canada. In
February 2000, the Predecessor acquired Viatel Global Communications Limited (formerly known as
AT&T Communications (UK) Limited), a provider of voice and data communications services to
enterprise level corporate customers located primarily in the United Kingdom. In January 2001, the deterioration of the telecommunications market, the economys impact on
customer behavior, significant reductions in prices that telecommunications companies were able
to - 20 -




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charge their customers and lower than anticipated call volume led the Predecessor to restructure
its worldwide operations. The announced steps, which were designed to improve the Predecessors
liquidity, included the closing of its consumer-oriented businesses in France, Germany, The
Netherlands, Spain, Austria, Greece and Canada; the closure of its prepaid calling-card business in
the United States; the consolidation of certain operating units; the elimination of redundant
operating assets; and a 30% reduction in its worldwide workforce. In March 2001, the Predecessor
also began exiting its voice business in Germany. Despite these and other restructuring initiatives, the Predecessors cash position continued
to deteriorate due to, among other factors: (1) its inability to access further the equity or debt
markets; (2) the suspension of its ability to finance necessary equipment under certain financing
facilities; (3) its increasing inability to collect amounts owed to it by its customers due to
either the customers own financial difficulties, or the perceived financial weakness of the
Predecessor; (4) its inability to attract new customers due to its financial circumstances; and (5)
required interest payments on its high yield debt. On May 2, 2001 (the Filing Date), the Predecessor and the other Debtors filed voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code. Chapter 11 Reorganization Set forth below is a description of the Predecessors business and operations and capital
structure as at the Filing Date, the various asset disposals effected during the course of the
Chapter 11 reorganization and the Plan of Reorganization itself. Operations of the Predecessor as at the Filing Date Prior to the Filing Date, the Predecessor was the builder-operator-owner of pan-European,
trans-Atlantic and metropolitan fiber-optic networks and a provider of advanced telecommunications
products and services, including bandwidth, to corporations, carriers, Internet Service Providers
(ISPs), applications service providers and storage network providers, primarily in Western Europe
and North America. The Predecessors principal asset was its fiber optic network covering approximately 8,800
route kilometers and linking 39 major business centers in Western Europe, the construction of which
had been approximately 99% completed as at the Filing Date. As at the Filing Date, the Predecessor also operated a leased fiber optic network in the
United Kingdom that connected an additional 18 cities and owned and/or had rights to: (1) a 25%
interest in the Yellow Submarine Cable system, a four fiber pair, 1.28 terabit system, connecting
New York to London; and (2) 128 STM-1s of capacity on the Atlantic Crossing 1 cable system. As at the Filing Date, the Predecessor provided, on both a wholesale and retail basis, a range
of products and services including: switched and dedicated long distance, toll-free services,
prepaid, postpaid and debit calling cards, conference calling, domestic and international private
line services, Internet access, frame relay, asynchronous transfer mode and Internet protocol
services, managed bandwidth and capacity sales (dark fiber and leased capacity). - 21 -




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Capital Structure of Predecessor as at the Filing Date From October l996 until the Filing Date, the Predecessors common stock was actively
traded on the Nasdaq National Market (Nasdaq) under the symbol VYTL. On the Filing Date,
Nasdaq suspended trading of the Predecessors common stock, which was delisted in July 2001. The
Predecessors common stock was subsequently traded on the over-the-counter market. Prior to the Filing Date, the Predecessor issued 1,000 shares of Series A junior participating
preferred stock under the terms of a Stockholders Rights Plan adopted effective December 6, 1999
and 325,000 shares of Series B cumulative convertible preferred stock that was sold to Hicks, Muse,
Tate & Furst, Chase Capital Partners (now known as JP Morgan Chase & Co.) and The Blackstone Group.
As part of the Series B preferred financing, the Predecessor also issued warrants to purchase
753,116 shares of the Predecessors common stock, 50% of which was exercisable for five years at a
price of US$75 per share, and 50% of which was exercisable for seven and a half years at a price of
US$100 per share. In addition, in connection with the Series B preferred financing, the
Predecessor issued warrants to purchase 7,532 shares of its Series C preferred stock (each share of
which was convertible into 100 shares of the Predecessors common stock), 50% of which was
exercisable for five years at a price of US$7,500 per share and 50% of which was exercisable for
seven and a half years at a price of US$10,000 per share. Asset/network disposals following the Filing Date Following the Filing Date, the Predecessor through sale, closure and/or insolvency
proceedings exited or lost control of a number of its business assets, including its remaining
voice operations in each of the United Kingdom, Switzerland, Greece, Italy, Canada, the United
States, France, Spain, Belgium, The Netherlands and Austria. In addition, in June 2001, five of
the Predecessors UK subsidiaries were placed by the relevant directors into administration, a form
of English law insolvency proceeding. It was through three of these subsidiaries, namely Destia
Network Services Limited, Viatel Global Communications Limited and Viatel Communications (UK)
Limited, that the Predecessor had hitherto operated its voice and enterprise level businesses in
the United Kingdom. The UK voice business was sold in June 2001 and the UK enterprise business was
sold, together with the UK leased fiber and capacity network, in July 2001 to ntl Group Limited, in
each case by the English administrators. From August 2001 onwards, the Directors of certain German
subsidiaries of the Predecessor filed such subsidiaries for insolvency proceedings in Germany.
These subsidiaries between them held rights of way and legal/contractual rights to use points of
presence (POPs), facilities and other premises as were together required for the use of, and
access to, the majority of the German network. Following the commencement of insolvency
proceedings, the Predecessor lost all control or use of such legal and contractual rights. In August 2001, the Predecessor sold its 25% interest in the Yellow Submarine Cable system and
its 128 STM-1s of capacity on the Atlantic Crossing 1 cable system to Level 3. Plan of Reorganization The Debtors submitted the Plan of Reorganization as of April 2, 2002 in order to resolve
their outstanding creditor claims and stockholder or equity interests. The Plan of Reorganization
was - 22 -




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confirmed by the United States Bankruptcy Court for the District of Delaware (the Bankruptcy
Court) on May 21, 2002. The Plan of Reorganization was filed as an exhibit to the Form 8-K of the Company dated
January 22, 2002 (the January 22 8-K). The January 22 8-K and exhibits are hereby incorporated
by reference in this Form 20-F. The Plan of Reorganization contemplated the dissolution of each of the Debtors and the
ultimate transfer of the shares in certain non-Debtor subsidiaries to be held under the Company, a
newly formed Bermuda company. Accordingly, commencing as of the Effective Date, a series of share
transfers was made whereby the European Subsidiaries became wholly-owned direct or indirect
subsidiaries of the Company. Additionally, under the terms of the Plan of Reorganization, VTL, Inc. (VTL), a newly-formed
subsidiary of the Predecessor, was authorized to serve as disbursing agent (with the right to
designate other disbursing agents) with respect to distributions required under the Plan of
Reorganization. Accordingly, on or after the Effective Date, and to the extent not otherwise
disposed of pursuant to the Plan of Reorganization, the Debtors Property vested in VTL. Under the Plan of Reorganization, ownership of the Debtors Property not otherwise disposed of
pursuant to the Plan of Reorganization was intended ultimately to pass to, or remain with, the
Company or its direct or indirect subsidiaries. Ownership of VTL was transferred to the Company in
January 2003. Under the Plan of Reorganization, various claims against the Debtors were divided into
classes. Holders of certain unclassified claims, including administrative claims and priority tax
claims, received payment in cash either on the distribution date, as such claims were liquidated,
or in installments over time, as permitted by the Bankruptcy Code, or as agreed with the holders of
such claims. All other claims and interests were classified into six classes and received the
distributions and recoveries (if any) described in the table below. Under the Plan of
Reorganization, equity interests (Class 6) in the Predecessor, including common stock, preferred
stock, warrants and options of the Predecessor, were cancelled and the holders of such interests
received no distributions. Under the Plan of Reorganization, the Company transferred 10,560,000 common shares of the
Company, (representing 88% of the common shares of the Company issued in connection with the Plan
of Reorganization), to VTL, in its capacity as Disbursing Agent, for distribution to holders of
allowed general unsecured claims (Class 4). Additionally, under the Plan of Reorganization,
1,440,000 common shares of the Company were reserved for issuance upon exercise of incentive share
options issued or issuable under the Companys 2002 Equity Incentive Plan (the Equity Incentive
Plan); see Item 6. Directors, Senior Management and Employees  Equity Incentive Plan. Class description
    
    Treatment under the Plan of ReorganizationClass 1  Other Priority Claims
    
    UnimpairedClass 2  Convenience Claims
(Unsecured Claims of Face Amount
US$500 or less, excluding any
Intercompany Claims)
    
    Unimpaired
 - 23 -




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Class description
    
    Treatment under the Plan of ReorganizationClass 3.01  NTFC Secured Claim
    
    UnimpairedClass 3.02  Other Secured Claims
    
    UnimpairedClass 4  General Unsecured Claims
    
    Pro rata share of 88% of 12,000,000 new
common shares of the Company of US$0.01
each, issued in connection with the Plan
of ReorganizationClass 5  Intercompany Claims
    
    ExtinguishedClass 6  Interests
    
    Cancelled
 Following the Effective Date, and as contemplated under the Plan of Reorganization, the
Board of the Company included the Companys Chief Executive Officer. Subsequently, three new
directors, as nominated by the Creditors Committee, were appointed to the Board. Emergence from Chapter 11 Operations of the Company as at June 7, 2002 As indicated above, during the course of the Chapter 11 reorganization and prior to the
Effective Date, the Predecessor closed, disposed of, or due to the institution of bankruptcy
related proceedings, lost control and/or disposed of various businesses and assets including: (1)
the Companys voice businesses, which, as at the commencement of the Chapter 11 action, generated
approximately 75% of the Predecessors consolidated group revenues; (2) material network interests
 both metropolitan and backbone; and (3) interests in transatlantic cables. Ultimately, following the various asset and share transfers described above and, as
contemplated under the Plan of Reorganization, and through the development of the Companys
business as contemplated thereby, the Company and its direct or indirect subsidiaries became, or,
in the case of certain subsidiaries, remained the owners of the European Subsidiaries and of
various operational assets including:  
    
    the European Network;  
    
    leased capacity to a POP in New York;  
    
    several inoperative voice switches; and  
    
    certain receivables and cash-in-hand of the Predecessor. The Companys business plan as set forth in the Plan of Reorganization focused on the
exploitation of the European Network, and two primary areas of business supporting customers
international voice and data communications requirements, namely: (1) clear channel broadband,
offering managed - 24 -




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bandwidth and optical wave or wavelength services; and (2) IP transit, transport
and Virtual Private Networks (VPNs). Evolution of operations of Viatel from June 7, 2002 until May 2003 Following an interim review, several months after the Effective Date, of performance
against the business plan set forth in the Plan of Reorganization, we determined that we could
realize only limited success by focusing solely on the wholesale bandwidth business given the then
current market and economic environment. Accordingly, in search of expanding our consumer market, in October 2002, we commenced the
sale of certain services on a retail basis to SMEs in the United Kingdom through a small in-house
telesales organization. We tailored and adapted our products previously offered solely to the
wholesale market, to the retail market and introduced certain new products, such as Dedicated
Internet Access (DIA) and Digital Subscriber Line (DSL). In furtherance of our entry into the retail sector, in March 2003, we acquired two recognized
ISPs, Cybernet (Schweiz) AG (Cybernet) in Switzerland, and Netcom Internet Limited (Netcom) in
the United Kingdom. The business and assets of Cybernet were purchased for a total consideration
of EUR 2.7 million (approximately US$2.96 million). At acquisition, Cybernet had in excess of
6,500 SME customers. On March 7, 2003, we acquired 100% of the share capital of Netcom for an
initial consideration of GBP 450,000 (approximately US$890,000), with further contingent
consideration payable in the event that certain positive business performance goals were met. The
further consideration of GBP 200,000 (approximately US$370,000) was agreed with the former parent,
Net Access Limited (Net Access) and an instalment plan for the payment of this sum over a period
of 10 months was also agreed. At acquisition, Netcom had several hundred SME customers to whom it provided primarily
leased-line connectivity to the Internet. As part of the Netcom transaction, Netcoms dial
customer base (customers who connect to the Internet using a modem) was transferred to Net Access
and Netcom, re-named Viatel Internet Limited (Viatel Internet), post-closing, continues to
service that customer base through the provision of customer support services for a monthly fee,
making Net Access one of Viatel Internets largest customers by revenue. We continue to bill Net
Access dial customers for their periodic subscriptions. New Viatel Business Plan Following the resignation in April 2003 of Michael Mahoney as our Chief Executive Officer, in
May 2003, Lucy Woods was appointed as the new Chief Executive Officer. Since her appointment, we
have put in place a new senior management team  see Item 6. Directors, Senior Management and
Employees  and have constructed and developed a new financial model and business plan. Development of the New Viatel Business Plan The New Viatel Business Plan was presented to members of our Board on July 7, 2003 and
formally adopted as the ongoing business plan of the Company on August 11, 2003. The goal of the New Viatel Business Plan was to establish Viatel as a leading pan-European
provider of Managed IP Services with emphasis on the sale and provision of IP connectivity and IP
value-added services. During 2004, management focused on developing a full product portfolio for
the - 25 -




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UK, The Netherlands and on supporting Cybernet. Resources required to work on a simultaneous
launch in multiple countries were considered however to be a prohibitive constraint on the
implementation of our New Viatel Business Plan. As a consequence, no development in other countries
has taken place and activity in The Netherlands was focussed principally on the wholesale market.
In its place effort has been made to offer a broad portfolio of products in the UK and Switzerland.
During late 2004 we also developed the idea of a branded broadband service, effectively a
wholesale managed broadband business. This has led us into the consumer market which was not
envisaged in the New Viatel Business Plan in 2003. In recent months we have refined the retail
business model to focus only on Switzerland and the UK until our operations are cash positive. Our
wholesale services continue to be available across Europe, as does our Ethernet service. In connection with the implementation of the New Viatel Business Plan, the Company adopted a
new corporate brand as of January 10, 2004. The rebranding has been applied to all Viatel
operating companies with the exception of Cybernet which, at present, continues to use the Cybernet
name and branding. The New Viatel Business Plan identified and targeted two distinct business
markets, being: (1) Retail  including within this the Cybernet business; and (2) Wholesale. Each
of these business areas is considered in turn below. Through the introduction of new business
opportunities and the further development of the Companys product portfolio, to include, notably,
a branded broadband service, the New Viatel Business Plan has now been extended to cover an
additional distinct market, namely the provision of consumer services. Retail With respect to the Retail sector, the New Viatel Business Plan initially focused on
extending and enhancing the Companys existing product portfolio and selling, in particular, into
the SME market. The enhancement of the product set continued throughout 2004 and 2005, with the following notable
product launches:  
    
    Managed IP VPN: Launched in June 2004, this is a managed solution offering a
virtual private network, providing a secure, cost effective communications network
between a customers different sites, remote workers and its business partners.
    
    Bonded Broadband: Launched in June 2004, this managed service bonds together
standard broadband lines into a high-speed service that aggregates bandwidth and
offers a competitive alternative to a traditional leased line service.
    
    Ethernet: Launched in November 2004, this is a high performance national and
international connectivity product using a standard local area network (LAN)
interface common to most businesses, the key advantages being increased
flexibility, scalability and cost-effectiveness.
    
    VoIP: Launched in May 2005, this is a replacement product for traditional voice
services which use the public switched telephone network (PSTN). The product
allows the elimination of traditional circuit activity associated with the PSTN and
offers the customer substantial cost savings. - 26 -




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Viatel is now able to offer the following principal business retail services: (1) managed
connectivity services, including DIA and xDSL connectivity, allowing us to offer to our customers a
variety of different connection speeds and contention ratios; (2) managed hosting and co-location
services allowing customers to outsource the hosting of their websites and IT applications; (3)
managed security services, including the management of VPNs; (4) managed Internet Protocol VPN
(IPVPN) and Ethernet services, providing cost-effective connectivity between customer sites; and
(5) VoIP. A description of the services offered and/or being developed within each of these categories
is set out below (in each case, listed by product name): The Viatel managed connectivity services include:  
    
    Enterprise Business Broadband: an xDSL broadband service, with high performance
and reliability, designed for the business user. This service is based on a 1-to-1
contention ratio (contention being defined as the number of organizations sharing
the same bandwidth); in this way, the customer has effectively its own dedicated
bandwidth, maximising service performance.
    
    SoHo Business Broadband: an xDSL shared broadband service aimed at small offices
and people working from home.
    
    Dedicated Internet Access: a high bandwidth leased line Internet access
utilising our IP Network and worldwide peering agreements. The Viatel co-location and managed hosting services include:  
    
    Co-location: a managed service offering a flexible and cost-effective
alternative to an in-house Internet facility. Dedicated full and half racks are
available and located in highly secure and monitored (on a 24 hour, 7 days a week
basis) facility.
    
    Managed Hosting: a service available on RedHat, Linux and Windows operating
systems. This service is a managed, dedicated web and Internet applications hosting
solution for business customers. Such applications could be a web site, an
e-business platform or an SAP application. This service is again located in a
highly secure and monitored (on a 24 hour, 7 days a week basis) facility. The Viatel managed security devices include:  
    
    Managed Firewall: a fully managed and dedicated firewall solution. A firewall is
a set of hardware and software components used for the protection of a network from
unauthorised access. Firewalls might be located in the customers premises for DIA
and broadband connectivity or in Viatels data centre for managed hosting
customers.
    
    Managed Anti Spam & Anti Virus: an e-mail scanning service based on a three tier
architecture that blocks spam and viruses transmitted over the Internet before
reaching the customer network. The Viatel IPVPN and Ethernet services include: - 27 -




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
    
    Site-to-Site IPVPN: an IPVPN service that allows customers to access private
data, such as company information, across a public or shared network. The Viatel
IPVPN offering takes advantage of a number of access technologies, such as dial,
broadband and DIA. IPSec is currently the security protocol used by Viatel.
    
    Remote IPVPN: a service that allows customers with a distributed workforce to
access company data and systems, such as order entry and work-flow management. An
international roaming service option is also available.
    
    Viatel Managed IPVPN: a secure, cost effective communication service between
customer sites, remote workers and business partners over a shared network. If
customers wish to manage their own site equipment, they can choose a wires only
option.
    
    Viatel Ethernet: a high bandwidth, flexible service to enable customers to run
data intensive or real time applications between their sites. The Viatel VoIP services include:  
    
    Viatel VoIP: comparable to a traditional voice access line service, but routed
over cost effective Internet connections such as broadband and leased lines. We
provide the Internet connection and a variety of gateways to IP enabled existing
customer equipment. Viatel hosted VoIP provides a fully managed, bundled telephony
solution, including IP enabled phones, connectivity and private branch exchange
PBX functionality such as call forwarding and voice mail.
    
    Viatel VoIP VPN: a single, secure VPN network for integrated voice and data
traffic between customer sites and remote workers, helping to reduce costs and
improve efficiency. Significant new customer acquisitions and/or extensions to existing contracts during 2004 and
into 2005 include Morse, Penna Consulting, Institute of Electrical Engineers and Vodafone. Cybernet Since its acquisition in March 2003, Cybernet has been a successful company within the
Viatel group, realizing positive operating cash flow each year. The New Viatel Business Plan
envisages building the Cybernet business through the addition of new products to its existing
portfolio, but otherwise continuing its operations in much the same way as it has done since
acquisition. Cybernets customer base is divided into two principal categories: SMEs and third
party resellers. Cybernets products, whether offered directly to customers or through third-party channels,
have historically principally comprised xDSL products enabling access to the Internet, web-hosting
and ancillary services. During 2004 and into 2005, Cybernets product portfolio has been broadened
with, in particular, the launch of:  
    
    VPN Connect: an MPLS VPN service with ADSL connections;
    
    Videoconferencing: providing a voice, video and file shared conferencing
platform enabling the customer to conduct on-line conferencing; - 28 -




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
    
    A white label web hosting product: enabling wholesale partners to take space
on the shared Cybernet hosting platform with a view to offering their own web
hosting product; and
    
    Ethernet Connect: a 2Mb leased line with an Ethernet service, offering
connectivity between over 200 Swiss towns. Given strong brand recognition  the Company won 3 major business awards during 2004  we
currently intend to continue to trade under the Cybernet name in Switzerland. Significant new customer acquisitions during 2004 and 2005 include Heineken, ViaNetworks, BT,

Migros and Clairs. Wholesale The portfolio of wholesale products we provide to customers is generally divided between:
(1) connectivity services, providing high quality dedicated point-to-point connection for customers
who do not wish to purchase dark (unused) fiber and/or to invest in the optronics and network
management systems required to enable fiber to carry traffic; and (2) infrastructure related
services, providing customers with high quality dark fiber and co-location services. A description
of the services offered within each of these categories is set out below. The connectivity services include:  
    
    Leased Line: an end-to-end, managed, fully redundant and protected synchronous
digital hierarchy (SDH) transmission technology international private wire
service, over varying speeds, that uses the European Network.
    
    Wavelength: a service offering greater speed, flexibility and more efficient
bandwidth utilization allowing carriers, ISPs and large corporate customers,
effectively, to design and operate their own networks.
    
    IP transit: services where, starting with our own networks IP backbone and
then, by purchasing global IP transit from a number of carefully selected partners,
we are able to offer our customers the best available connection routes, thus
providing our customers with maximum quality, responsiveness and cost-
effectiveness. The infrastructure services include:  
    
    Dark Fiber: we offer dark fiber to customers that may wish to make the requisite
capital investments in order to carry traffic over fiber; however, we do not expect
that there will be an active market for dark fiber in the near future. We may also
make available to our customers, in selected locations and facilities, certain
ducts on either an outright sale or leased basis.
    
    Co-location: services normally provided as ancillary to the aforementioned
connectivity and IP transit services. These services allow our customers, who
connect directly to our network, to install and operate their equipment in our
co-location facilities. A range of add-on services are also offered such as
dedicated racks and secure cages designed to - 29 -




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allow increased security and remote
monitoring of customers applications co-located at the facility. While new customer acquisitions have been made in 2004/2005, the wholesale market remains one
which is characterized by a surplus in capacity and corresponding severe price competition. VISP In 2005, Viatel launched a branded broadband service with a number of British football
clubs enabling the clubs to act as a virtual Internet service provider  or VISP. The underlying
service is a high-speed broadband connection (typically 2Mb  but offered at lower speeds where 2Mb
is not technically possible due to PTO local line quality), provided together with club-branded
email addresses and, where available, club related broadband content. The Company may add
additional functionality/content to the service, potentially including a consumer VoIP product. Viatel commenced a VISP broadband service for Manchester United FC in April 2005, and for each
of Motherwell FC, Chelsea FC and Heart of Midlothian FC in May 2005. The Company is currently
talking to a number of other football clubs and sporting organizations with a view to launching
similar broadband services. It is anticipated that the service will be actively marketed through the use, in particular,
of the relevant clubs databases. Sales and Marketing As at May 31, 2005, 94 people were employed in the sales, marketing and service teams. Since
September 2003, our principal method of selling services has been through our direct sales
executives and telesales teams. We market to existing and potential customers on the basis of a
number of factors including service quality, product diversity and reliability. We believe we can
compete effectively with other operators by deploying innovative and fully managed services, and
focusing on segments characterized by high market growth such as IPVPN VoIP, Ethernet, DSL service
and hosting services. PTOs in particular, given their concerns as to product cannibalisation and
overall revenue reductions, have less flexibility to focus resources on some of the products that
Viatel sell. To complement our direct sales force, in 2004 we began developing an indirect sales channel.
This channel will sell with, or through, third parties and management believe this channel has
potential to deliver greater productivity than our direct sales force. We currently have agreements
with over 30 resellers and have developed a complete product portfolio for this channel. In order
to facilitate indirect sales, we have also developed a web extranet so that resellers can access
product documentation, sales tools, order status and facilitate on-line delivery. Segmental Revenue The Companys sole operational activity relates to the provision of telecommunications
services. The Companys management uses financial data internally to make operating decisions and
to assess performance based upon this one principal activity of the Company. Following the adoption
of the New Viatel Business Plan, the Company has begun to capture revenue data for 2 segments,
wholesale and retail. - 30 -




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For 2004 the revenue for the retail segment was US$24.4 million (2003  US$14.3 million) and
for the wholesale segment was US$4.4 million (2003  US$4.6 million). For the years ended December 31, 2004 and 2003, no individual customer accounted for greater
than 10% of revenues. Revenues for the period from June 7, 2002 to December 31, 2002 from three
principal customers of the Companys European Network represented approximately 40%, 28% and 16%
each of the consolidated revenues. For the period from January 1, 2002 to June 7, 2002, no
individual customer accounted for greater than 10% of revenues. The revenue generated by geographic location of customers is as follows: US$000
    
    Successor
    
    
    Successor
    
    
    Successor
    
    
    
    PredecessorYear ended
    
    
    Year ended
    
    
    From June 7,
    
    
    
    From JanuaryDecember 31,
    
    
    December 31,
    
    
    2002 to December
    
    
    
    1, 2002 to June2004
    
    
    2003
    
    
    31, 2002
    
    
    
    7, 2002United
Kingdom
    
    
    10,560
    
    
    
    7,998
    
    
    
    1,497
    
    
    
    
    2,301Switzerland
    
    
    15,188
    
    
    
    9,041
    
    
    
    
    
    
    
    
    Other Western Europe
    
    
    2,366
    
    
    
    397
    
    
    
    531
    
    
    
    
    North America
    
    
    676
    
    
    
    1,476
    
    
    
    2,136
    
    
    
    
    366Consolidated
    
    
    28,790
    
    
    
    18,912
    
    
    
    4,164
    
    
    
    
    2,667
 In the year ended December 31, 2004 revenue from customers located in the United Kingdom
represented 37% (2003  42%) of total revenue, and revenue from customers located in Switzerland
represented 53% (2003  48%) of total revenue. No other country represented greater than 10%
of total revenue. The European Network The European Network is a high-capacity fiber optic network connecting 19 cities and
traversing the UK, France, Germany, The Netherlands, Belgium and Switzerland. This long-haul
network has at least 48 fibers installed throughout, with between 72 and 96 fibers (in most
terrestrial segments) and 48 fibers in the two submarine segments. The European Network employs ring configurations and self-healing SDH systems to provide high
reliability and redundancy. The network is equipped with technologically advanced fibre and
optical transmission systems, and consists of a uniform configuration of DWDM (Dense Wave Division
Multiplex) electronics and Lucent Technologies fibre optic cable on terrestrial routes. With respect to the submarine systems, these were built using Alcatel armoured cable
comprising Sumitomo fibre. Separate sea routes were chosen in the North Sea (Lowestoft 
Zaandvoort) and the English Channel (Pevensey Bay  Cayeux-sur-Mer) respectively, so as to provide
a ring topology. In addition to the European Network, we also have three wavelengths of leased capacity to New
York allowing us to offer transatlantic capacity to our customers. Where necessary, we purchase
circuits in the United States from local providers to provide a seamless connection for our
customers from our own transatlantic capacity to their required United States delivery location. We also lease various assets including duct (leased duct totalling approximately 1,464 route
kilometers, the main part of which relates to our German backbone) and fiber (fiber subject to - 31 -




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Indefeasible Rights of Use (IRU) agreement totalling approximately 1,030 route kilometers). The
duct and IRUs relating to our backbone, were in general leased for a period of approximately 20
years. In November 2004, we entered into an STM4 capacity lease which expires in 2010, which
provides us with an extended UK network linking in particular Leeds, Manchester, Leicester,
Birmingham, Coventry, Reading and London. To support the European Network, all technical facilities are equipped, as standard, with
redundant air conditioning, fire suppression systems, UPS (uninterruptible power supply), battery
back-up and diesel generators which would be activated in the event of a prolonged local
electricity outage. All these facilities take advantage of remote site alarms reported to and
managed by the Network Operations Centre, based in Egham (near London) (the NOC), which operates
on a 24 hours a day, 365 days a year basis. The NOC is backed up by a Disaster Recovery Centre in Amsterdam (the DRC), where all key
management systems of the NOC are duplicated in their entirety. Having duplicative systems allows
us to maintain our carrier class quality of services, irrespective of the type of customer. Both
our centres are equipped to detect and handle incidents and, where possible, quickly re-route
traffic in the event of a significant interruption. The European Network potentially remains a major long term asset of the Company. However, in
the immediate future, we believe that our opportunities for commercial exploitation of the network,
in particular through the sale of capacity to the wholesale carrier market, is limited. This is due
principally to both a growing market trend for the provision of wavelength capacity  for which
additional capital expenditure would be required  and an ongoing oversupply of capacity in the
telecommunications industry
which in turn has lead to vigorous and often uneconomical price competition. Given these
market and economic conditions, the European Network currently does not, in itself, generate
sufficient revenues to meet its current operating costs. A large proportion of these operating
costs relate to ongoing maintenance charges and the fees charged, in France, by public authorities
and other entities for rights of way (ROW). We are currently in legal proceedings disputing the
level of the ROW charges we pay in France. See Item 8. Financial Information  Legal Proceedings
and footnote 9 to the consolidated financial statements in this Form 20-F. Should we lose all or
any such legal proceedings, it is likely that we would be required to continue to pay ROW charges
which could make the future operation of all, or any part of, our French network uneconomic. During
2004 and into 2005 we have been investigating ways in which we can reduce our ongoing network costs
 this has included potentially pursuing a transaction designed to maximise the use of tax losses
associated with the depreciation/financial write-down of the network assets. Competition The European telecommunications industry is highly competitive, significantly affected by
regulatory changes, marketing and pricing decisions of the larger industry participants and the
introduction of new services and transmission methods made possible by recent technological
advances. In the context of the provision of business data services, the market is being driven by:
a need to provide connectivity/access to centralised data for enterprise-wide use of IP-based
applications; growing volumes of email traffic and increasing prevalence of remote working; a
continuing trend towards greater use of managed data networks; and, a need to maximize cost
efficiencies in expenditure in IT and telecommunications requirements. - 32 -




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Our ability to succeed in the implementation of the New Viatel Business Plan depends on our
ability to compete with a variety of communications providers, including those providing competing
networks. In this regard, we expect to compete with: (1) PTOs such as British Telecom and SwissCom;
(2) alternative operators such as Global Crossing, Cable & Wireless, Energis, MCI, COLT Telecom and
Level 3; (3) ISPs such as Easynet, Pipex, Demon/Thus, Star, Bulldog, Tiscali, Claranet, and PSINet
(Europe); and (4) providers of VoIP such as Telappliant, Voipfone, Inclarity, alwaysON, Vonage and
Gradwell. Description of Certain Indebtedness As noted above, our ability in the short-term to continue operations and, ultimately, our
implementation of the New Viatel Business Plan is dependent on, among other things, successful
financing to fund the Company whilst it is experiencing negative cash flow. April 2004 Financing On April 21, 2004, the Company entered into definitive documentation in respect of the
April 2004 Financing with each of the Investors comprising: (1) Morgan Stanley; (2) Ahab Partners,
L.P.; (3) Wayland Distressed Opportunities Fund I-A, LLC; (4) Värde; (5) Sapphire Special
Opportunities Fund, LLC; (6) Stonehill Institutional Partners, L.P.; (7) Ore Hill Hub Fund Ltd; and
(8) Lucy Woods. The April 2004 Financing involved the sale and issuance of the Existing Notes in
an aggregate amount of US$52.25 million. The April 2004 Financing Documentation and a related press release announcing the signing of
the April 2004 Financing documentation were furnished to the U.S. SEC on the April 28 6-K and a
Form 6-K of the Company dated April 21, 2004 respectively. Copies of these and other Company
filings with the
U.S. SEC are available on our website at www.viatel.com. Alternatively, you can access our
U.S. SEC filings online at www.sec.gov. The Existing Notes were issued to, and purchased by, the Investors in the following respective
amounts: Investor
    
    Notes (US$)(1) Morgan Stanley
    
    
    36,000,000(2) Ahab Partners, L.P.
    
    
    3,000,000(3) Wayland Distressed Opportunities Fund I-A, LLC
    
    
    500,000(4) Värde
    
    
    10,000,000(5) Sapphire Special Opportunities Fund, LLC.
    
    
    500,000(6) Stonehill Institutional Partners, L.P.
    
    
    1,000,000(7) Ore Hill Hub Fund Ltd
    
    
    1,000,000(8) Lucy Woods
    
    
    250,000Total
    
    
    52,250,000
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Subsequent to the closing of the April 2004 Financing, Morgan Stanley assigned, as at June 10,
2004, US$350,000 of their Existing Notes to Ahab Partners, L.P., who in turn, as at August 2004,
assigned US$350,000 of Existing Notes to two individuals as follows: (a) John Colton: US$250,000;
and (b) Francis Williams: US$100,000. As at May 31, 2005, the Investors accordingly held the
Existing Notes in the following respective principal amounts: Investor
    
    Notes (US$)(1) Morgan Stanley
    
    
    35,650,000(2) Ahab Partners, L.P.
    
    
    3,000,000(3) Wayland Distressed Opportunities Fund I-A, LLC
    
    
    500,000(4) Värde
    
    
    10,000,000(5) Sapphire Special Opportunities Fund, LLC.
    
    
    500,000(6) Stonehill Institutional Partners, L.P.
    
    
    1,000,000(7) Ore Hill Hub Fund Ltd
    
    
    1,000,000(8) Lucy Woods
    
    
    250,000(9) John Colton
    
    
    250,000(10) Francis Williams
    
    
    100,000Total
    
    
    52,250,000
 Interest on the Existing Notes is 8% per annum, to be compounded and payable semi-annually by
way of additional notes or, at the Companys option, in cash. As at May 31, 2005 the Company has
issued the following additional convertible notes by way of interest: - 34 -




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Investor
    
    Notes (US$)(1) Morgan Stanley
    
    
    2,118,085.34(2) Ahab Partners, L.P.
    
    
    190,081.72(3) Wayland Distressed Opportunities Fund I-A, LLC
    
    
    29,706.66(4) Värde
    
    
    594,133.34(5) Sapphire Special Opportunities Fund, LLC.
    
    
    29,706.66(6) Stonehill Institutional Partners, L.P.
    
    
    59,413.34(7) Ore Hill Hub Fund Ltd
    
    
    59,413.34(8) Lucy Woods
    
    
    14,853.34(9) John Colton
    
    
    6,394.96(10) Francis Williams
    
    
    2,557.99Total
    
    
    3,104,346.69
 The Existing Notes have a 10 year maturity, and are convertible, at the option of the holder,
into the Companys common shares upon the occurrence of certain specified liquidity events, such
as a change of control or an initial public offering, or if not previously converted, after the
ninth anniversary of issuance, or upon the request of the holders of a majority of the Existing
Notes. Upon conversion of all or a large portion of the Existing Notes, persons previously holding
such Existing Notes will hold a significant majority of our common shares, assuming that the
Company has not
issued shares other than on a conversion of the Existing Notes. Both prior to and following
conversion, and until such time as the Investors directly or indirectly together hold, on a fully
diluted basis, 25% or less of the Companys common shares, material corporate actions will
effectively require the consent of the Investors or their transferees. The Investors (and their transferees) also effectively have the right, at any time, to
increase the size of the Board and to approve a number of Directors sufficient to cause a majority
of the Board to be designees of the Investors (and their transferees). See Item 10. Additional
Information  Memorandum of Association and Bye-Laws. It was a condition of the April 2004 Financing that our Chief Executive Officer, Lucy Woods,
enter into an employment agreement on terms satisfactory to the Investors and that she also
participate in the April 2004 Financing through the purchase of Existing Notes in an aggregate
principal amount of US$250,000. It is a further condition under the terms of Mrs. Woods
employment agreement (entered into as a condition of the April 2004 Financing) that to the extent
Mrs. Woods receives a cash bonus during the first two years of the term of her employment
agreement; such cash bonus is to be reinvested in the Company in the form of Existing Notes, up to
a maximum of US$270,000. It was also contemplated that, as soon as reasonably practicable after closing, there would be
established an equity compensation plan for the benefit of senior management. In substitution of
such plan, the Company has decided to offer to relevant senior management participation in a
discretionary - 35 -




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Employee Benefit Trust (EBT), the terms of which were approved by resolution of the Board
dated December 2004. Mrs. Woods (together with all other
members of the relevant management team) has accepted participation in the EBT, on such terms as approved by
the Board, in satisfaction of the Companys obligations to establish an equity compensation plan
under the terms of her employment agreement. See Item 6. Directors, Senior Management and
Employees  Employee Benefit Trust. The Investors (with the exception of the individuals: John Colton, Francis Williams and Lucy
Woods) comprise a group of U.S. financial institutions; one of these institutions, Morgan Stanley,
itself beneficially owns approximately 12.5% of our ordinary shares. Two of the five serving
non-executive Directors, Thomas E. Doster, IV and Edward Greenberg, are senior executives of Morgan
Stanley. These two Directors were not members of the Financing Committee established in connection
with the April 2004 Financing and recused themselves from any involvement on behalf of the Company
in connection with both the April 2004 Financing and the June 2005 Financing. June 2005 Financing and the Proposed Further Financing On June 23, 2005, the Company entered into further financing documentation with two of
the Investors, Morgan Stanley and Värde under which Morgan Stanley and Värde have conditionally
committed to invest a further US$16 million in the Company by way of the purchase of, respectively
US$12,937,799 million and US$3,062,201 million New Notes. Such investment is conditional upon
customary conditions for transactions of this nature and upon the filing of this Form 20-F in a
form satisfactory to Morgan Stanley and Värde. The investment agreement related to the June 2005
Financing is filed as an exhibit to this Form 20-F. Interest on the New Notes is to be initially 12% per annum, payable semi-annually with the
interest rate increasing by 0.5% per annum on each interest payment date, beginning on January 15,
2006. For the first year of issue interest will be payable on the New Notes by way of the issuance
of additional New Notes. After the first anniversary of the issuance of the New Notes, interest
will be payable in cash only. The New Notes are to have a 2 year maturity and will rank senior to all subordinated debt of
the Company (including the Existing Notes) and pari passuwith all senior debt of the Company.
Under the terms of the June 2005 Financing, the holders of the Existing Notes have agreed to
subordinate their Existing Notes to the New Notes. The Company expects to pursue the Further Financing and Morgan Stanley and Värde have advised
the Company that they will consider providing such refinancing and/or additional financing. It is
currently contemplated that any such Further Financing would involve an investment of an additional
US$16 million, with such additional amount being reduced by the proceeds of any asset sales by the
Company entered into prior to the Further Financing, and to be further reduced to the extent that
the Companys then performance against budget does not demonstrate a need for such additional
financing. No assurance can be given that the intended Further Financing will be consummated or
that alternative sources of financing would be available on attractive terms, or at all. Neither
Morgan Stanley nor Värde is under any obligation to participate in the Further Financing or any
other financing, other than the June 2005 Financing to the extent contemplated by the terms and
conditions thereof. It is further contemplated that any such Further Financing would involve transferring the New
Notes into a new issue of convertible notes subject to, among other things: (a) the prior
conversion of the Existing Notes; and (b) the transfer of the Special Share (see Item 10.
Additional Information  - 36 -




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Description of Share Capital  Memorandum of Association and Bye-Laws) to the holders of the
newly issued convertible notes. Under the terms of the June 2005 Financing, the Company and the
holders of the Existing Notes have agreed that, on the request of the holders of a majority of the
Existing Notes, all of their Existing Notes will be converted on a date to be decided by the
holders of a majority of the Existing Notes. At that time all of the Existing Notes will be
converted into common shares of the Company at the then current conversion price as determined
under the terms of the Existing Notes. Regulation Telecommunications services are subject to the new EU regulatory framework for electronic
communications which came into force in July 2003. The principal elements of the regulatory
framework are set out in the following EU Directives: (1) the Universal Service Directive; (2) the
Access and Interconnection Directive; (3) the Authorisation Directive; and (4) a Framework
Directive. The EU Directives (and related legislation/regulation) are intended in part to reduce
regulation where possible, while introducing a common concept of market dominance, so as to
identify those operators that might be considered as having Significant Market Power or SMP,
and consequently for whom more stringent regulation might be appropriate. Our activities in Western Europe are subject to such rules and regulations where and to the
extent the new regulatory package has been implemented and to any other national rules and
regulations governing telecommunications. Such rules and regulations are administered and enforced
by the applicable NRAs in each country in which we operate. The level of regulation and the rights
that attach to a license (where a license is required) or general authorizations related to
telecommunications and other electronic communications vary in each country. In each European
Union country in which we operate, we are not considered, as a company, to have SMP and are not
therefore generally subject to the more stringent regulation that might otherwise be applied by
NRAs. We believe that we possess, or are in a position to obtain, all necessary permits, licenses,
and authorizations or to make relevant notifications to operate, and to continue to operate, our
business in all the countries in which we operate. However, to the extent we are unable to obtain
all such permits, licenses and authorizations or to make relevant notifications, this may have a
material impact on our ability to operate in certain of the countries in which our European Network
is located which, in turn, could have a material adverse effect on our financial condition and
results of operations. In the United States, our services are subject to the provisions of the Communications Act of
1934 and the regulations of the Federal Communications Commission (FCC). The Company has
obtained a Section 214 license, which allows it to operate as an international facilities-based
carrier in the United States, and VTL-TP (Bermuda) Limited and VTL have each notified the FCC that
they will trade under this authorization. Regulators in the European area countries in which we operate are as follows: (1) Office of
Communications (OFCOM), in the United Kingdom; (2) the Autorité de Regulation des
Télécommunications(ART), the French Regulatory Authority for Telecommunications, in France; (3)
the Regulierungsbehörde für Telekommunikation und Post(RegTP), or Regulatory Authority for
Telecommunications and Post, in Germany; (4) the Onafhankelijke Post en Telecommunicatie Autoriteit
(OPTA), in The Netherlands; and (5) the Belgian Institute of Postal and Telecommunications
Services (BIPT), in Belgium. In Switzerland, there is no single regulatory body; however,
telecommunications - 37 -




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regulation is determined by the provisions of the Telecommunications Act (Fernmeldegesetz or
FMG) and is overseen by the Federal Office of Communication. Organizational Structure Commencing on the Effective Date, a series of share transfers were made whereby the European
Subsidiaries become wholly-owned, direct or indirect, subsidiaries of the Company. The following
tables set out our active subsidiaries as at May 31, 2005: Ownership by Viatel HoldingName of Subsidiary
    
    Jurisdiction of Incorporation
    
    (Bermuda) LimitedVTL-TP (Bermuda) Limited
    
    Bermuda
    
    
    100
    %Viatel Holding (Europe) Limited
    
    England and Wales
    
    
    100
    %Viatel Operations SA (1)
    
    France
    
    
    100
    %Viatel Belgium NV
    
    Belgium
    
    
    100
    %VTL, Inc. (2)
    
    US
    
    
    100
    %Viatel Broadband Limited
    
    England and Wales
    
    
    100
    %
 Name of Subsidiary
    
    Jurisdiction of Incorporation
    
    Ownership by VTL, Inc.Viatel Belgium Limited
    
    England and Wales
    
    
    100
    %VTL (UK) Limited
    
    England and Wales
    
    
    100
    %Viatel Circe Assets Limited
    
    England and Wales
    
    
    100
    %
 Ownership by ViatelName of Subsidiary
    
    Jurisdiction of Incorporation
    
    Holding (Europe) LimitedViatel Equipment Limited
    
    England and Wales
    
    
    100
    %Viaphone AG
    
    Switzerland
    
    
    100
    %Cybernet (Schweiz) AG
    
    Switzerland
    
    
    100
    %Viatel Global Communications B.V.
    
    The Netherlands
    
    
    100
    %Viatel German Asset GmbH
    
    Germany
    
    
    100
    %VTL Telecom GmbH
    
    Germany
    
    
    100
    %
 Ownership by VTL (UK)Name of Subsidiary
    
    Jurisdiction of Incorporation
    
    LimitedViatel Internet Limited
    
    England and Wales
    
    
    100
    %
 Ownership by Viatel GlobalName of Subsidiary
    
    Jurisdiction of Incorporation
    
    Communications B.V.Viafoperations Communications B.V.
    
    The Netherlands
    
    
    100
    %
 - 38 -




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(1) It is a requirement of French law that there be 7 shareholders of a corporation
organized as a société anonyme(SA). The minority shares in Viatel Operations SA are held by
each of 6 nominee shareholders. (2) As from January 6, 2003. Our purchase of the business and assets of Cybernet on March 6, 2003 was effected by Viatel AG
(a previously inactive subsidiary), which then changed its name to Cybernet (Schweiz) AG. Our purchase of the share capital of Netcom was effected on March 7, 2003 by VTL (UK) Limited,
upon which Netcom became a wholly-owned subsidiary of VTL (UK) Limited. Netcom changed its name to
Viatel Internet Limited on January 12, 2004. Property, Plant and Equipment The European Network and related telecommunications facilities and equipment sites comprise
our principal properties. We maintain telecommunications facilities in certain premises in which many telecommunications
companies also lease facilities. These include our facilities at 60 Hudson Street, New York,
Telehouse North and Telehouse East, both in London and also Telehouse Paris. We lease offices in
Egham, UK, which include the NOC and our principal executive offices. We also maintain the DRC, a
backup network operations center in Amsterdam, The Netherlands. In addition, we also maintain co-location facilities, regeneration sites, repeater (or modular
optical repeater) sites and points of presence in the countries through which our network runs. We
also have approximately 76,000 square feet of equipment room space. The majority of these European
locations have leases signed for a minimum term of 20 years, including renewal options for
subsequent 5-year periods. These leases have been structured in a way so as to limit the risk of
relocation. It is anticipated that prior to termination of any of the leases, we will be able to
renew such leases or make other suitable arrangements. To support the European Network, we have installed transmission equipment at 121 facilities
across our 6 network countries, including at 49 POPs where customers and other carriers can access
the network. These sites are equipped, as standard, with redundant air conditioning, fire
suppression system, batteries/UPS (uninterruptible power supply) back-up for DC and AC power
respectively. All these facilities take advantage of remote access and site alarms managed and
reported by the NOC. Set forth in the table below are details of the various leasehold interests held by the
Company as at May 31, 2005. References to POP, REGEN, MOR and COLO are references to a
point of presence, a regeneration site, a modular optical repeater site and co-location space,
respectively. Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)ESSEN (BELGIUM)
    

    REGEN
    
    25 sqmLEERS-NORD
    
    REGEN
    
    25 sqm
 - 39 -




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)LIEGE
    
    REGEN
    
    25 sqmANTWERP WOMMELGEN
    
    MOR
    
    25 sqmHASSELT
    
    REGEN
    
    25 sqmANTWERP BELIEWEG (ALASKA)
    
    MOR
    
    25 sqmGENT (MERELBEKE)
    
    MOR
    
    25 sqmGENT (BRUGGE)
    
    REGEN
    
    25 sqmLEUVEN
    
    REGEN
    
    200 sqmESTAMPUIS
    
    MOR
    
    25 sqmTOURNAI
    
    REGEN
    
    25 sqmMONS
    
    REGEN
    
    25 sqmCHARLEROI (CHATELET)
    
    REGEN
    
    25 sqmANTWERP VOSVELD 20
    
    Storage (Future POP)
    
    178 sqm offices  1237 sqm techBRUSSELS MIDI (RUE DE France)
    
    POP
    
    95 sqmANTOING
    
    REGEN
    
    25 sqmNAMUR
    
    REGEN
    
    25 sqmBRUSSELS TOLL-LAAN
    
    POP/OFFICE
    
    480 sqm + 220 sqmKORTRIJK
    
    REGEN
    
    25 sqmAVIGNONET (LAURAGAIS)
    
    MOR
    
    25 sqmPARIS AUBERVILLERS CEDEX (VICTOR-HUGO)
    
    RACK SPACE
    
    room 12, 1 rackAVAILLES-EN-CHATERELLAULT
    
    MINI-POP
    
    25 sqmLYON (RUE GEORGE MARANNE) 2
    
    POP
    
    16 sqmLISLE ADAM (MOURS) (A16)
    
    MOR
    
    25 sqmPARIS AUBERVILLIERS CEDEX (GARDINOUX)
    
    POP
    
    1 600 x 600 rackAZY-SUR-MARNE (NOGENT LARTAND)
    
    MOR
    
    25 sqmMEAUX
    
    MOR
    
    25 sqmBORDEAUX (MERIGNAC)
    
    POP
    
    1267 sqmCAYEUX-SUR-MER
    
    REGEN
    
    800 sqm
 - 40 -




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)CAZAN (VERMEGUES)
    
    MOR
    
    25 sqmCHAROLLES (LP2) (VENDENESSE)
    
    MOR
    
    25 sqmCONDE-SUR-MARNE
    
    REGEN
    
    25 sqmCORBEIL (ESSONNES) (LP7)
    
    MOR
    
    25 sqmCOURRIERES
    
    MOR
    
    25 sqmBIACHES (PERONNE) #1
    
    REGEN
    
    25 sqmBOURBON (LP3)
    
    MOR
    
    25 sqmBELLEVILLE (LP1) (MONTMERLE)
    
    MOR
    
    25 sqmBON-ENCONTRE
    
    MOR
    
    25 sqmFOS-SUR-MER
    
    MOR
    
    25 sqmBLOIS
    
    MOR
    
    25 sqmGRISOLLES
    
    MOR
    
    25 sqmBLANZAY
    
    MOR
    
    25 sqmMEILHAN SUR GARONNE
    
    MOR
    
    25 sqmLAVOURS (LG2)
    
    MOR
    
    25 sqmBRIARE (LP5)
    
    REGEN
    
    25 sqmST MARTIN-DE-BRETHENCOURT
    
    MOR
    
    25 sqmTHOUROTTE
    
    MOR
    
    25 sqmSOUPPES-SUR-LOING (LP6)
    
    MOR
    
    25 sqmPICHEGU (ST GILES) (MARNEGA)
    
    MOR
    
    25 sqmPARIS LA DEFENSE (COURBEVOIE)
    
    POP
    
    415 sqmPOILHES
    
    MOR
    
    25 sqmPARIS SAINT DENIS
    
    POP
    
    3,716 sqmMONTFAUCON (CADEROUSSE)
    
    REGEN
    
    25 sqmTOULOUSE
    
    POP
    
    816 sqmARTENAY (ORLEANS)
    
    POP
    
    25 sqmREVIGNY-SUR-ORNAIN (CONTRISSON)
    
    MOR
    
    25 sqmSAULT BRENAZ (LG1)
    
    MOR
    
    25 sqmSETE (MONTPELLIER)
    
    REGEN
    
    25 sqm
 - 41 -




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)AMIENS (PARC DACTIVITIES)
    
    POP
    
    750 sqm warehouse + 100 sqm office +
5 car parksST CHRISTOPHE-DE-DOUBLE
    
    MOR
    
    25 sqmSTRASBOURG
    
    POP
    
    781 sqmNEVERS (LP4)
    
    MOR
    
    25 sqmMONTELIMAR (SAULCE SUR RHONE)
    
    MOR
    
    25 sqmMARSEILLE (4 RUE LEON GOZIAN)
    
    POP
    
    750 sqmMARSEILLETTE
    
    MOR
    
    25 sqmXOUAXANGE (HESSE)
    
    MOR
    
    500 sqmNANCY RUE JAURES
    
    POP
    
    705 sqmNAMBSHEIM (BS1)
    
    MOR
    
    25 sqmNERSAC
    
    MOR
    
    25 sqmPARIS 35 RUE DES JEUNEURS  BASEMENT
(BASTILLE)
    
    POP
    
    97 sqmANDANCETTE
    
    MOR
    
    25 sqmPARIS 35 RUE DES JEUNEURS  2ND
FLR (BASTILLE)
    
    POP/OFFICE
    
    327 sqmVERETZ (TOURS)
    
    MINI-POP
    
    25 sqmPARIS 38 RUE DES JEUNEURS  4TH
FLR
    
    POP
    
    7 RACKSPARIS 35 RUE DES JEUNEURS  3RD
FLR (BASTILLE)
    
    POP/OFFICE
    
    330 sqmTROUSSEY (VILLOROY SUR MEHOLLE)
    
    MOR
    
    25 sqmDUSSELDORF IN DER STEELE 29
    
    POP
    
    1 600 x 800 CabinetDERNBACH
    
    MOR
    
    25 sqmDUSSELDORF HALLE CONNECTAPARK
    
    POP
    
    1400 sqm equipment room plus officeELTEN
    
    MOR
    
    25 sqmMANNHEIM
    
    POP
    
    1119 sqmNAUROD
    
    MOR
    
    25 sqmLINZ
    
    REGEN
    
    25 sqm
 - 42 -




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Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)FRANKFURT 19 WEISSMULLERSTRASSE
    
    POP
    
    1 600 x 800 CabinetBERG LANGWIESE (GASLINE)
    
    MOR
    
    25 sqmKAPPELLA (KAPPELLEN)
    
    MOR
    
    25 sqmPORZ
    
    MOR
    
    25 sqmFRANKFURT 90 KLEYERSTRASSE
    
    MINI-POP/OFFICE
    
    75 sqmAMSTERDAM SCHIPLUIDENLAAN (DELFLANDLAAN)
    
    POP/OFFICE/NOC
    
    695 sqm, 7 car park spaces (basement)AMSTERDAM NIKHEF BUILDING
    
    POP
    
    1 rackAMSTERDAM WORLD TRADE CENTRE
    
    POP/OFFICE
    
    182 sqmAMSTERDAM HALFWEG
    
    POP
    
    1728 sqmAMSTERDAM 144 GYROKOOPWEG
    
    POP
    
    3 racksAMSTERDAM 58 GYROKOOPWEG (INTERXION)
    
    POP
    
    1 rackZANDVOORT
    
    REGEN
    
    342 sqmLEERSUM
    
    MOR
    
    25 sqmROTTERDAM ALBERT PLESMANWEG (SOERWEG 5B)
    
    POP
    
    365 sqmWORLD FASHION CENTER (17th floor)
    
    Roof site
    
    100 sqm on siteDOORN
    
    MOR
    
    25 sqmOLTEN
    
    MOR
    
    50 sqmBASEL
    
    POP
    
    4 racksBERN
    
    POP
    
    50 sqmEPENDES
    
    REGEN
    
    100 sqmZURICH 225 JOSEF STR
    
    POP
    
    2 racksZURICH 569 BADENEERSTRASSE
    
    POP
    
    810 sqmZURICH 560 SCHAFFHAUSERSTRASSE
    
    POP/OFFICE
    
    65 sqmGENEVA
    
    POP
    
    77 sqmGENEVA (Rue de la Confederation 6)
    
    POP
    
    1 rack
 - 43 -




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)LONDON PARK STREET
    
    POP
    
    25 sqmSNOW HILL
    
    MOR
    
    25 sqmPOLEGATE
    
    REGEN
    
    80 sqm (equipment room)PEASE POTTAGE
    
    MOR
    
    77 sqmPAKENHAM
    
    MOR
    
    25 sqmMANCHESTER WILLIAMS HOUSE
    
    POP
    
    1 rackLONDON TELEHOUSE NORTH
    
    POP/OFFICE
    
    243 sqm (2600 sq ft)LONDON GLOBAL SWITCH
    
    POP
    
    1 rack 1 ductEGHAM BLAYS BASEMENT
    
    WAREHOUSE
    
    257 sqmEGHAM INBUCON HOUSE
    
    POP/OFFICE/NOC
    
    1405 sqmLONDON 8 HARBOUR EXCHANGE (TELECITY 2)
    
    POP
    
    1 rack  ref 1 Z 18LONDON TELEHOUSE NORTH (NETCOM)
    
    POP
    
    3 racksLONDON BRICK LANE (INTERXION)
    
    POP
    
    1 x 600 x 600 rackLONDON TELEHOUSE EAST
    
    POP
    
    3 racksLONDON HOSTING CENTRE (PSINET)
    
    POP
    
    3 racksLOWESTOFT
    
    REGEN
    
    25 sqmBRACKNELL
    
    OFFICE/POP
    
    2,240 sqmLONDON 7 HARBOUR EXCHANGE (REDBUS)
    
    POP
    
    1 rack 8th floorLONDON BONNINGTON HOUSE (TELECITY 1)
    
    POP
    
    4 racksNEW YORK 60 HUDSON
    
    POP
    
    550 sqmFIBERNET BIRMINGHAM
    
    POP
    
    rack E11 (60cm x 60 cm)FIBERNET COVENTRY
    
    POP
    
    rack A10FIBERNET LEEDS 2
    
    POP
    
    rack D11FIBERNET LEICESTER
    
    POP
    
    rack B10FIBERNET READING
    
    POP
    
    rack D5FIBERNET EDINBURGH
    
    POP
    
    1 rackLEEDS (FOUNDRY STREET)
    
    OFFICE
    
    479 Sq Ft
 - 44 -




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##### Table of Contents



Total Equipment or Facility AreaProperty name
    
    Site Type
    
    (leased total area may be larger)LONDON GOSWELL ROAD
    
    POP
    
    1 rack
 Aggregated rental payments for the calendar year 2002 and fiscal years 2003 and 2004 were
approximately US$10.7 million, US$12.0 million and US$12.2 million respectively. 
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion should be read in conjunction with our financial statements and the
notes thereto included elsewhere in thisForm 20-F. The following discussion includes certain
forward-looking statements. See Forward Looking Statements on page 2. For a discussion of
important factors, see Item 3. Key Information  Risk Factors. General The financial information presented in this section is derived from the audited consolidated
financial information of: (1) the Company as at and for the years ended December 31, 2004 and 2003;
(2) the Company as at December 31, 2002 and for the period from June 7, 2002 to December 31, 2002;
(3) the Predecessor as at and for the years ended December 31, 2000 and 2001 and for the period
from January 1, 2002 to June 7, 2002; and (4) combined financial information for the Company and
the Predecessor for the year ended December 31, 2002 which is unaudited, combined historical data
on an aggregate basis for such period. On May 2, 2001, the Predecessor, on behalf of itself and the other Debtors filed a voluntary
petition for relief under Chapter 11. The Plan of Reorganization was confirmed by the Bankruptcy
Court on May 21, 2002 and consummated on June 7, 2002. The Company succeeded to certain business
operations and assets of the Predecessor as a consequence of the Plan of Reorganization. See Item
4. Information on the Company  Chapter 11 Reorganization and Emergence from Chapter 11. On June 7, 2002, the Company adopted fresh-start reporting in accordance with SOP 90-7. The independent auditors report delivered to the Company in connection with its audited
consolidated financial statements for the year ended December 31, 2004 and included in this Form
20-F contains an explanatory pararagraph stating that the
Companys recurring net losses and its
difficulty in generating sufficient cash flow to meet its obligations and sustain its operations
raise substantial doubt about the Companys ability to continue as a going concern. The
consolidated financial statements and the selected financial data do not include any adjustments
that might result from the outcome of that uncertainty. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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 revenues and
expenses during the - 45 -




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##### Table of Contents



relevant reporting periods. Accounting estimates are an integral part of the
financial statements prepared by management and are based on managements current judgments. Those
judgments are based on knowledge and experience about past and current events and assumptions about
future events. We believe the following to be our critical accounting estimates because they are important to
the portrayal of our financial condition and results of operations and require critical management
judgments and estimates about matters that are uncertain. If actual results or events differ
materially from those contemplated by management in making these estimates, our results of
operations could be materially affected. Fresh Start Reporting On June 7, 2002, the Company adopted fresh start reporting in accordance with SOP 90-7. Under fresh start reporting, a new, viable entity is created for financial reporting purposes;
the Companys consolidated financial statements have been prepared for that new entity on that
basis applying the following main principles:  
    
    the reorganization value of the entity should be allocated to the entitys assets in
conformity with the procedures specified by Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS No. 141) for transactions reported on the
basis of the purchase method; and
    
    each liability existing as at the Effective Date, other than deferred taxes, should
be stated at present values of amounts to be paid determined at appropriate current
interest rates. The reorganization value was primarily determined on a discounted cash flow analysis utilizing
both recent operating results and future projected cash flows over the estimated lives of the
network assets and a discount rate of 20%. The reorganization value was allocated to individual
assets and liabilities based on the work of outside financial advisors as well as internal
valuation estimates using the discounted cash flow analysis referred to above. Included in the balance sheet at the Effective Date are amounts considered to be
pre-confirmation contingencies in accordance with AICPA Practice Bulletin 11, Accounting for
Pre-confirmation Contingencies in Fresh Start Reporting. Subsequent revisions to the
pre-confirmation contingencies are reported in the statement of operations. In our case
pre-confirmation contingencies include amounts realized and to be realized from the claims made by
the Predecessor in the bankruptcy proceedings of certain subsidiaries. An estimate was made as at
the Effective Date of the certain recoveries and, to the extent actual recoveries are in excess of
those estimated at the Effective Date, we have recorded a gain through the statement of operations.
Liabilities of which there was no actual knowledge yet relate to the Predecessors subsidiaries
transferred to the Company, are reflected in the same way and the charge has been recorded in the
statement of operations. Revenue and Cost of Sales The Company records communication services revenue as earned at the time services are
provided. The related cost of communication services is reported in the same period. - 46 -




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##### Table of Contents



Revenues relating to annual operating and maintenance charges are recognized over the period
in which the service is provided. Deferred revenue also includes amounts invoiced for standby
maintenance applicable to future periods. Operations and maintenance costs are expensed over the period to which the expenditure
relates. Costs relating to the short-term lease of capacity are recognized over the period of the
contract. The costs of network service products are expensed over the period of the recognition of
the corresponding revenue. Impairment of Long-lived Assets The Company has material customer relationships capitalized in its balance sheet as a
result of its acquisition of Cybernet and Netcom. The Company periodically reviews the carrying
values of intangible assets subject to amortization and other longlived assets to determine
whether there has been any impairment of these assets and the appropriateness of their remaining
useful lives. Should events or circumstances indicate that the carrying value may not be
recoverable based on undiscounted future cash flows, an impairment loss measured by the difference
between the fair value and the carrying value of long-lived assets would be recognized. Fair value
is generally determined based upon an estimate of the discounted future net cash flows to be
generated by the assets. Under the testing for impairment, estimates of future cash flows are used to test the
recoverability of a long-lived asset, and are based on the existing service potential of the asset.
These estimates exclude cash flows associated with future capital expenditures that would increase
the service potential of the long-lived asset. There is an inherent uncertainty in estimating
future cash flows which can have a material affect on the amount of any impairment. Accounting for loan notes In connection with the April 2004 Financing, the Company issued US$52.25 million of
convertible loan notes. There are two embedded derivatives within the convertible loan note host
contract, a change of control put option and an equity conversion feature. The put option allows
the loan note holder to put back the loan notes to the Company for cash equal to the value of 101%
of the principal of the loan notes, should a change of control of the Company be effected. The
equity conversion feature allows the loan note holder to convert the loan notes into equity, upon
the occurrence of specified liquidity events, at a conversion price linked to the equity value of
the Company, which in turn is related to the share price of the Company. The change of control put option is separately accounted for pursuant to Statement of
Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging
Activities. The fair value of the embedded derivative is deemed to be nil at both the loan note
issuance date, April 21, 2004, and the balance sheet date, December 31, 2004, as the likelihood of
the loan note holder exercising the put option, should a change of control occur, has been assessed
by management as being remote. The convertible feature within the loan notes is not required to be separately accounted for
pursuant to the Statement of Financial Accounting Standards No. 133 Accounting for Derivative
Instruments and Hedging Activities. The feature has therefore been accounted for in accordance
with the Emerging Issue Task Force, Issue 98-5 Accounting for Convertible Securities with
Beneficial - 47 -




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##### Table of Contents



Conversion Features or Contingently Adjustable Conversion Ratios and Issue 00-27
Application of Issue No. 98-5 to Certain Convertible Instruments. These Issues require that an
intrinsic value is assigned to the convertible feature at the date of the issuance of the loan
notes, based on the difference between the conversion price and share price multiplied by the
number of shares issued upon conversion. The conversion feature is recorded within Additional Paid
in Capital in Shareholders Equity and as a discount against the face value of the loan notes. The
discount is amortized using the effective yield method over the life of the loan notes. Results of Operations Due to the adoption of fresh start reporting as of June 7, 2002, the Companys post-fresh
start balance sheet, statement of operations and statement of cash flows have not been prepared on
a consistent basis with, and are therefore generally not comparable to, those of the Predecessor.
In accordance with SOP 90-7, the Companys balance sheet, statement of operations and statement of
cash flows have been presented separately from those of the Predecessor. Year-on-year movements in the statement of operations from fiscal 2003 to fiscal 2004 were
principally caused by organic growth and the recognition of non-recurring benefits following
settlement of claims originating from the Predecessors business (including settlement of our claim
with Easynet Telecommunications Limited (Easynet)). The
benefit recognized in the 2004 fiscal year of US$17.8 million from Easynet
was Substantially offset by higher sales and marketing expenses
incurred to drive organic growth. See Item 8. Financial Information 
Legal Proceedings. Year-on-year movements in the statement of operations from calendar 2002 to
fiscal 2003 were principally caused by the acquisitions of Netcom and Cybernet effected during
2003. Year-on-year movements in the statement of operations from fiscal 2001 to calendar 2002 were
principally caused by the exiting from the Predecessors voice businesses and enterprise businesses
in multiple jurisdictions during 2001. The fiscal year ended December 31, 2001 includes a partial
year of operations of all of the Predecessors businesses, with the remainder of the year being
more limited business activity, similar to the Companys ongoing business. During the year ended
December 31, 2002, the Predecessor and the Company operated similar businesses. For a greater
description of the evolution of the businesses of both the Predecessor and the Company, see Item
4. Information on the Company. Certain of the Companys line items in the statement of operations were not affected by the
adoption of fresh start reporting. Therefore, for these line items, the Predecessors 2002 amounts
have been combined with the Companys 2002 amounts for comparison and analysis purposes herein, as
shown in the table below. For those items affected by the adoption of fresh start reporting, the
total in the column below is shown as N/A. Successor
    
    
    
    PredecessorJun. 7-Year Ended December
    
    
    Year Ended
    
    
    
    Dec. 31,
    
    
    
    Jan.1Jun.
    
    
    Total Calendar Year Ended31, 2004
    
    
    December 31, 2003
    
    
    
    2002
    
    
    
    7, 2002
    
    
    December 31, 2002(1)% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % of$000
    
    
    revenue
    
    
    $000
    
    
    revenue
    
    
    
    $000
    
    
    
    $000
    
    
    $000
    
    
    revenueRevenue
    
    
    28,790
    
    
    
    100
    
    
    
    18,912
    
    
    
    100
    
    
    
    
    4,164
    
    
    
    
    2,667
    
    
    
    6,831
    
    
    
    100Cost of service & sales
    
    
    (16,538
    )
    
    
    (57
    )
    
    
    (10,015
    )
    
    
    (53
    )
    
    
    
    (1,506
    )
    
    
    
    (1,518
    )
    
    
    (3,024
    )
    
    
    (44
    )
 - 48 -




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##### Table of Contents



Successor
    
    
    
    PredecessorJun. 7-Year Ended December
    
    
    Year Ended
    
    
    
    Dec. 31,
    
    
    
    Jan.1Jun.
    
    
    Total Calendar Year Ended31, 2004
    
    
    December 31, 2003
    
    
    
    2002
    
    
    
    7, 2002
    
    
    December 31, 2002(1)% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    % of$000
    
    
    revenue
    
    
    $000
    
    
    revenue
    
    
    
    $000
    
    
    
    $000
    
    
    $000
    
    
    revenueSelling, general &
administrative
    
    
    (67,797
    )
    
    
    (235
    )
    
    
    (51,225
    )
    
    
    (271
    )
    
    
    
    (30,840
    )
    
    
    
    (26,502
    )
    
    
    (57,342
    )
    
    
    (839
    )Gains on amounts due from
bankruptcy estates
    
    
    3,105
    
    
    
    11
    
    
    
    358
    
    
    
    2
    
    
    
    
    25,003
    
    
    
    
    
    
    
    
    N/A
    
    
    
    N/ARestructuring and impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )
    
    
    (908
    )
    
    
    (13
    )Depreciation and amortization
    
    
    (9,140
    )
    
    
    (32
    )
    
    
    (7,181
    )
    
    
    (38
    )
    
    
    
    (2,458
    )
    
    
    
    (1,736
    )
    
    
    (4,194
    )
    
    
    (61
    )Other operating income
    
    
    17,780
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating loss before
reorganization items
    
    
    (43,800
    )
    
    
    (91
    )
    
    
    (49,151
    )
    
    
    (260
    )
    
    
    
    (5,637
    )
    
    
    
    (27,997
    )
    
    
    N/A
    
    
    
    N/AReorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,662,669
    
    
    
    N/A
    
    
    
    N/AOperating (loss) / income
    
    
    (43,800
    )
    
    
    (152
    )
    
    
    (49,151
    )
    
    
    (260
    )
    
    
    
    (5,637
    )
    
    
    
    2,634,672
    
    
    
    N/A
    
    
    
    N/AInterest and other income
    
    
    775
    
    
    
    3
    
    
    
    1,557
    
    
    
    8
    
    
    
    
    986
    
    
    
    
    1,007
    
    
    
    1,993
    
    
    
    29Interest expense
    
    
    (4,395
    )
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    (63
    )
    
    
    (74
    )
    
    
    (1
    )Taxation
    
    
    241
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/ANet (loss) / income
    
    
    (47,179
    )
    
    
    (143
    )
    
    
    (47,377
    )
    
    
    (251
    )
    
    
    
    (4,662
    )
    
    
    
    2,635,616
    
    
    
    N/A
 
 (10)
    
    (1) where not affected by adoption of fresh start reporting. Foreign Currency We have exposure to fluctuations in foreign currencies relative to the United States Dollar as
a result of billing portions of our communications services revenue in Pounds Sterling, Swiss
Francs and United States Dollars while many of our ongoing obligations, including a substantial
portion of the costs of operating our network, are denominated in Pounds Sterling and Euros. In
addition, our funding received under the April 2004 Financing and to be received under the June
2005 Financing was, or is to be, as appropriate, received in United States Dollars. To hedge against this risk we exchanged our cash balances pro rata into those currencies in
which we anticipated our expenditure to occur. Inflation We do not believe that inflation has had a significant effect on our operations to date. Results of Operations for the year ended December 31, 2004 as compared with the year ended December
31, 2003 The following discussion provides a comparison of the results of operations of the Company for
the year ended December 31, 2004 with the year ended December 31, 2003. Revenue For the year ended December 31, 2004, we recognized revenues of $28.8 million compared to
$18.9 million for the year ended December 31, 2003, an increase of 52%. The increase is primarily due to organic growth, and the recognition of 12 months of revenue
from Netcom and Cybernet which we acquired during 2003, as compared to 10 months of revenue in the
prior year. The effect of recognising a full 12 months of revenue is estimated to have increased
reported revenues by US$2.9 million. - 49 -




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Our revenues have been derived primarily from the provision of telecommunications services in
Europe. These services are marketed and sold to different classes of customer on a wholesale or
retail basis. By wholesale customers, we generally refer to other telecommunications companies (or
carriers) and by retail customers, we generally refer to SME customers. The majority of our
revenues are billed based on a periodic billing basis, monthly, quarterly or annually, based upon
contracted service fees. A small percentage of our revenues, such as access fees to our collocation
facilities, are billed based upon specific service requests from our customers and certain
revenues, such as our roaming Internet access service, are billed on a usage basis. Revenue from communications services in the year ended December 31, 2004 was $26.9 million or
93% of total revenue, an increase of 56% on communications services revenues for the year ended
December 31, 2003 which was $17.2 million or 91% of total revenue. Operations and maintenance fees are revenues that we derive from customers who have in the
past purchased certain interests in network capacity. Such revenues are contracted at the time of
initial purchase and reflect charges that we make to such customers for the ongoing maintenance of
their portion of the network capacity they have purchased. Revenue from operations and maintenance fees in the year ended December 31, 2004 was $1.8
million, or 6% of total revenue for such period, while for the year ended December 31, 2003, total
operations and maintenance fee revenue was $1.7 million, or 9% of total revenue for that period. Each revenue source has a different impact on our results of operations. As a consequence of
our network assets, the costs of which are not generally included in cost of sales, our wholesale
connectivity services provide increased gross profit margins. Our retail revenues are more reliant
upon services acquired from third parties. Cost of Sales Our cost of services and sales can be classified into three general categories: access costs,
backbone network costs and installation costs. Access costs generally represent the costs associated with providing connections between a
customers premises and 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. Backbone network costs represent the recurring third party costs of providing connectivity to
locations where we do not own our own network infrastructure. Installation costs represent the initial non-recurring costs of connecting customers to our
network, and include third party connection fees, as well as the cost of equipment located at
customers premises. For the year ended December 31, 2004, we incurred costs of sales of $16.5 million, or 57% of
total revenue for such period, an increase of 65% compared to $10.0 million for the year ended
December 31, 2003 or 53% of total revenue for such period. The reason for this increase was
primarily related to the increased revenue of the Company. The gross margin generated by the revenues and related costs of services and sales for the
year ended December 31, 2004 was 43%, while for the year ended December 31, 2003 it was 47%. This
decline reflects the increased focus on sales to retail customers, a business which offers lower
margins - 50 -




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than those the Company can achieve when selling on-network wholesale connectivity services
as a consequence of the reliance upon third party carriers to deliver retail services. Selling, General and Administrative Expenses Our selling, general and administrative expenses include network property lease and related
costs, periodic ROW and wayleave costs, repair and maintenance costs, advertising and promotional
costs, all employee costs, bad debt expense, and overhead costs associated with our headquarters,
back-office, NOC and sales offices. A significant proportion of our total selling, general and administrative expenses is
currently accounted for by costs which are related to the continued operation of our network; such
costs are unavoidable if we continue to operate the network on its current footprint and level of
service. For the year ended December 31, 2004, we incurred selling, general and administrative expenses
of $67.8 million, an increase of 32% compared to $51.2 million for the year ended December 31,
2003. The increase is principally attributed to higher sales and marketing, as the Company
undertook both to accelerate growth in new order intake and to expand its product portfolio.
Increased headcount and external marketing expenditure contributed $8.4 million, or 16%, of the
growth in selling, general and administrative expenses. The weaker US dollar resulted in a further
increase in reported expenses of approximately $5 million, or 10% Gains on amounts due from bankruptcy estates For the year ended December 31, 2004, we recognized $3.1 million in respect of gains on
amounts due from bankruptcy estates, and in the year ended December 31, 2003, we recognized $0.4
million for such gains. These items have arisen due to the Predecessors position as a significant
creditor in the estates of several of its subsidiaries which were forced to enter into bankruptcy
proceedings. The final amounts to be received ultimately depend upon the success of the liquidation
processes and are considered pre-confirmation contingencies in accordance with AICPA Practice
Bulletin 11. Subsequent revisions to the pre-confirmation contingencies are reported in the
statement of operations. Gains on amounts due from bankruptcy estates may continue to occur until such bankruptcy
estates are finally liquidated, which is anticipated during 2005. Due to their nature, such gains
are unpredictable in size and timing. Restructuring and Impairment We did not incur any expense for restructuring and impairment in either of the years ended
December 31, 2004 or 2003. During 2003 and 2004, no restructuring was undertaken and, in the view
of management, there was no impairment of any assets. Depreciation and Amortization Depreciation and amortization expense includes charges relating to depreciation of property
and equipment, which consist principally of our fiber-optic network, as well as telecommunications
related equipment such as leasehold improvements at our POPs, furniture and equipment and
amortization of intangible assets. We depreciate our network over periods ranging from five to
twenty years and amortize our intangible assets over periods ranging from two to five years. - 51 -




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For the year ended December 31, 2004, we recorded depreciation and amortization expense of
$9.1 million, an increase of 27% over the $7.2 million recorded in the year ended December 31,
2003. This increase is principally due to the higher average value of the depreciable cost base
during 2004, due to the capitalization of assets during the latter half of 2003 and through 2004. Other operating income Other
operating income represents the recognition of amounts due of US$17.8 million following settlement of our
claim with Easynet. See Item 8  Financial Information  Legal Proceedings and footnote 10(b) to
consolidated financial statements in this Form 20-F. Operating loss For the year ended December 31, 2004, we recorded an operating loss of US$43.8 million, an
improvement of US$5.4 million over the loss of $49.2 million recorded in 2003. Interest and Other Income Interest was earned on cash balances held by certain of the Groups subsidiaries, which has
been invested principally in overnight, week-to-week or month-to-month treasury deposits. For the year ended December 31, 2004, we recognized interest income of US$0.8 million, a
decrease of US$0.8 million or 50% from the US$1.6 million interest income recognized for the year
ended December 31, 2003. The interest income decrease was due to the lower average cash balances
being held by the group in 2004 compared with 2003. Interest expense For the year ended December 31, 2004, we recorded interest expense of US$4.4 million. This
principally accrued on the convertible loan notes which were issued on April 21, 2004, and which
bear interest at 8% per annum. Interest expense was also recognized as a result of amortization of
the deferred financing costs associated with the issuance of the convertible loan notes, and on the
discount on the convertible loan notes arising as a consequence of recognizing the beneficial
conversion feature. Net loss For the year ended December 31, 2004, we recorded a net loss of US$47.2 million, an
improvement of US$0.2 million over the net loss of US$47.4 million recorded in 2003. Capital Expenditure In 2004 capital expenditure increased by 77% to US$3.9 million from US$2.2 million in the year
ended December 31, 2003. During 2003, we also incurred cash expenditure for the purchase of Netcom
(approximately US$0.8 million) and Cybernet (approximately US$3.2 million). Capital expenditure incurred in 2004 included US$1.3 million to light the French western
loop of our European network. The balance of expenditure was predominately incurred in the
acquisition of computer hardware and IP equipment to support the launch of our managed hosting
portfolio and to support Cybernets ongoing business. - 52 -




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Results of Operations for the year ended December 31, 2003 as compared with the year ended December
31, 2002 The following discussion provides a comparison of the results of operations of the Company for
the year ended December 31, 2003 with the historical results of the Company and the Predecessor on
a combined basis for the year ended December 31, 2002. The discussion is provided for comparative
purposes only. Please note that the value of such a comparison may be limited. The historical
results of operations for the year ended December 31, 2002 combines the results of operations for
the Predecessor for the period from January 1, 2002 to June 7, 2002 with the results of operations
for the Company for the period from June 7, 2002 to December 31, 2002. Such combined financial
information does not necessarily reflect the results of operations that either the Predecessor or
the Company would have achieved during 2002. The combined financial information for the year ended
December 31, 2002 is merely such combined historical data on an aggregate basis and does not
attempt to give pro forma effect to the acquisitions of assets by the Company in 2003, transactions
related to the Plan of Reorganization or any other events which occurred during or after the
period. In addition, the Company has a significantly different capital structure than the
Predecessor as a result of its Chapter 11 reorganization. Revenue For the year ended December 31, 2003, we recognized revenues of $18.9 million compared to $6.8
million for the year ended December 31, 2002 on a combined basis, an increase of 178%. This increase was primarily due to the revenues being generated by the companies which we
acquired during 2003. Cybernet contributed US$8.7 million and Netcom US$4.8 million of the total
revenue line. Revenue from communications services in the year ended December 31, 2003 was $17.2 million or
91% of total revenue, an increase of 330% on communications services revenues for the year ended
December 31, 2002 which on a combined basis was $4.0 million or 59% of total revenue. The increase
in percentage terms that communications services revenue represents of total revenue reflects a
lesser reliance on the operations and maintenance fee revenues. Substantially, all of the revenue
being added as a consequence of the acquisitions in the year is communications services revenue. Revenue from operations and maintenance fees in the year ended December 31, 2003 was $1.7
million, or 9% of total revenue for such period, while for the year ended December 31, 2002, total
operations and maintenance fee revenue on a combined basis was $2.8 million, or 41% of total
revenue for that period. The reason for the decrease in operations and maintenance fee revenue of
40% was due to the loss of one customer whose bankruptcy caused them to terminate their agreement
for the provision of network capacity. Cost of Sales For the year ended December 31, 2003, we incurred costs of sales of $10.0 million, or 53% of
total revenue for such period, an increase of 333% compared to $3.0 million for the year ended
December 31, 2002 on a combined basis, or 44% of total revenue for such period. The reason for this
increase was primarily related to the increased revenue of the Company. The gross margin generated by the revenues and related costs of services and sales for the
year ended December 31, 2003 was 47%, while for the year ended December 31, 2002 on a combined
basis, it was 56%. The reduction of 9 percentage points between 2002 and 2003 in gross margin is
due to the increased focus on sales to retail customers. - 53 -




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Selling, General and Administrative Expenses For the year ended December 31, 2003, we incurred selling, general and administrative expenses
of $51.2 million, a decrease of 11% compared to $57.3 million for the year ended December 31, 2002
on a combined basis. The 2002 figure includes a charge of $6.1 million for a repayment due to the
French VAT authorities which is a non-recurring item. No such charge has arisen in 2003; absent the
charge for French VAT, selling, general and administrative expenses in 2003 would have been 1%
lower than for the year ended December 31, 2002 on a combined basis. Gains on amounts due from bankruptcy estates For the year ended December 31, 2003, we recognized $0.4 million in respect of gains on
amounts due from bankruptcy estates. In the period from June 7, 2002 to December 31, 2002, we
recognized $25.0 million for such gains. As this item results from the adoption of fresh-start
reporting, the Predecessor had no such gains in its statements of operations. This item has arisen
due to the Predecessors position as a significant creditor in the estates of several of its
subsidiaries which were forced to enter into bankruptcy proceedings. The final amounts to be
received ultimately depend upon the success of the liquidation processes and are considered
pre-confirmation contingencies in accordance with AICPA Practice Bulletin 11. Subsequent revisions
to the pre-confirmation contingencies are reported in the statement of operations. In the period from June 7, 2002 to December 31, 2002, the full revision of the estimate of
amounts receivable from bankruptcy estates was recognized and the balance sheet amount for such
gains was based on extensive information available from the liquidators of such bankruptcy estates.
The extensive look-back period available in the composition of the audited consolidated 2002
financial statements has given rise to a significant reduction in the size of the gain recognized
in the year ended December 31, 2003. Restructuring and Impairment For the year ended December 31, 2003, we incurred no expense for restructuring and impairment
compared with an expense of $0.9 million for the year ended December 31, 2002 on a combined basis.
During 2003, no restructuring was undertaken and, in the view of management, there was no
impairment of any assets. Depreciation and Amortization For the year ended December 31, 2003, we recorded depreciation and amortization expense of
$7.2 million, an increase of 71% over the $4.2 million recorded in the year ended December 31,
2002, on a combined basis. This increase is principally due to the depreciation of tangible fixed
assets acquired and the amortization of intangible assets acquired as a consequence of the
acquisitions of Netcom and Cybernet. Operating loss For the year ended December 31, 2003, we recorded an operating loss of $49.2 million. Due to
the application of fresh start reporting, such loss is not comparable with a similar period in
2002. Interest and Other Income - 54 -




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Interest was earned on cash balances held by certain of the Groups subsidiaries, which has
been invested principally in overnight, week-to-week or month-to-month treasury deposits. For the year ended December 31, 2003 we recognized interest income of $1.6 million, a decrease
of 22% on the interest income recognized for the year ended December 31, 2002 on a combined basis,
which was $2.0 million. The interest income decrease was due to the lower cash balances being held
by the Group in 2003 compared with 2002. Net loss For the year ended December 31, 2003, we recorded a net loss of $47.4 million. Due to the
application of fresh start reporting, such loss is not comparable with a similar period in 2002. Capital Expenditure In 2003 capital expenditure declined by 79% to $2.2 million from $10.4 million in the year
ended December 31, 2002, on a combined basis. This is primarily due to the completion of our Swiss
network build during 2002. No such network construction-related capital expenditure was incurred in
2003. During 2003, we incurred cash expenditure for the purchase of Netcom (approximately US$0.8
million) and Cybernet (approximately US$3.2 million). Liquidity and Capital Resources The Company and the Predecessor have experienced significant net losses from operations and
negative cash flows from operations for most of their history. We are currently operating at a net
loss and experiencing negative cash flows through the current year to date and expect to continue
to do so as we continue to implement the New Viatel Business Plan and expand our business. Operating cash outflows for the years ended December 31, 2004 and 2003 amounted to US$48.8 million and US$25.1 million respectively. The 2004 cash outflow included
US$10.5 million of cash
which was subject to a hedging conversion which straddled the year end and consequently fell to be recognized as an around to be received from
exchange contracts  and not as cash or cash equivalents as of December 31, 2004.
This amount receivable from exchange contracts was received in cash on January 5, 2005.
Financing activities during 2004 generated gross proceeds of US$52.25 million from the issue
 of loan notes, such monies being reduced by
US$8.1 million due to costs incurred in connection with the loan note offering,
resulting in completion of the April 2004 financing. As of May 31, 2005, our available cash amounted to US$8.7 million. As of December 31, 2004,
our available cash amounted to US$22.8 million and as of December 31, 2003, our available cash
amounted to US$30.4 million. Since the Effective Date, we have met our cash requirements through
the financing from the Investors, the recovery of funds through the Plan of Reorganization,
recoveries from the bankruptcy proceedings of certain subsidiaries of the Predecessor, interest
income on short-term investments and trade receipts. Operating cash outflows for the years ended
December 31, 2004 and 2003 amounted to US$48.8 million and US$25.1 million respectively. We currently have limited financial resources available to support our ongoing operations, to
fund the New Viatel Business Plan and to pay our ongoing operational obligations as they become
due.
Interest on the New Notes is to be initially 12% per annum, payable semi-annually with the interest rate increasing by 0.5% per annum on each interest payment date, beginning on january 15, 2006. For the first year of issue interest will be payable on the New Notes by way of the issuance of additional New Notes. After the first anniversary of the New Notes, interest will be payable in cash only. The
New Notes are to have a 2 year maturity and will rank senior to all subordinated debt of the Company (including the Existing Notes) and pari passu will all senior debt of the Company. Under the terms of the June 2005 financing, the holders of the Existing Notes have agreed to subordinate their Existing Notes to the New Notes. The Company expects to
pursue the further financing and Morgan Stanley and Värde have advised the Company that they
will consider providing such financing and/or additional financing. It is currently contemplated
that any such further financing would involve an investment of an additional US$16 million,
with such additional amount being reduced by the proceeds of any asset sales by the Company
entered into prior to the future financing, and to be further reduced to the extent that the
Companys then performance against budget does not demonstrate a need for such additional
financing. No assurance can be given that the proposed further financing will be consummated. If
the Company does not obtain acceptable funding, the Directors will be forced to reduce
dramatically cash requirements or to raise cash, by discounting or disposing of existing
development programmes or business operations, by selling assets or otherwise. These
consolidated financial statements  do not include any adjustment that might result from the
outcome of this uncertainty. If these measures were to be inadequate
to cover the Companys cash
needs, the Company would likely become insolvent.  Neither Morgan
Stanley nor Värde is under
any obligation to participate in the further financing or any other financing, other than the
June 2005 financing to the extent contemplated by the terms and conditions thereof. Our business plan projections would indicate that we will not generate positive cash flows on
a monthly basis until into the last quarter of 2006. - 55 -




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Our cash requirements and financial resources may vary significantly from our current
operating budgets and financial forecasts, however, based on many factors. These factors include
those set forth under the caption Item 3. Key Information  Risk Factors in this Form 20-F. Commitments The following table provides a summary of our expected obligations and commitments to make
future payments under contracts, contractual obligations and commercial commitments as at December
31, 2004: Contractual Obligations Less than
    
    
    
    
    
    
    
    
    
    
    More thanUS$000
    
    TOTAL
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(United States Dollars in thousands)Standby maintenance contracts
    
    
    3,730
    
    
    
    3,678
    
    
    
    52
    
    
    
    
    
    
    
    Operating leases
    
    
    39,930
    
    
    
    5,394
    
    
    
    7,771
    
    
    
    6,065
    
    
    
    20,700Loan and future interest payments
    
    
    94,812
    
    
    
    1,952
    
    
    
    12,774
    
    
    
    8,516
    
    
    
    71,570Total contractual cash commitments
    
    
    138,472
    
    
    
    11,024
    
    
    
    20,597
    
    
    
    14,581
    
    
    
    92,270
 This table excludes contracts entered into shortly before the year end, in the normal
course, for delivery of goods or services early in the new year. Future contractual obligations
under standby maintenance contracts and operating leases are expected
to be satisfied through ongoing financing and
operating cashflows. Loan and future interest payments are expected
to be satisfied either through ongoing financing,
operating cashflows or through the exercise, at the loan holders behest, of the conversion of the
loan notes and accumulated interest into equity. The contractual
committment to make future interest payments assures interest
obligations are paid in cash and not met through the conversion
of accrued interest into additional loan notes. New
Notes to the value of US$16 million are expected to be issued in
connection with the June 2005 financing. These New Notes are due for
repayment by June 2007. Interest on the New Notes proposed to be
issued upon completion of the June 2005 financing is to be initially
12% per annum, payable semi-annually with the interest rate
increasing by 0.5% per annum on each interest payment date,
beginning  January 15, 2006, for the first year of issue interest will be
payable on the New Notes by way of the issuance of additional New
Notes. After the first anniversary of the issuance of the  New Notes, interest will be
payable in cash only. Research and Development and Capital Expenditures The following table summarizes our capital expenditure and research and development from the
2002 fiscal year through to December 31, 2004. During 2004, we conducted development activity in
MPLS VPN, managed hosting, Ethernet and connectivity In 2005 the Company commenced development
activity in respect of VISP and VoIP product lines and underlying network and technical solutions. Successor
    
    
    
    PredecessorYear ended
    
    
    Year ended
    
    
    From June 7, 2002
    
    
    
    From January 1,US$000
    
    December 31,
    
    
    December 31,
    
    
    to December 31,
    
    
    
    2002 to June 7,2004
    
    
    2003
    
    
    2002
    
    
    
    2002Capital expenditure
    
    
    3,847
    
    
    
    2,180
    
    
    
    1,667
    
    
    
    
    8,721Research and development
    
    
    1,093
    
    
    
    
    
    
    
    
    
    
    
    
    
 Recent Accounting Pronouncements Not Yet Adopted On November 24, 2004, the FASB issued SFAS 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The amendments made by SFAS 151 clarify that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges require the allocation of fixed production overheads to inventory based on
the normal capacity of the production facilities. SFAS 151 is the result of a broader effort by the
FASB to improve the comparability of cross-border financial reporting by working with the
International Accounting Standards - 56 -




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Board (IASB) toward development of a single set of high-quality
accounting standards. The FASB and the IASB noted that ARB 43, Chapter 4 and IAS 2, Inventories,
are both based on the principle that the primary basis of accounting for inventory is cost. Both of
those accounting standards also require that abnormal amounts of idle freight, handling costs,
and wasted materials be recognized as period costs; however, the Boards noted that differences in
the wording of the two standards could have led to the inconsistent application of those similar
requirements. The FASB concluded that clarifying the existing requirements in ARB 43 by adopting
language similar to that used in IAS 2 is consistent with its goals of improving financial
reporting in the United States and promoting convergence of accounting standards internationally.
The guidance is effective for inventory costs incurred during fiscal years beginning after June 15,
2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning
after November 23, 2004. We do not anticipate that the adoption of SFAS 151 will have a material
impact on our results of operations, financial position or cash flows. In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payments or SFAS
123R. This statement eliminates the option to apply the intrinsic value measurement provisions of
APB 25, Accounting for Stock Issued to Employees to stock compensation awards issued to
employees. Rather, SFAS 123R requires companies to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award.
That cost will be recognized over the period during which an employee is required to provide
services in exchange for the award-the requisite service period (usually the vesting period). SFAS
123R applies to all awards granted after the required effective date and to awards modified,
repurchased, or cancelled after that date. For public entities that do not file as small business
issuers, standard is effective for the annual reporting period that begins after June 15, 2005. We
are currently evaluating the impact of SFAS 123R on our results of operations, financial position
and cash flows. In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets  an amendment of
APB Opinion No. 29, which amends APB 29, Accounting for Nonmonetary Transactions to eliminate
the exception for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. We are currently evaluating the impact of SFAS 153 on our results of operations, financial
position and cash flows. 
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Executive Officers The following table sets forth certain information with respect to our Directors and executive
officers as of May 31, 2005: Name
    
    Age
    
    Date of Appointment
    
    PositionLeslie Goodman
    
    
    59
    
    
    July 24, 2002
    
    Chairman of the Board (1), (2)Lucy Woods
    
    
    46
    
    
    May 9, 2003
    
    Chief Executive Officer and Director (1)S. Dennis Belcher
    
    
    64
    
    
    August 8, 2002
    
    Director (1), (2), (3)Kevin Power
    
    
    51
    
    
    October 25, 2002
    
    Director (1), (2), (3)
 - 57 -




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Name
    
    Age
    
    Date of Appointment
    
    PositionEdward Greenberg
    
    
    53
    
    
    March 31, 2003
    
    Director (3), (4)Thomas E. Doster IV
    
    
    36
    
    
    August 8, 2002
    
    Director (4)Steve Best
    
    
    38
    
    
    July 25, 2004
    
    Chief Technical OfficerStuart Blythe
    
    
    41
    
    
    September 29, 2003
    
    Senior Vice President and General
Counsel (5)Roberto Bonanzinga
    
    
    35
    
    
    September 15, 2003
    
    Senior Vice President, MarketingBrian McArthur
Muscroft
    
    
    41
    
    
    August 1, 2004
    
    Chief Financial Officer (5)
 
 (1)
    
    Member of the Financing Committee.(2)
    
    Member of the Audit Committee.(3)
    
    Member of the Remuneration Committee.(4)
    
    Serves as representative of Morgan Stanley.(5)
    
    Member of the Disclosure Committee. Leslie Goodman.Mr. Goodman has served as our Chairman since April 2003. Prior to assuming
such position, Mr. Goodman served as a Director of the Company since July 2002. Mr. Goodman is a
UK non-practising qualified solicitor who has spent over 30 years in the investment banking and
insurance industries. He has been a director of investment banks Hill Samuel and Barclays de Zoete
Wedd, and Chief Executive Officer of ACE London the UK business of ACE Limited, a Bermuda-based,
NYSE-listed insurance group. He currently serves as a director of a number of other companies. Lucy Woods.Mrs. Woods has served as our Chief Executive Officer since May 2003. Mrs. Woods
has over 20 years of telecommunications experience in the UK and European markets. From 1999 to
2003, she was Senior Vice President for MCI Europe, Middle East and Africa. Prior to that, she was
a senior executive at British Telecom, where she held the posts of CEO of British Telecom Northern
Ireland and the Republic of Ireland. Mrs. Woods was a member of the Patten Commission for Policing
in Northern Ireland. Mrs. Woods holds an Honours Degree in Mechanical Engineering from Imperial
College, University of London. S. Dennis Belcher.Mr. Belcher has served as a Director of the Company since August 2002. Mr.
Belcher has forty-four years of experience in banking in the United Kingdom, United States and
Canada. At the time of his retirement in March 2002, he was Executive Vice President, Credit and
Risk Management and a member of the Loan Policy Committee at the Bank of Nova Scotia. Mr. Belchers
other directorships include Call-Net Enterprises, Inc., Foamex International Inc. and Rand McNally
and Company. Mr. Belcher is an Associate of the Institute of Bankers (UK), a Graduate of the
Stonier School of Banking and a Fellow of the Insolvency Institute of Canada. Kevin Power.Mr. Power has served as a Director of the Company since October 2002. He has
served as the Chairman of ECTA, the European Competitive Telecommunications Association since 2000
and was a member of the Board of Universal Access, Inc. from 2000-2003. He has over 20 years - 58 -




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experience as a senior telecommunications executive in a number of companies, including GTS, Orion
Network Systems and Intelsat. Edward Greenberg.Mr. Greenberg has served as a Director of the Company since March 2003. Mr.
Greenberg, who has over 20 years of telecommunications experience, is an Advisory Director at
Morgan Stanley. He was previously a highly ranked Research Analyst at Sanford Bernstein and Co.,
and Morgan Stanley and was Director of Telecom Research at Morgan Stanley for four years. For the
last 6 years, Mr. Greenberg has been a Managing Director and Global Telecom Strategist in Morgan
Stanleys investment banking department. Previously, Mr. Greenberg served as a telecommunications
policy specialist with the National Telecommunications and Information Administration and as an
economist with the Federal Communications Commission. Thomas E. Doster IV.Mr. Doster has served as a Director of the Company since August 2002. He
is the Managing Director in the Distressed Research department at Morgan Stanley and was the
Chairman of the Viatel, Inc. creditors committee. Mr. Doster has 13 years experience in the fields
of High Yield and Distressed Debt at Morgan Stanley and Goldman, Sachs & Co. Steve Best.Mr. Best joined Viatel as Chief Technology Officer in July 2004. Previously, Mr.
Best held a number of senior positions with the MCI group including Vice President of Marketing and
head of Engineering and Technology for MCI Europe, Middle East and Africa; his responsibilities
while at MCI included the design of MCIs pan-European voice network and the product development
and marketing of the companys voice, data and IP portfolio across 19 European countries. Before
MCI, Mr. Best spent seven years with BT in engineering, marketing and product management. He holds
a Bachelors Degree in Management Science from Lancaster University. Stuart Blythe.Mr. Blythe has served as our Senior Vice President and General Counsel since
September 2003. Prior to joining us he was Vice President and General Counsel for MCI Europe,
Middle East and Africa from 1997-2003. From 1989 until 1997 he practised with the law firms
Theodore Goddard and Coudert Brothers LLP, both in London and in New York, specialising in mergers
and acquisitions, joint ventures and general corporate law matters. He is qualified both as a
Solicitor of the Supreme Court of England and Wales and as an Attorney-at-law in the State of New
York. Roberto Bonanzinga.Mr. Bonanzinga has served as our Senior Vice President, Marketing since
September 2003. Previously Mr. Bonanzinga worked as VP Marketing and Services for Netscalibur, a
pan-European business ISP. He held this role for three years, pioneering the development of virtual
private networking and hosting services tailored to the needs of business customers. Mr. Bonanzinga
has an indepth knowledge of the Internet industry having worked in California throughout the mid
nineties developing both marketing and business strategy for a string of successful Internet
companies. Brian McArthur Muscroft.Mr. McArthur Muscroft has served as our Chief Financial Officer since
August 2004. Prior to assuming such position, Mr. McArthur Muscroft served as Group Finance
Director at Eckoh Technologies plc. Prior to that, Mr. McArthur Muscroft held a number of senior
financial positions with several of the worlds largest corporations, including Chief Financial
Officer at WorldCom EMEA and Chief Financial Officer at Cable & Wireless HKT Interactive
Multimedia. He
was also appointed Director of Risk Management for Cable & Wireless Asia Pacific. Mr. McArthur
Muscroft spent the first 11 years of his career with the Price Waterhouse Corporate Restructuring
Group - 59 -




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in London. Mr. McArthur Muscroft is a member of the Institute of Chartered Accountants in
England and Wales and has a law degree. There is no family relationship between any of the foregoing persons. Certain Directors
became Directors pursuant to the Plan of Reorganization. Otherwise, there are no specific
agreements, arrangements or understandings with major shareholders, customers, suppliers or others,
pursuant to which any of the foregoing persons were selected as a Director or executive officer. Compensation We pay an annual fee to any non-employee independent Chairman of the Board of US$100,000 in
cash and to independent non-employee Directors in the amount of US$30,000 in cash, paid in
quarterly instalments. Chairmen of Committees of the Board receive an additional US$10,000 per
year per chairmanship, paid in quarterly instalments. In addition, independent non-employee
Directors also receive US$1,200 for each Board Meeting attended and held separately and US$600 for
each Board Meeting or Committee Meeting participated in by telephone. Directors who are also our
employees are not separately compensated for serving on the Board. Directors are reimbursed for
out-of-pocket expenses incurred in attending Board and Committee Meetings. The total aggregate compensation for the Board as a group for 2004 was US$225,000. The total
aggregate compensation of all executive officers of the Company as a group for 2004 was
US$2,492,810. During 2004, no options to purchase ordinary shares were granted to executive
officers under the Companys Equity Incentive Plan. Included in the total aggregate compensation
for our Board and executive officers for 2004 was US$103,685 to provide for pension and other
retirement benefits. In addition to the aggregate compensation noted above, payments totalling
US$1,258,245 were made to executives resigning during the year. Mr. Grist resigned on July 31, 2004 and was replaced with Mr. McArthur Muscroft. Upon the
effectiveness of such resignation, Mr. Grists contract of employment with the Company was
terminated. In connection with Mr. Grists resignation, in July 2004 Mr. Grist exercised an option
to purchase 70,000 shares at US$0.01 per share. As of December 31, 2004 there were no options outstanding under the Companys Equity Incentive
Plan. The Company does not intend to make any further grants under its Equity Incentive Plan and
intends to terminate the Equity Incentive Plan in 2005. Board Practices Board of Directors Our Board is currently comprised of six Directorships. In connection with the April 2004
Financing, various changes to our Bye-Laws were approved and adopted by shareholder resolution at
the Special General Meeting of the Company held on April 6, 2004 (the April 2004 SGM) which have
a material impact on the powers and procedures relating to the appointment and removal of
Directors. Effectively, the Investors have the power to appoint a majority of the Board at any one
time. Under the Bye-Laws, Värde, Ahab Capital management, Inc, CFSC Wayland Advisers, Inc. and
certain affiliated
entities who purchase Existing Notes, each have the right to appoint one non-voting
representative to attend all meetings of the Board until such time as they collectively
beneficially own less than ten percent - 60 -




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of the then outstanding common shares of the Company. In
connection with the April 2004 Financing, the Company granted the Investors certain registration
rights to cause the Company under certain circumstances to register the common shares issuable upon
conversion of the Existing Notes under a registration statement to be
filed with the U.S. SEC. See Item 4. Information on the Company  Financing and Item 10. Further
Information  Memorandum of Association and Bye-Laws. Our Bye-Laws provide that at the second Annual General Meeting of the Company, all of the
Directors (other than any holding executive office) are to retire from office, and at every
subsequent Annual General Meeting one-half of the Directors who are subject to retirement by
rotation or, if their number is not two or a multiple of two, the number nearest to but not more
than one-half shall retire from office. The Directors to retire shall be those who have been
longest in office since their last appointment or reappointment, but as between persons who became
or were last reappointed Directors on the same day those to retire shall (unless they otherwise
agree among themselves) be determined by lot. As a result of the Bye-Law amendments adopted by
shareholders resolution at the April 2004 SGM in connection with the April 2004 Financing, the
Bye-Law in relation to retirement by rotation is not applicable for so long as the Special Share is
outstanding (see Item 10. Further Information  Description of Share Capital  Memorandum of
Association and Bye-Laws). As a result Bermuda law applies and each Director is appointed at the
relevant annual general meeting and serves until reappointed at the following AGM or until their
successors are appointed, unless they are earlier removed or resign. We have not entered into any service agreements providing for benefits to our Directors upon
termination of their Directorships. Committees of the Board of Directors Our Board has established three standing committees, a Remuneration Committee, an Audit
Committee and a Disclosure Committee. The current members of the Remuneration Committee are
Messrs. Belcher, Greenberg and Power; the current members of the Audit Committee are Messrs.
Belcher, Goodman and Power; and the current members of the Disclosure Committee are Messrs. Blythe,
McArthur Muscroft and Steve Garry. The Remuneration Committee reviews general policy matters relating to compensation and
benefits of our employees and officers and administers our Equity Incentive Plan and the EBT. See
Item.6  Employee Benefit Trust. None of our executive officers currently serves on the
Remuneration Committee of another entity or any other committee of the board of another entity
performing functions similar to the Remuneration Committee. No interlocking relationships exist
between our Board or our Remuneration Committee and the board of directors or compensation
committee of any other company. The Audit Committee consists of 3 independent Directors and meets at least 3 times a year. Its
role is to recommend to our Board the firm of independent public accountants to audit our financial
statements, review with management and the independent accountants our interim and year-end
operating results, consider the adequacy of our internal controls and audit procedures and review
the non-audit services to be performed by the independent accountants. The Disclosure Committee was established pursuant to a written Disclosure Committee Charter
approved by our Board. The Disclosure Committee Charter was adopted by our Chief Executive Officer - 61 -




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and Chief Financial Officer and ratified by our Board by written Directors resolutions dated
December 28, 2003. The Charter enumerates the Committees responsibilities, including designing
disclosure controls, monitoring their effectiveness and supervising the preparation of our
disclosure documents. The Disclosure Committee oversees the gathering of information in connection
with the preparation of the reports that we file under the Exchange Act, including this Form 20-F,
and works to ensure the accuracy and completeness of our disclosures in such reports. Employees The following tables set forth the number of full-time employees on a functional basis at the
end of each of 2004, 2003 and 2002: 2004
    
    
    2003
    
    
    2002Engineering and Operations
    
    
    50
    
    
    
    41
    
    
    
    43Sales, Services and Marketing
    
    
    143
    
    
    
    105
    
    
    
    22Finance
    
    
    14
    
    
    
    15
    
    
    
    7Management Information Systems
    
    
    9
    
    
    
    5
    
    
    
    5Legal and Human Resources
    
    
    7
    
    
    
    2
    
    
    
    1Other
    
    
    2
    
    
    
    14
    
    
    
    5Total
    
    
    225
    
    
    
    182
    
    
    
    83
 As at May 31, 2005, the Company had 198 full-time employees, of which 48 are engaged in
Engineering and Operations, 120 in Sales & Service and Marketing, 13 in Finance, 8 in Management
Information Systems, 8 in Legal and Human Resources and two others to include the Chief Executive
Officer and one administrative assistant. The breakdown of these 198 full-time employees by
geographic location is as follows: May 31, 2005
    
    Total
    
    
    UK
    
    
    Belgium
    
    
    France
    
    
    Germany
    
    
    Netherlands
    
    
    SwitzerlandEngineering &
Operations
    
    
    48
    
    
    
    36
    
    
    
    1
    
    
    
    3
    
    
    
    1
    
    
    
    2
    
    
    
    5Sales, Services and
Marketing
    
    
    120
    
    
    
    90
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    26Finance
    
    
    13
    
    
    
    11
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Management
Information Systems
    
    
    8
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Legal and Human
Resources
    
    
    7
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    198
    
    
    
    154
    
    
    
    1
    
    
    
    5
    
    
    
    2
    
    
    
    2
    
    
    
    32
 None of the foregoing employees including those referred in the table set out above is or was
represented by a labour union or, save for the 5 employees employed by the French company, Viatel
Operations SA, who are covered by a collective agreement. - 62 -




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Share Ownership Beneficial Ownership of Executive Officers and Directors As at May 31, 2005, none of our executive officers or directors reported any information to us
concerning any related beneficial ownership of our common shares. For these purposes, beneficial
ownership is determined in accordance with the rules of the U.S. SEC. In computing the number of
shares beneficially owned by a person and the percentage ownership of that person, common shares
subject to options and warrants held by that person that are currently exercisable, or exercisable
within 60 days, are deemed outstanding. Such common shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of any other person. However,
upon conversion of the Existing Notes held by Mrs. Woods
(including those addintional notes issued to Mrs. Woods by way of
interest  on the Existing Notes issued to Mrs. Woods under the April
2004 financing), Mrs Woods would
beneficially own 353,137 common shares of the Company, assuming a conversion price of US$0.75 per
share. Both Mr. Edward Greenberg and Mr. Thomas E. Doster IV are Directors of the Company, and an
Advisory Director and a Managing Director in the Distressed Research Department, respectively, of
Morgan Stanley and therefore may be deemed to beneficially own the common shares owned by Morgan
Stanley. However each of Mr. Greenberg and Mr. Doster disclaims any beneficial interest in the
common shares owned by Morgan Stanley. See Item 4. Information on the Company  Description of
Certain Indebtedness and Item 7. Major Shareholders and Related Party Transactions for details
of Morgan Stanleys ownership. Equity Incentive Plan and Employee Benefit Trust On June 6, 2002, with shareholder approval, the Board approved the terms of and adopted the
Equity Incentive Plan which is designed to: (1) attract, retain and motivate participants; (2)
provide incentive compensation opportunities to participants that are competitive with those of
companies similarly situated; and (3) further align the interests of participants with those of our
shareholders. Such participants initially were the executive officers in place at the Effective
Date, however it was anticipated that grants under the Equity Incentive Plan would be made to
certain levels of management of the Company. As of December 31, 2004 there were no options outstanding under the Companys Equity Incentive
Plan. The Company does not intend to make any further grants under its Equity Incentive Plan and
intends to terminate the Equity Incentive Plan in 2005. Pursuant to the Equity Incentive Plan, non-qualified stock options to acquire shares of
common stock may be granted to the Companys employees, officers, directors, independent
contractors and consultants. The Incentive Plan also provides for the grant of Stock Appreciation
Rights, either separately or in tandem with options, entitling holders to cash compensation
measured by appreciation in the value of the common shares, and Limited Stock Appreciation Rights,
that are exercisable upon the occurrence of specified events. The Equity Incentive Plan also
authorizes the grant of any other share-based awards, such as restricted stock and bonus stock, as
deemed appropriate. The Equity Incentive Plan is currently administered by the Remuneration Committee. The Equity
Incentive Plan allows for the issuance of up to a maximum of 1,440,000 shares of common stock of
which 1,180,000 shares remained available for grant at December 31, 2003. No options were granted - 63 -




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during the year ended December 31, 2004. The exercise price of the share covered by each
non-qualified stock option shall be as determined by the Remuneration Committee. Should an
incentive stock option be granted to a person possessing more than 10% of the combined voting power
of the Company, the exercise price shall not be less than 110% of the fair market value of the
share on the date of grant. Options are subject to various vesting conditions as disclosed below
and have a maximum term of 10 years from the grant date. Each option granted pursuant to the Equity Incentive Plan is evidenced by a written agreement,
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. As at December 31,
2004, no stock options had been granted to non-employees. Each of Mrs. Woods, Mr. Bonanzinga and Mr. Blythe were given a contractual commitment upon
joining the Company in 2003 and Mr. Best and Mr. McArthur Muscroft were given a contractual
commitment upon joining the Company in 2004, as to the grant of share options. No such options have
been issued or the requisite Board approval given. Instead the Company has offered each of these
individuals the opportunity to participate in the EBT which has been set up by the Company.
Each of the aforementioned officers have accepted participation in the EBT, on such terms as approved by the Board, in
satisfaction of the Companys obligations to establish an equity compensation plan under the terms
of their respective employment agreements. Under the terms of the EBT, which is in the process of being formally established, amounts will be paid,
in either cash or equity, for the benefit of these individuals (and their families) in connection with specified liquidity events.
The value of such awards could potentially, in aggregate, equal 5% of the equity value of the Company (as such term as defined in the EBT)
where the equity value is at least $100 million and potentially up to 10% of the equity value, where the equity value is $350 million
or more (with interpolated values in between $100 million and $350 million on a pro rata basis). Awards under the Plan will vest in 3 trances (one third effective 21 April 2005 and one third
on each of the subsequent anniversaries) subject to the individuals continued employment through each applicable resting date. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Security Ownership of Certain Beneficial Owners The following table sets forth certain information regarding the beneficial ownership of our
common shares, as of May 31, 2005, by each person or entity known to us to own beneficially more
than 5% of our outstanding common shares. Under Bermuda law the Company does not have to look past
its register of members or their duly appointed proxies with regard to attendance and voting at
general meetings of the Company. Neither is the Company obliged to recognize a persons beneficial
interest in shares held in trust. To this extent, beneficial owners of shares do not have the same
voting rights as the registered holders of shares in the Company. All information with respect to
beneficial ownership has been furnished to us by the respective shareholders and/or by way of
filings with the U.S. SEC. Amount and Nature of Beneficial
    
    Percentage ofName and Address of Beneficial Owner(1)
    
    Ownership(1)
    
    Outstanding Shares(2)Morgan Stanley & Co. Incorporated(3)1585 Broadway, New York, NY 10036
    
    1,528,870 common shares
    
    14.4%Aspen Partners Series A(4)c/o Aspen Advisors LLC
    
    1,499,018 common shares
    
    14.1%152 West 57th Street, New York, NY 10019
 - 64 -




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Amount and Nature of Beneficial
    
    Percentage ofName and Address of Beneficial Owner(1)
    
    Ownership(1)
    
    Outstanding Shares(2)The Värde Fund L.P.(5)8500 Normande Lake Blvd. #1570
Minneapolis MN 55437.
    
    882,531 common shares
    
    8.3 %Ramius Capital Group, LLC (6)666 Third Avenue, 26th Floor
New York, New York 10017
Citizenship (Cayman Islands)
    
    677, 871 common shares
    
    6.4%
 
 1.
    
    Beneficial ownership is determined in accordance with the rules of the U.S. SEC. In
computing the number of common shares beneficially owned by a person and the percentage
ownership of that person, common shares subject to options and warrants held by that person
that are currently exercisable or exercisable within 60 days are deemed outstanding. Such
common 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
shareholder named in the table has sole voting and investment power with respect to our common
shares set forth opposite such shareholders name.2.
    
    Based on 10,630,000 common shares outstanding as of May 31, 2005.3.
    
    Information based on the Schedule 13D-A, dated
June 29, 2005, of Morgan Stanley. As a result of the amendment of the Existing Notes under the
terms of the Letter Agreement to make such Existing Notes convertible upon the election of
holders of a majority of the outstanding principal amount of the Existing Notes (the Existing
Notes Amendment), Morgan Stanley will be deemed the beneficial
owner of 54,117,503 shares (or
85.6% of the Companys outstanding shares) comprised of (a) the 1,528,870 common shares
directly owned by Morgan Stanley; (b) 47,533,333 common shares issuable upon conversion of
$35,650,000 million principal amount of Existing Notes held by Morgan Stanley; and (c)
5,055,300 common shares issuable upon conversion of $3,791,475 of additional Existing Notes
representing accrued interest on the Existing Notes held by Morgan Stanley, based on the
lowest possible conversion price under the Existing Notes of $0.75 per share. The exact
number of common shares into which the Existing Notes are convertible is not calculable at the
present time because the conversion price used for such conversion is based upon a calculation
of the total equity value of the Company, to be calculated at the time of conversion by the
Board of Directors of the Company (subject to approval of the majority noteholders). See
Item. 4 Company Information  Description of Certain Indebtedness).4.
    
    Information based on the Schedule 13G, dated February 11, 2005, of Aspen Partners Series A,
Aspen Capital LLC, Aspen Advisors LLC and Nikos Hecht, as modified to reflect updated
movements in the register of members and beneficial ownership of our common shares since the
date of filing.5.
    
    Information based on the Schedule 13G, dated February 11, 2005, of The Värde Fund L.P., The
Värde Fund V L.P., The Värde Fund VI L.P., Värde Investment Partners L.P., The Värde Select
Fund L.P., The Värde Fund (Cayman) Limited, The Värde Fund V GP LLC, The Värde Fund VI GP LLC,
Värde Investment Partners GP LLC, Värde Partners L.P., Värde Partners Inc. and Värde
Management International Inc., George G. Hicks, Gregory S. McMillan, Marcia L. Page. The address
for The Värde Fund (Cayman) Limited is 2nd Floor Harbour Centre, P.O. Box 896, George Town - 65 -




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BWI.
All other entities can be contacted at the address listed in the table. As a result of the
Existing Notes Amendment, Värde will be deemed the beneficial owner of 15,008,042 shares (or
58.5% of the Companys outstanding shares) comprised of (a) the 882,531 common shares directly
owned by Värde; (b) 13,333,333 common shares issuable upon conversion of $10.0 million principal
amount of Existing Notes held by Värde; and (c) 792,178 common shares issuable upon conversion
of $594,133 of additional Existing Notes representing interest payment on the Existing Notes
held by Värde, based on the lowest possible conversion price under the Existing Notes of $0.75
per share. The exact number of common shares into which the Existing Notes are convertible is
not calculable at the present time because the conversion price used for such conversion is
based upon a calculation of the total equity value of the Company, to be calculated at the time
of conversion by the Board of Directors of the Company (subject to approval of the majority
noteholders). See Item. 4 Company Information  Description of Certain Indebtedness).6.
    
    Information based on the Schedule 13G, dated February 11, 2005, of the RCG Carpathia Master
Fund Ltd (Cayman Islands), Ramius Securities LLC, Ramius Capital Group, LLC, RCG Carpathia
Master Fund Ltd, SphinX Distressed (RCG Carpathia) Segregated Portfolio, C4S & Co., LLC, Peter
A. Cohen, Morgan B. Stark, Thomas W. Strauss and Jeffrey M. Solomon, as modified to reflect
updated movements in the register of members and beneficial ownership of our common shares
since the date of filing. Related Party Transactions Except as disclosed in these pages in relation to the resignation of Mr. Grist and the
termination of his employment arrangements the hedging transactions entered into with Morgan
Stanley and the issuance of the Existing Notes in connection with the April 2004 Financing, there
were no transactions with related parties during the year ending December 31, 2004. See Item 6.
Directors, Senior Management and Employees  Compensation. During 2004, following the Companys issuance of convertible loan notes, the Company entered
into three hedging contracts with Morgan Stanley. These contracts allowed for the conversion of
US$6 million, US$6 million and US$10 million into Pounds Sterling at Protected rates of
US$1.8045, US$1.7975 and US$1.7885 respectively for delivery on July 1, 2004, October 1, 2004 and
January 5, 2005. These conversion rates were dependent upon the GBP to USD spot rates at the time
of exercise being above these rates; if market rates had been lower, the actual conversion rates
would have been split between the Protected rate, and market rates, based on the proportion of time
during the contract period in which actual rates had been below the Protected rates. In connection with the April 2004 Financing, Morgan Stanley, Värde and our Chairman Lucy Woods
purchased Existing Notes in the principal amounts of $36.0 million, $10.0 million and $250,000
respectively. Additional Notes were issued in satisfaction of payment of accrued interest on the
Existing Notes in respective amounts of approximately US$2.1 million, US$0.6 million and US$0.15
million. In connection with the June 2005 Financing, it is contemplated that Morgan Stanley and
Värde purchase New Notes in the principal amounts of $12,937,799 million and $3,062,201 million,
respectively. On June 23, 2005, the Investors and the Company executed the Letter Agreement pursuant to
which the parties agreed to amend the terms of the Existing Notes to allow for their conversion at
any
time, upon the election of holders of a majority of the outstanding principal amount of the
Existing Notes. - 66 -




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ITEM 8. FINANCIAL INFORMATION Consolidated Statements and Other Financial Information Financial Statements We have elected to provide financial statements pursuant to Item 18 of this Form 20-F as
included on pages F-1 to F-32. Legal Proceedings On the Filing Date, the Debtors filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code. The Plan of Reorganization was consummated on the Effective Date. Commencing as
of the Effective Date, a series of share transfers were made whereby the European Subsidiaries
became wholly-owned, direct or indirect, subsidiaries of the Company. Additionally, under the
terms of the Plan of Reorganization, VTL was authorized to serve as disbursing agent (with the
right to designate other disbursing agents) with respect to distributions required under the Plan
of Reorganization. Accordingly, on or after the Effective Date and to the extent not otherwise
disposed of pursuant to the Plan of Reorganization, the Debtors Property vested in VTL. Ownership
of VTL was transferred to the Successor in January 2003. Except as otherwise set forth in the Plan
of Reorganization, all claims and liabilities of the Debtors were discharged as of the Effective
Date. The Company had certain claims against Easynet in which the Company alleged breach of contract
under an Indefeasible Right of Use Agreement dated May 30, 2000 and certain related agreements
(together, the Agreements). The claims were formally commenced in the High Court of Justice in
England as of February 11, 2003 and proceeded to a full trial commencing on November 19, 2003. The
Company has now accepted, as full and final settlement of its claims under the Agreements, payment
by Easynet of £6.9 million (US$13.0 million approximately) which was paid in two equal instalments
in March 2004 and September 2004, the second instalment having accrued interest at an annual rate
of 4%. The settlement also served to dismiss certain related counterclaims brought by Easynet
against the Company. As at December 31, 2003 and 2002 the Company had a liability for future
performance obligations of $4.6 million under the contract with Easynet. Under the terms of the
settlement, the Company was relieved of this obligation and accordingly recognized the release of
the liability in the statement of operations in 2004 upon receipt of the final settlement payment. In September 2003, the Companys French subsidiary Viatel Operations SA (Viatel Operations)
filed a claim for approximately 7.7 million (US$9.35 million approximately) in the Tribunal of
Lille, France against Voies Navigables de France (VNF), the owner of certain French waterways to
whom the Company currently pays in excess of 2 million (US$2.4 million approximately) annually
for ROW charges. The claim principally asserts that the ROW charges are discriminatory and should
conform more closely to the charges levied by the highway and road authorities in France. On the
basis that this claim was filed by way of an opposition procedure, the Company is entitled to
withhold payment of ongoing charges as they fall due. On this basis the Company has withheld its
ROW charges for 2004 in an amount of 1.95 million approximately (US$2.37
million approximately) and it is anticipated that payment of the ROW charges for 2005 in an
amount of 2 million approximately (US$2.5 million approximately) will be withheld on the same
basis. If the Company is unsuccessful in its claim, it will likely be required to pay all
outstanding fees together with interest, the interest being - 67 -




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estimated to amount to as much as
approximately 120,000 (US$150,000 approximately). Judgment is not expected until the end of
2005 at the earliest. Similar claims in respect of ROW charges have been filed against each of: (1) Compagnie
Nationale du Rhône (CNR); (2) Ville de Paris (VDP); and (3) SAGEP. The amounts of the claims
being, respectively, approximately 1.16 million (approximately US$1.4 million) against CNR;
approximately 1.4 million (approximately US$1.75 million) against VDP; and approximately
1.18 million (approximately US$1.43 million) against SAGEP. In the case of both CNR and SAGEP,
the Company has again withheld payment of fees currently due  should the Company lose the relevant
proceedings, this could yield a liability to repay (including applicable interest) an amount of
approximately 900,000 (approximately US$1.1 million) to CNR and an amount of approximately
430,000 (approximately US$530,000) to SAGEP. It should be noted that the outcome of the legal claims with respect to the ROW charges could
be substantially influenced by the enactment by the French government of a proposed regulation
intended to provide for a limit on the fees payable with respect to the grant and use of ROWs on
the public domain. Under a current draft decree  dated April 14, 2005  the proposed limit would
not require any decrease in the amounts currently charged by VNF and CNR; the limit would however
have the effect of requiring the fees charged by both VDP and SAGEP to be substantially reduced.
The Company is currently lobbying the French government and other public bodies to argue for a
lower limit to be prescribed. Viatel Operations is engaged in a dispute which arose as a result of the early termination of
a lease agreement dated 29 September 1999. The lessor is claiming payment of: (a) an early
termination indemnity in the amount of 30,489.40 (approximately US$37,000); and (b) the cost of
fit-out works which, according to the lessor, Viatel Operations was under an obligation to perform
under the lease. When the dispute first arose, the lessor chose to quantify the amount of the fit
out works as 855,514.20 (approximately US$1.1 million). Viatel Operations denied that it was
under any obligation to carry out the fit-out works, the lease being permissive in this regard, not
obligatory. In February 2005, the lessor issued proceedings requesting payment of the early
indemnity, a provisional payment from Viatel Operations of 69,510.20 (approximately US$84,400)
for reinstating the property and, finally, the appointment of an expert by the French court whose
duty will be to assess the cost of reinstating the proerty on the basis of the schedule of
fit-out works appended to thelease. The initial hearing in this matter was scheduled for April
2005 but following two postponements, made at the lessors request, the hearing is now scheduled
for September 2005. Viatel Operations is also currently in dispute regarding a second lease termination  this
time with respect to the termination of a lease agreement dated May 4, 2000 relating to premises in
St. Denis, France (the St. Denis Lease). The lessor is claiming the termination to be both
procedurally and substantively defective, and is consequentially claiming the balance of all
payments due under the lease, amounting in aggregate to 12,678,366 (approximately US$17.3
million). Viatel Operations has received strong advice in support of its position. The Companys UK subsidiary VTL (UK) Limited (VTL (UK)) is in dispute with a company which
previously provided it with financial advice, in particular with respect to its employee benefits
programme. The financial advisor is claiming an unlawful termination of its engagement with
VTL (UK) and has indicated a potential related damages claim of over £100,000 (approximately
US$182,000). VTL (UK) has been advised that it has strong grounds both to defend any such claim and
to bring a - 68 -




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counterclaim in respect of the breach by the financial advisor of various express and
implied contractual terms relating to its former engagement. Fibrelac a company acting on its own behalf has filed claims against three Swiss Cantons in
relation to the build of a telecommunications network. The principal basis of the claim is that,
in return for allowing the build to proceed, the cantons of Bern, Basle and Aargau insisted that
they be given a duct in such build, either for free or for a consideration lower than the market
value, the claim being based on provisions of the Swiss Telecommunications Act including those
dealing with the absence of compensation in case of access to public domain. The claims also seek
to obtain a declaration of ownership of the ducts rather than indefeasible rights of use. Claims
have been filed against all 3 cantons. Were the claims to be successful, Viaphone AG would be
entitled, based on various agreements, on a pro rata basis (allocated pro rata by duct) to
approximately CHF 10,000,000 (approximately US$8 million) together with interest at 5% per annum
from late 2000. As previously noted, any adverse decision in all or any of the proceedings summarised above
regarding ROW charges in France could render the operation of all or part of the Companys network
in France uneconomical. An adverse decision in the litigation regarding the St. Denis Lease could
also have a material effect on the Companys French subsidiarys financial position. Subject to
this, the Company does not believe that any adverse outcome from litigation would have a material
adverse effect on its financial position or results of operations. The Company is not aware of any
other material litigation against it. The Company does, however, have various other legal
proceedings pending against it or its subsidiaries which, if adversely determined, would not have,
in the Companys view, individually or in the aggregate, a material adverse effect on its business,
financial condition or results of operation. Dividend Policy We do not anticipate paying dividends on our common shares in the foreseeable future. Significant Changes Other than as disclosed above or elsewhere in this Form 20-F, no significant change has
occurred since the date of our most recent audited financial statements. 
 ITEM 9. THE LISTING Listing Details The Predecessor From October l996 until May 2, 2001, the Predecessors common stock was actively traded on The
Nasdaq National Market under the symbol VYTL. On May 2, 2001, Nasdaq suspended trading of the
Predecessors common stock, which was delisted in July 2001. Below is a chart showing the trading
prices of the Predecessors common stock on the Nasdaq National Market. Pursuant to the Plan of
Reorganization, the dissolution of the Predecessor occurred in the first half of 2004. - 69 -




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High
    
    
    LowPeriod
    
    (in USD)Fiscal 1998
    
    
    23.50
    
    
    
    5.00Fiscal 1999
    
    
    57.50
    
    
    
    17.00Fiscal 2000
    
    
    75.38
    
    
    
    1.63First Quarter 2001
    
    
    5.75
    
    
    
    0.56Second Quarter 2001 (1)
    
    
    0.86
    
    
    
    0.06Third Quarter 2001 (2).
    
    
    0.06
    
    
    
    0.03Fourth Quarter 2001
    
    
    N/A
    
    
    
    N/AFiscal 2002
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    On May 2, 2001, the Nasdaq National Market suspended trading of the common stock of
the Predecessor.(2)
    
    In July 2001, the Nasdaq National Market delisted the common stock of the Predecessor. The Successor The Successors common shares, US$0.01 par value per share, referred to throughout this Form
20-F as our common shares, is currently traded on the over-the-counter market under the symbol
VTLAF.PK. Prior to December 2002, we were not aware of any trading in our common shares; a price
at December 2002 was determined at US$0.51 per share. The following chart sets out the trading
prices of our common stock since it commenced trading on the over-the-counter market. The following table sets out, for the periods indicated, the high and low sales prices of our
common shares: High
    
    
    LowPeriod
    
    (in USD)Fourth Quarter 2002
    
    
    N/A
    
    
    
    N/AFirst Quarter 2003
    
    
    1.35
    
    
    
    1.10Second Quarter 2003
    
    
    1.35
    
    
    
    0.50Third Quarter 2003
    
    
    4.25
    
    
    
    0.50Fourth Quarter 2003
    
    
    8.00
    
    
    
    0.50First Quarter 2004
    
    
    2.75
    
    
    
    0.75Second Quarter 2004
    
    
    1.90
    
    
    
    0.90July 2004
    
    
    1.20
    
    
    
    0.90August 2004
    
    
    0.92
    
    
    
    0.70September 2004
    
    
    0.90
    
    
    
    0.60October 2004
    
    
    0.95
    
    
    
    0.60November 2004
    
    
    1.05
    
    
    
    0.85December 2004
    
    
    1.50
    
    
    
    0.90January 2005
    
    
    0.96
    
    
    
    0.75February 2005
    
    
    0.95
    
    
    
    0.75March 2005
    
    
    0.95
    
    
    
    0.60April 2005
    
    
    0.75
    
    
    
    0.20May 2005
    
    
    0.30
    
    
    
    0.07June 2005 (through June 16, 2005)
    
    
    0.10
    
    
    
    0.07
 - 70 -




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The issuance and distribution of the common shares other than the common shares issued or
issuable under the Equity Incentive Plan were exempt from the registration requirements of the
Securities Act of 1933, as amended, pursuant to Section 1145(a) of the Bankruptcy Code. The common
shares are, generally, freely transferable unless the common shareholder is deemed, by Section
1145(b) of the Bankruptcy Code, to be an underwriter for purposes of Section 2(11) of the
Securities Act with respect to such securities. If a common shareholder is deemed an underwriter,
such securities may not be resold unless they are registered under the Securities Act or an
exemption from such registration requirements is available. Markets Our common shares are currently traded on the over-the-counter market under the symbol
VTLAF.PK. 
 ITEM 10. ADDITIONAL INFORMATION Description of Share Capital At the April 2004 SGM the Company resolved, among other things, that: (a) the authorized share
capital of the Company be increased to US$2,500,000 by the creation of an additional 150,000,000
common shares; and (b) one unissued common share of the Company be redesignated as the Special Share. As
a result, the authorized share capital of the Company is US$2,500,000 divided into 250,000,000 common
shares of US$0.01 each (common shares). As of May 31, 2005, there were 10,630,000 fully paid
common shares issued and outstanding. As of May 31, 2005 the Company had no outstanding options to
purchase its common shares. Historical Movement in
the Authorized Share Capital On incorporation, the Memorandum of Association of the Company provided that the authorized
share capital of the Company was US$12,000 divided into 1,200,000 common shares. The entire share
capital was fully subscribed and pursuant to a resolution of the provisional directors of the
Company passed on March 27, 2002 was allotted to the sole shareholder, the Predecessor, at a price
of US$0.01 per share. At the statutory meeting of the Company, being also the first annual general meeting of the
Company, held on March 27, 2002, the Predecessor resolved that the authorized share capital of the
Company be increased to US$1,000,000 by the creation of an additional 98,800,000 common shares. Pursuant to a written resolution of the Board dated May 6, 2002, the Board issued 9,360,000
common shares to the Predecessor at a price of US$0.01 per share and reserved 1,440,000 shares for
issuance under the terms of any share incentive plan that may be adopted by the Company in the
future. During a meeting of the Board held on June 6, 2002 the Board resolved to approve the terms of
the Equity Incentive Plan. During such meeting the Board further resolved that on consummation of
the Plan of Reorganization, that the Company issue options to purchase up to: (1) 240,000 common
shares at an exercise price of US$0.01 per share to the then current directors of the Company (the
Directors Options); (2) 504,000 shares at an exercise price of US$8.33 per share to the then
current directors and senior management of the Company (together with the Directors Options, the
Officers Options); and (3) 96,000 shares at an exercise price of US$8.33 per share to be granted
to employees of the Company
or its subsidiaries on the instruction of the Chairman and Chief Executive Officer of the
Company. One third of the options referred to in (2) vested on the Effective Date, one third vested
on June 7, 2003 and the final third will vest on June 7, 2004. - 71 -




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170,000 of the Directors Options were exercised during the year ended December 31, 2003. As
of May 31, 2005 all other outstanding Officers Options had either been exercised or terminated. On March 31, 2003 the Board resolved to purchase and cancel 100,000 shares from Michael
Mahoney, in accordance with section 42A of the Bermuda Act, pursuant to a settlement agreement and
general release among Michael Mahoney, the Company and VTL (UK) dated March 24, 2003 and a stock
exchange agreement between the Company and Michael Mahoney dated April 1, 2003. These shares were
formally cancelled during 2004. See Item 6. Directors, Senior Management and Employees 
Compensation. Memorandum of Association and Bye-Laws We are an exempted company organized under the Bermuda Act. The rights of our shareholders are governed by Bermuda law, our Memorandum of Association and
our Bye-Laws. The Bermuda Act differs in some material respects from laws generally applicable to
U.S. corporations and their shareholders. As a condition to the closing of the April 2004 Financing, and so as to give effect to various
rights to be conferred on the Investors, certain amendments to the Bye-Laws were passed by
shareholders resolutions at the April 2004 SGM. Such rights conferred on the Investors relate in
particular to the ability of the Investors to appoint new Directors and to approve/veto the taking
of certain material actions by the Company. In order to give effect to these rights under Bermuda
law the Special Share was issued with the Notes to a trustee acting on behalf of the Investors (and
their transferees). The Special Share was issued with such rights as are required to enable the
Investors (and their transferees) to exercise the various Investor rights provided for under the
April 2004 Financing documentation. With respect to the taking of any material actions that will require the approval of the
Investors, to the extent that any such actions may, under Bermuda law, require the approval of the
Companys shareholders in general meeting, the Special Share has been granted weighted voting
rights (nine votes for every one vote cast by other Shareholders) to ensure it can carry any
relevant vote; to the extent that a vote of the shareholders is required by Bermuda law, such
actions are able to be taken with the consent alone of the holder of the Special Share. Further reference is made below to these and other amendments adopted at the April 2004 SGM;
this is not intended however to be a comprehensive summary of such adopted amendments. Full details
of the Bye-Law amendments are set out in the documents accompanying the Companys Notice of the
April 2004 SGM (the April 2004 SGM Notice); see in particular the Chairmans Letter and Part III
of the April 2004 SGM Notice. The April 2004 SGM Notice and related materials were filed as
exhibits to
the Form 6-K of the Company dated March 10, 2004 (the March 10 6-K). The March 10 6-K and
such exhibits are hereby incorporated by reference in this Form 20-F. - 72 -




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The following is a summary of the material provisions of Bermuda law and our organizational
documents as were in effect as of May 31, 2005. Objects and Purposes The Companys objects can be found in our Memorandum of Association. In summary, the objects
for which the Company was formed and incorporated are:  
    
    to carry on the business of constructing, establishing, owning, providing operating
and maintaining telecommunications networks in all parts of the world and to provide
telecommunications services;
    
    to carry on the business as a holding company and to acquire and hold shares,
stocks, debenture stock, bonds, mortgages, obligations and securities issued or
guaranteed by any entity;
    
    to acquire such shares and other securities by subscription, syndicate
participation, tender, purchase, exchange or otherwise;
    
    to coordinate the administration, policies, management, supervision, control,
research, planning, trading and any and all other activities of, and to act as
financial advisers and consultants to, any companies which may or which may become a
group company;
    
    to provide financing and financial investment, management and advisory services to
any group company; and
    
    as set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the Second
Schedule to the Bermuda Act. Board Actions Our Bye-Laws provide that, subject to the prior consent of the holder of the Special Share in
certain circumstances, certain actions are required to be approved by our Board. Actions must be
approved by a majority of the votes present and entitled to be cast at a properly convened meeting. A Director who has disclosed his interest in a transaction or arrangement with the Company, or
in which the Company is otherwise interested, may be counted in the quorum and vote at any meeting
at which such transaction or arrangement is considered by the Board. Board Remuneration Our Bye-Laws provide that the ordinary remuneration of the Directors shall be as is set out in
the Bye-Laws or as is determined by resolution of the Directors. The shareholders, at the third
annual general
meeting of the Company held on December 8, 2004, further authorized the Directors to determine
and approve the remuneration of each Director. Directors Borrowing Powers - 73 -




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Our Bye-Laws provide that, subject to the prior consent of the holder of the Special Share,
the Board may exercise all of the powers of the Company to borrow money and to mortgage or charge
all or any part of the undertaking, property and assets (present and future) and uncalled capital
of the Company and to issue debentures and other securities, whether outright or as collateral
security for any debt, liability or obligation of the Company or of any other person. Election or Removal of Directors As noted in Item 4. Information on the Company  Description of Certain Indebtedness and
Item 6. Directors, Senior Management and Employees  Board Practices under the Bye-Law amendments
adopted at the April 2004 SGM, significant changes with respect to the mechanism for the
appointment and removal of Directors were made. Effectively, the Investors have the power to
appoint a majority of the Board at any time. Our Bye-Laws provide that at the second annual general meeting of the Company all of the
Directors (other than any who holds executive office) shall retire from office, and at every
subsequent annual general meeting one-half of the Directors who are subject to retirement by
rotation or, if their number is not two or a multiple of two, the number nearest to but not more
than one-half shall retire from office. The Directors to retire shall be those who have been
longest in office since their last appointment or reappointment, but as between persons who became
or were last reappointed Directors on the same day those to retire shall (unless they otherwise
agree among themselves) be determined by lot. Under the Bye-Law amendments adopted at the April
2004 SGM, provision is now made that for so long as the Special Share is outstanding, the Bye-Law
providing for retirement by rotations shall not be applicable. Meantime, Bermuda law will apply to
retirement of Directors which states Directors are appointed at the annual general meeting and
serve until reappointed or until their successors are appointed, unless they are earlier removed or
resign. No person may be appointed a Director unless he is either: (a) recommended by our Board; or
(b) recommended, appointed or elected by the holder of the Special Share; or (c) proposed by a
shareholder for appointment at a general meeting. In the latter case, the shareholder must give
the Company a duly executed notice of his intention to propose a person for appointment in the form
more particularly described in the Bye-Laws not less than five, nor more than twenty-five, clear
days before the date appointed for the general meeting. At anytime the holder of the Special Share can increase the number of directors constituting
the Board up to thirteen. Only the holder of the Special Share can elect and appoint Directors
(Investor Designees) to fill the vacancies created by an increase in the size of the Board made
by it or to elect or to appoint any Director to replace or fill any vacancy created by such
Investor Designee or any Investor-Appointed Director. Effectively, the Investors (and their
transferees) have the right, at any time, to increase the size of the Board and to approve a number
of Directors sufficient to cause a majority of the Board to be designees of the Investors (and
their transferees). Except in relation to a vacancy resulting from an increase in the size of the Board carried
out by the holder of the Special Share or a vacancy as a result of an Investor-Appointed Director,
our Bye-Laws grant the Board power to appoint individuals to fill vacancies among its members as a
result of the resignation or removal of a Director so long as there is a vacancy on the Board which
was not created by the holder of the Special Share. - 74 -




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A Director (other than an Investor-Appointed Director) can be removed from office by a
vote of the shareholders at a special general meeting called for such purpose. Any vacancy created
by the removal of a Director at a special general meeting may be filled at that meeting by the
election or appointment of another Director in his or her place or, in the absence of any such
election or appointment, by our Board. For so long as the Special Share is outstanding, the holder
of the Special Share alone will be entitled to remove any Investor-Appointed Director(s), but will
not be entitled to remove any non-Investor-Appointed Director(s). Common Shares As noted above, in connection with the April 2004 SGM, a Special Share was issued to a trustee
acting on behalf of the Investors (and their transferees). The rights that are attached to the
Special Share are set out in the April 2004 SGM Notice  see in particular Part III of the April
2004 SGM Notice and the Chairmans Letter. Subject to the weighted voting rights attached to the Special Share (nine votes for every one
vote cast by other shareholders), the holders of our common shares present in person or by proxy at
a general meeting are entitled, on a vote by show of hands, to one vote each and, on a poll vote,
to one vote per common share on all matters to be voted upon by the shareholders. The holders of
common shares are entitled to receive dividends out of assets legally available for such purposes
at times and in amounts as our Board, with the prior consent of the holder of the Special Share
only, may from time to time determine. Subject to the weighted voting rights attached to the Special Share in relation to the
election and appointment of Investor Designees (see above), cumulative voting for the election of
directors is not provided for in our Memorandum of Association or Bye-Laws, which means that the
holders of a majority of the shares voted can elect all of the directors then standing for
election. Our common shares are not entitled to pre-emptive rights and are not subject to
conversion or redemption. There are no sinking fund provisions applicable to our common shares. Voting Rights Under Bermuda law, except as otherwise provided in the Bermuda Act, or in a companys
bye-laws, questions brought before a general meeting of shareholders are decided by a majority vote
of shareholders present at the meeting. Our Bye-Laws provide that, subject to the provisions of
the Bermuda Act, and subject to the weighted voting rights attached to the Special Share (nine
votes for every one vote cast by other shareholders), any question proposed for the consideration
of the shareholders will be decided by a simple majority of the votes cast with each shareholder
present, and each person holding proxies for any shareholder, entitled, on a show of hands, to one
vote each and, on a poll vote, to one vote for each common share held by the shareholder, except in
certain exceptional cases where a greater majority vote is required by our Bye-Laws. Dividends Under Bermuda law, a company may pay dividends that are declared from time to time by its
board of directors unless there are reasonable grounds for believing that the company is or would,
after the payment, be unable to pay its liabilities as they become due or that the realizable value
of its assets - 75 -




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would thereby be less than the aggregate of its liabilities and issued share capital and share
premium accounts. The board of directors is unable to declare dividends without the prior consent
of the holder of the Special Share. Rights in Liquidation Under Bermuda law, in the event of liquidation or winding up of a company, after satisfaction
in full of all claims of creditors and subject to the preferential rights accorded to any series of
preference shares, the proceeds of the liquidation or winding up are distributed pro rata among the
holders of common shares. Transfer of Shares Our Bye-Laws contain provisions relating to the transfer of shares in the Company and,
separately, the transfer of the Special Share. These include a power given to the Board to, in its
absolute discretion and without assigning any reason therefor, decline to register any transfer of
any share which is not a fully paid share. Amendment of Memorandum of Association and Bye-Laws Bermuda law provides that the memorandum of association of a company may be amended by a
resolution passed at a general meeting of shareholders of which due notice has been given. Our
Bye-Laws also provide that such resolution passed at a general meeting of shareholders must include
the vote of the holder of the Special Share (exercising its weighted voting rights). An amendment
to the memorandum of association, other than an amendment which alters or reduces a companys share
capital as provided in the Bermuda Act, also requires the approval of the Bermuda Minister of
Finance, who may grant or withhold approval at his or her discretion. Our Bye-Laws may be amended by our Board if the amendment is approved by: (1) a vote of a
majority of the votes cast by the Directors; and (2) our shareholders by a resolution passed by the
majority of the votes cast at a general meeting, such resolution passed must include the vote of
the holder of the Special Share (exercising its weighted voting rights). Under Bermuda law, the holders of an aggregate of not less than 20% in par value of a
companys issued share capital or any class of issued share capital have the right to apply to the
Bermuda Court for an annulment of any amendment of the memorandum of association adopted by
shareholders at any general meeting, other than an amendment which alters or reduces a companys
share capital as provided in the Bermuda Act. Where such an application is made, the amendment
becomes effective only to the extent that it is confirmed by the Bermuda Court. An application for
the annulment of an amendment of the memorandum of association must be made within 21 days after
the date on which the resolution altering the companys memorandum is passed and may be made on
behalf of the persons entitled to make the application by one or more of their number as they may
appoint in writing for the purpose. No such application may be made by persons voting in favor of
the amendment. Meetings of Shareholders Under Bermuda law, a company is required to convene at least one general shareholders meeting
each calendar year or within three months of the end of a calendar year in which a general - 76 -




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meeting
has not
been held. Bermuda law provides that a special general meeting may be called by the board of
directors and must be called upon the request of shareholders holding not less than 10% of the
paid-up capital of the company carrying the right to vote. Bermuda law also requires that
shareholders be given at least five days advance notice of a general meeting but the accidental
omission to give notice to any person does not invalidate the proceedings at a meeting. Under
Bermuda law, the number of shareholders constituting a quorum at any general meeting of
shareholders is determined by the bye-laws of a company. Under our Bye-Laws, we must give each shareholder at least 21 days notice of the annual
general meeting and at least 10 days notice of any special general meeting. Similarly, we must
give each shareholder not less then 21 days notice of any meeting adjourned through want of a
quorum. Our Bye-Laws provide that at least two shareholders present in person or by proxy and entitled
to vote, representing the holder(s) of 20% or more of our issued shares (and subject to the
presence of the holder of the Special Share (in person or proxy) in matters on which the Special
Share would be controlling is proposed to be considered) constitutes a quorum, except in certain
exceptional cases. To the extent permissible under Bermuda law, at a meeting called at which any
matter on which the vote of the Special Share would be controlling is proposed to be considered,
the presence of the holder of the Special Share (in person or proxy) shall constitute the necessary
quorum. Our Bye-Laws further provide that, except in exceptional circumstances, quorum for an
adjourned meeting shall be two shareholders present in person or by proxy and entitled to vote and
representing the holders of 10% or more of the issued shares and, to the extent permissible under
Bermuda law, at an adjourned meeting called at which any matter on which the vote of the Special
Share would be controlling is proposed to be considered, the presence of the holder of the Special
Share (in person or proxy) shall be deemed to represent a holder of 10% or more of the issued
shares. The Chairman may invite any person to attend and to speak at a general meeting of the Company
where he considers it will assist in the deliberations of the meeting, provided, however, each
shareholder, including the holder of the Special Share, shall be entitled to attend and speak at
all general meetings of the Company. Access to Books and Records and Dissemination of Information Members of the general public have the right to inspect the public documents of a company
available at the office of the Registrar of Companies in Bermuda. These documents include a
companys certificate of incorporation, its memorandum of association, including its objects and
powers, and any alteration to its memorandum of association. Shareholders have the additional
right to inspect the bye-laws of the company, minutes of general meetings and the companys audited
financial statements, which must be presented at the annual general meeting. The register of
shareholders of a company is also open to inspection by shareholders, without charge, and by
members of the general public, upon the payment of a fee. A company is required to maintain its share register in Bermuda but may, subject to the
provisions of Bermuda law, establish a branch register outside Bermuda. We maintain a share
register in Hamilton, Bermuda. A company is required to keep at its registered office a register
of its directors and officers which is open for inspection for not less than two hours each day by
members of the public - 77 -




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without charge. Bermuda law does not, however, provide a general right for
shareholders to inspect or obtain copies of any other corporate records or documents. Amalgamation Under our Bye-Laws, a resolution proposed at a general meeting to approve the amalgamation of
the Company with any other entity shall require the approval of a simple majority of the votes cast
at the meeting, such votes cast must include the vote of the holder of the Special Share
(exercising its weighted voting rights). Continuation Our Bye-Laws provide that, subject to Bermuda company law, a resolution proposed to approve
the discontinuation of the Company in Bermuda and the continuation of the Company in a jurisdiction
outside Bermuda shall require the affirmative vote of the simple majority of the votes cast at a
general meeting. Appraisal Rights and Shareholder Suits Under Bermuda law, in the event of an amalgamation of a Bermuda company with another company,
a shareholder who is not satisfied that fair value has been paid for the shares may apply to the
Bermuda Court to appraise the fair value of the shares. Under Bermuda law and our Bye-Laws, our
amalgamation with another company requires the amalgamation agreement to be approved by our Board
and, except where the amalgamation is between a holding company and one or more of its wholly-owned
subsidiaries or between two or more wholly owned subsidiaries, at a meeting of our shareholders at
which the holder of the Special Share must be present in person or proxy in order for such meeting
to be quorate. Under Bermuda law, an amalgamation also requires the consent of the Bermuda
Minister of Finance, who may grant or withhold such consent at his or her discretion. Class actions and derivative actions are generally not available to shareholders under Bermuda
law. The Bermuda Court, however, would ordinarily be expected to permit a shareholder to commence
an action in the name of a company to remedy a wrong done to the company where the act complained
of is alleged to be beyond the corporate power of the company or is illegal or would result in the
violation of the companys memorandum of association or bye-laws. Further consideration would be
given by the Bermuda Court to acts that are alleged to constitute a fraud against the minority
shareholders or, for instance, where an act requires the approval of a greater percentage of the
companys shareholders than that which actually approved it. When the affairs of a company are being conducted in a manner oppressive or prejudicial to the
interests of some of the shareholders, one or more shareholders may apply to the Bermuda Court for
an order regulating the companys conduct of affairs in the future or compelling the purchase of
the shares of any shareholder, by other shareholders or by the company. Material Contracts On June 23, 2005 the Company executed binding documentation in connection with the June 2005
Financing. The investment agreement related to the June 2005 Financing are filed as an exhibit to
this Form 20-F. It was a condition of the April 2004 Financing that our Chief Executive Officer, Lucy Woods, entered into an employment agreement on terms satisfactory to the Investors. The employment agreement entered between the Company and Mrs. Woods on April 21, 2004 is filed as an exhibit to this Form 20-F. - 78 -




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Exchange Controls and Other Limitations Affecting Security Holders Certain provisions of our Bye-Laws may have the effect of delaying, deferring or preventing a
change in control. Such provisions, including those providing for the possible issuance of
preferred shares without shareholder approval, establishing a staggered board, and regulating the
nomination of Directors and submission of matters for consideration at meetings of shareholders,
may make it difficult for other persons, without the approval of our Board, to make a tender offer
or otherwise acquire substantial amounts of common shares or to launch other takeover attempts that
a shareholder might consider to be in such shareholders best interest. We have been designated by the Bermuda Monetary Authority as non-resident of Bermuda for
exchange control purposes and are required to obtain the permission of the Bermuda Monetary
Authority for the issue and free transferability of all of our shares. Approval or permissions
received from the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary
Authority as to our performance or our creditworthiness. Accordingly, in giving those approvals or
permissions, the Bermuda Monetary Authority will not be liable for our performance or default or
for the correctness of any opinions or statements expressed in this Form 20-F. The transfer of common shares is subject to the consent of the Bermuda Monetary Authority and
the issuance of additional common shares within the current authorized share capital may be
effected subject to the consent of the Bermuda Monetary Authority under the Exchange Control Act of
1972 and regulations thereunder. As we have been designated as non-resident of Bermuda for
exchange control purposes, there are no exchange control restrictions on our ability to transfer
funds (denominated in currencies other than Bermuda dollars) in and out of Bermuda or to pay
dividends to non-Bermuda residents who are holders of our common shares. Except as ordered by a court of competent jurisdiction, as required by law, or as otherwise
contemplated by our constitution, in the case of a shareholder acting in a special capacity, for
example, as trustee, we are under no obligation to recognise a person as holding any share upon
trust and the Company is not bound by or required in any way to recognise (even when having notice
thereof) any equitable, contingent, future or partial interest in any share or any interest in any
fractional part of a share or (except only as otherwise provided in the bye-laws of the Company, or
by law) any other right in respect of any share except an absolute right to the entirety thereof in
the registered holder. As an exempted company, we are not subject to restrictions on the percentage of share capital
held by non-Bermudians. However, except with the express permission of the Bermuda legislature, we
may not, as an exempted company, carry on certain activities including, but not limited to:  
    
    the acquisition or holding of land in Bermuda, except that required for its business
and held by way of lease or tenancy for terms of not more than 50 years or, with the
consent of the Minister of Finance, that required to provide accommodation or
recreational facilities for its employees and held by way of lease or tenancy for terms
of not more than 21 years;
    
    the taking of mortgages on land in Bermuda; - 79 -




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
    
    the acquisition of any bonds or debentures secured on any land in Bermuda except
bonds or debentures issued by the Bermuda government or a public authority; or
    
    the carrying on of business of any kind in Bermuda other than with persons outside
Bermuda, except in certain limited circumstances such as doing business with another
exempted company in Bermuda in furtherance of our business carried on outside Bermuda. Taxation In this section, we summarize some of the tax considerations relevant to the purchase of our
common shares by an individual or entity, who or which holds our common shares as capital assets
for purposes of the U.S. Internal Revenue Code and who or which is:  
    
    for purposes of the U.S. Internal Revenue Code, a citizen or resident of the United
States;
    
    a corporation or other entity taxable as a corporation created or organized under
the laws of the United States or any political subdivision thereof;
    
    an estate, the income of which is subject to U.S. federal income taxation regardless
of its source; or
    
    a trust which is subject to supervision of a court within the United States and the
control of one or more U.S. persons. If a partnership or other entity taxable as a partnership holds our common shares, the tax
treatment of a partner will generally depend on the status of the partner and the activities of the
partnership. Such partner should consult its tax advisors as to the tax consequences of the
partnership owning and disposing of our common shares . We refer to persons who satisfy these conditions and are beneficial owners of our common
shares as U.S. Holders. We assume, for purposes of this discussion, that you are a U.S. Holder. The U.S. Internal
Revenue Code contains rules relating to securities held by special categories of U.S. Holders,
including financial institutions, some insurance companies, broker-dealers, tax-exempt
organizations, traders in securities that elect to mark-to-market, investors liable for the
alternative minimum tax, investors that hold shares as part of a straddle or a hedging or
conversion transactions, investors whose functional currency is not the U.S. Dollar and investors
who own, directly or indirectly, 10% or more of our outstanding shares, except as otherwise
discussed. We do not discuss these rules and U.S. Holders who are in these special categories
should consult their own tax advisors. This discussion is based upon the current provisions of:  
    
    Bermuda law; - 80 -




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
    
    the U.S. Internal Revenue Code and current and proposed regulations under the
Internal Revenue Code;
    
    the administrative policies published by the U.S. Internal Revenue Service, or
IRS; and
    
    judicial decisions; all of which are subject to change either prospectively or retroactively. The 1986 tax treaty
between the UK Government, on behalf of Bermuda and the United States, which relates only to the
taxation of insurance enterprises and mutual assistance in tax matters, will generally not affect
the Bermuda tax and U.S. federal income tax considerations material to the purchase of our common
shares. We intend this discussion to be a general description of the Bermuda tax and U.S. federal
income tax considerations material to the purchase of our common shares. We do not discuss U.S.
state, local or other tax laws that may apply. Therefore, you should consult your own tax advisor
regarding the tax consequences of purchasing our common shares. Bermuda Tax Considerations As of the date of this Form 20-F, there is no Bermuda income, corporation or profits tax,
dividend withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax
payable by us or our shareholders, other than shareholders ordinarily resident in Bermuda. We are
not subject to stamp duty on the issue or transfer of our shares. We have obtained an assurance from the Ministry of Finance granting an exemption, until 28
March 2016, from the imposition of tax under any applicable Bermuda law computed on profits or
income or computed on any capital asset, gain or appreciation, or any tax in the nature of estate
duty or inheritance tax, provided that such exemption shall not prevent the application of any such
tax or duty to such persons as are ordinarily resident in Bermuda and shall not prevent the
application of any tax payable in accordance with the provisions of the Land Tax Act 1967 or
otherwise payable in relation to land in Bermuda leased to us. As an exempted company, we are liable to pay the Bermuda Government an annual registration fee
calculated on a sliding scale based upon our authorized share capital and any premium paid on the
issue of shares at a rate not exceeding Bermuda Dollars 27,825 per annum. U.S. Tax Considerations Taxation of Dividends Distributed on our Common Shares. Subject to the passive foreign investment company rules discussed below, you, as a U.S.
Holder, generally will include in income dividend distributions received from us, which we will pay
in U.S. Dollars, to the extent of our current or accumulated earnings and profits as determined
under U.S. tax principles. To the extent dividend distributions paid by us exceed our current or
accumulated earnings and profits, they will be treated first as a tax-free return of capital to the
extent of your adjusted tax basis in the shares, and then as gain from the sale or exchange of
shares. - 81 -




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Dividends paid by us will not be eligible for the reduced 15% rate of tax applicable to
certain dividends paid to non-corporate U.S. taxpayers. If, however, our shares become readily
tradable on an established securities market in the United States, as determined for U.S. tax
purposes, then dividends paid to non-corporate U.S. Holders should be eligible for the reduced 15%
rate. Dividends paid by us generally will not be eligible for the dividends-received deduction
otherwise generally allowed to corporate U.S. Holders. If you are a U.S. Holder, dividends received by you with respect to common shares will be
treated as foreign source income, which may be relevant in calculating your foreign tax credit
limitation. For this purpose, dividends distributed by us generally will constitute passive
income, or, in the case of certain U.S. Holders, financial services income. Taxation of Disposition of our Common Shares. If you sell our common shares, you generally will recognize gain or loss in an amount
equal to the difference, if any, between the U.S. Dollar value of the amount realized on the sale
and your adjusted tax basis, determined in U.S. Dollars, in the shares. Any gain or loss you
recognize on the sale will be capital gain or loss and will be long-term capital gain or loss if
you have held the shares for more than one year. Long-term capital gain of a non-corporate U.S.
Holder is generally taxed at a maximum rate of 15%. Passive Foreign Investment Company Status. Special U.S. federal income tax rules apply to U.S. Holders owning shares of a passive
foreign investment company, which is commonly referred to as a PFIC. In general, a foreign
corporation will be considered a PFIC for any taxable year in which either:  
    
    75% or more of its gross income is passive income, which includes interest,
dividends and certain rents and royalties not earned in the active conduct of a trade
or business (the Income Test); or
    
    50% or more of its assets, measured quarterly, generally by fair market value,
produce, or are held for the production of, passive income (the Asset Test). Subject to certain exceptions, a U.S. shareholder who owns shares in a foreign corporation in
a year in which the foreign corporation satisfies the Income Test or the Asset Test will be treated
as owning shares in a PFIC for that year and all subsequent years in which the shareholder owns
such shares, even if the foreign corporation does not satisfy either the Income Test or the Asset
Test in any subsequent year. For the taxable years ending December, 31, 2003 and December 31, 2004, we do not believe we
satisfied either the Income Test or the Asset Test. We did, however, satisfy the Asset Test for
the taxable year ending December 31, 2002. Therefore, unless we qualify for the start-up year
exception (described below), we will be considered a PFIC for the taxable year ending December 31,
2002 and all subsequent years, even if in subsequent years we fail both the Income Test and the
Asset Test. We will qualify for the start-up year exception for the taxable year ending December
31, 2002 if:  
    
    a predecessor corporation was not a PFIC; - 82 -




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
    
    we establish to the satisfaction of the Internal Revenue Service that we would
not be a PFIC for our 2003 and 2004 taxable years based on current estimates; and
    
    we in fact are not a PFIC for either of our 2003 and 2004 taxable years. As of December 31, 2002, based on our then-projected income, assets and activities, we
believed that we would not be classified as a PFIC for our taxable years ending December 31, 2003
and 2004, and, as noted above, for the taxable years ending December 31, 2003 and 2004, we do not
believe we would be classified as a PFIC. Therefore, we believe we should qualify for the start-up
year exception. Our
determination that we are not a PFIC depends upon whether our gross income and holdings of
passive assets remain at a level that will not cause us to become a PFIC. While we intend to so
manage the level of our gross income and passive assets, it may not always be feasible for us to do
so. In addition, since the nature of our income, assets and activities may change, we cannot be
certain that we will not be classified as a PFIC for our taxable year ending December 31, 2002, or
any subsequent year . If we are a PFIC for any taxable year during which you are a U.S. Holder holding our
common shares, you generally will be subject to special tax rules (regardless of whether we remain
a PFIC) with respect to (1) any excess distribution made by us to you (generally any distribution
received by a U.S. Holder in a taxable year that is greater than 125% of the average annual
distributions received by the U.S. Holder in the three preceding taxable years, or the U.S.
Holders holding period for our common shares, if shorter); and (2) any gain realized on the sale
or other disposition (including a pledge) of our common shares. Under these special rules: (1) the excess distribution or gain would be allocated ratably over
your holding period for our common shares; (2) the amount allocated to the current taxable year and
any taxable year prior to the first taxable year in which we were a PFIC (if any) would be treated
as ordinary income; and (3) the amount allocated to each of the other years would be subject to tax
at the highest tax rate in effect for you for that year and an interest charge generally applicable
to underpayments of tax would be imposed with respect to the resulting tax attributable to such
other years (the Excess Distribution Rules). The tax liability with respect to amounts allocated
under (3) above cannot be offset by any net operating losses, and gains (but not losses) realized
on the sale of our common shares will not be treated as capital gains, even if the shares are held
as capital assets. Provided a PFIC furnishes certain information to its U.S. shareholders, a U.S. Holder of
shares of a PFIC may elect to treat its interest in the PFIC as a qualifying electing fund, in
which case the U.S. Holder would take its pro rata share of the PFICs undistributed earnings and
profits and net capital gains into gross income for the PFICs taxable year which ends with or
within such U.S. Holders taxable year. However, if we are a PFIC we do not expect to furnish the
information necessary to permit a U.S. Holder to make such an election. In certain circumstances a U.S. Holder, in lieu of being subject to the Excess Distribution
Rules, may make an election to include gain on the stock of a PFIC as ordinary income under a
mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under
current law, the mark-to-market election would not be available to U.S. Holders because our common
shares are not treated as regularly traded on certain qualified exchanges in the United States. If a PFIC ceases to satisfy the Income Test and the Asset Test in a taxable year, a U.S.
Holder may prospectively avoid application of the Excess Distribution Rules by electing to
recognize built-in - 83 -




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gain (but not loss) on the stock of the foreign corporation as of the last day
of the taxable year for which the foreign corporation satisfied the Income Test or the Asset Test.
The gain recognized from the deemed sale, however, would be subject to the Excess Distribution
Rules. A U.S. Holder who elects the deemed sale treatment will increase its basis in the stock by
the amount of the gain recognized on the deemed sale of such stock. Losses are not recognized on
the deemed sale, and there is no adjustment to the U.S. Holders stock basis where there is a
realized but unrecognized loss on the deemed sale. Although we currently believe we will qualify
for the start-up year exception (described above) for our taxable year ending December 31, 2002,
there can be no assurance that we will in fact satisfy the requirements applicable to the
exception. If we do not qualify for the start-up year exception, you, as a U.S. Holder of our
common shares, may wish to elect the deemed sale treatment for the taxable year ending December 31,
2002, in which case you would make the deemed sale election generally by filing an amended tax
return for your taxable year that includes the last day of the last year in which we were a PFIC,
which would be December 31, 2002 (assuming we do not meet the Income Test or the Asset Test for
2003). You should consult your own tax advisors as to whether you should elect the deemed sale
treatment. A U.S. Holder who beneficially owns shares in a PFIC must file an annual return with the
Internal Revenue Service on IRS Form 8621 that describes any distributions received with respect to
the PFIC shares and any gain realized on the disposition of these shares. You should consult your own tax advisors regarding the tax consequences that would arise if we
were treated as a PFIC. Controlled Foreign Corporation. If U.S. persons who individually own at least 10% of our common shares (10%
Shareholders) own, in the aggregate, more than 50% (measured by voting power or value) of the
stock of our common shares (directly, indirectly or by attribution), we will be a controlled
foreign corporation (a CFC). If we are characterized as a CFC, then a portion of our
undistributed income may be subject to inclusion in the taxable income of each 10% Shareholder, and
a portion of the gain recognized by such 10% Shareholder on the disposition of its common shares
(which could otherwise qualify for capital gain treatment) may be converted into ordinary income. Information Reporting and Backup Withholding. Any dividends paid by us on our common shares and payment of proceeds from the sale of
our common shares generally will not be subject to U.S. information reporting or the 28% backup
withholding tax unless they are paid in the United States or paid by a U.S. payor or a U.S.
middleman. If you furnish the U.S. payor or middleman with a duly completed and signed IRS Form
W-9, these dividends and payments will not be subject to backup withholding tax. You will be
allowed a refund or a credit equal to any amounts withheld under the U.S. backup withholding rules
against your U.S. federal income tax liability, provided you furnish the required information to
the IRS. The above description is not intended to constitute a complete analysis of all tax
consequences relating to the ownership of our common shares. You should consult your own tax
advisor concerning the tax consequences of your particular situation. - 84 -




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Documents on Display We are subject to the informational requirements of the Exchange Act. In accordance with
these requirements, we file reports and other information with the U.S. SEC. These materials,
including this Form 20-F, and exhibits thereto are available to the public over the Internet at the
Commissions web site at http://www.sec.gov. You may also read and copy any document we file at the
Commissions public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the Commission at 1-800-SEC-0330 for further information on the public reference room
and its copy charges. 
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Currency Exchange Risks Viatel is an international company that at the end of December 2003 had operations in eight
countries. Only two operations and the parent company have a functional currency of U.S. dollars.
Having operations in foreign currencies exposes the Company to foreign currency exchange risks. There are principally two types of foreign exchange risk, transaction and translation risks
that may impact the results of operations and comprehensive income respectively. These are
discussed more fully below. Transaction risks Transactions in currencies other than the functional currency are translated at either the
exchange rate in effect at the end of the month in which the transaction occurs or in some cases
the rate in effect at the date of the transaction. Differences in exchange rates during the period
between the date a transaction denominated in a foreign currency is consummated and the date on
which it is settled or translated, are recognized in the consolidated statements of operations as a
component of Selling, general and administrative expenses. Our local operations transact business in their local currencies. They do not have significant
assets, liabilities or other accounts denominated in currencies other than their local currency,
and therefore are not subject to significant exchange rate risk with respect to their normal
operations. Foreign currency exchange fluctuations currently have little or no impact on the price
of our products and our competitiveness in various markets primarily for two reasons. First, other
than for our cross border customers, our revenue streams are derived from the local operating
subsidiaries. These subsidiaries transact with customers in the same country and the supporting
agreements are generally denominated in the same local currency. Second, the local operating
subsidiaries cost base is largely denominated in the local functional currency. The majority of
underlying agreements with backbone and bandwidth suppliers, maintenance and property suppliers and
salary costs, which comprise the majority of our expenses, are also denominated in the same
currency as the local revenue stream. The parent companys foreign exchange transaction risk is primarily derived from the
revaluation of current assets and liabilities that are denominated in a currency other than U.S.
Dollars. These are comprised principally of Euro cash balances held to meet the working capital
requirements of the five local operating subsidiaries with a Euro functional currency and the
inter-company balances denominated in the local operating subsidiaries functional currency (Pounds
Sterling, Swiss Francs and Euros). - 85 -




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When required, the parent company funds the local operating subsidiaries in their functional
currency supported with a corresponding intercompany receivable denominated in the local operating
subsidiarys functional currency. Thus, the parent companys intercompany balances are held in the
operating subsidiaries local functional currency and consequently are revalued on a monthly basis.
The resultant foreign exchange gain or loss is reflected in the consolidated balance sheet as a
component of the cumulative translation adjustment in shareholders equity. The parent companys cash balances consist of Euros and U.S. Dollars. The Euro bank account is
revalued each month and the resultant gain or loss is reflected in the consolidated statements of
operations as a component of Selling, general and administrative expenses. The fluctuation in the exchange rates resulted in a foreign currency gain reflected in the
consolidated statement of operations of US$1.5 million for the year ended December 31, 2004 and
US$3.3 million for the year ended December 31, 2003. For the period from June 7, 2002 to December
31, 2002 there was a foreign currency loss of US$1.4 million. For the Predecessor period from
January 1, 2002 to June 7, 2002, there was a foreign currency gain of US$0.4 million. Translation risks The financial statements of the Companys local operating subsidiaries with a functional
currency other than U.S. Dollars are translated into U.S. Dollars using the current rate method.
Accordingly, assets and liabilities are translated at period-end exchange rates while revenue and
expenses are translated at the periods average exchange rates. Exchange differences arising from
the retranslation at period end exchange rates of the opening net investments and results for the
period are charged or credited directly to the cumulative translation adjustment in shareholders
equity. The fluctuation in the exchange rates resulted in a cumulative translation adjustment gain
reflected as a component of accumulated other comprehensive loss in stockholders equity, of US$3.6
million for the year ended December 31, 2004 and of US$11.3 million for the year ended December 31,
2003. For the period from June 7, 2002 to December 31, 2002, there was a gain of US$3.6 million.
In the Predecessor, there were gains of US$7.0 million for the period from January 1, 2002 to June
7, 2002. Exchange rates can vary significantly. The Euro high and low rates varied by approximately 16%
in relation to the U.S. Dollar during the year ended December 31, 2004; in 2003, the variation was
in the region of 22%. This variation affects the average exchange rates used to translate the
income statements of our operating companies whose functional currency is not U.S. Dollars. At
December 31, 2004, the Euro to U.S. Dollar exchange rate was approximately 8% above where it was at
the beginning of the year; as at December 31, 2003, the corresponding figure was 17%. This
variation affects the ending exchange rates used to translate amounts on the balance sheet of our
operating companies whose functional currency is not U.S. Dollars. Future changes in the value of
the Euro could have a material impact on our financial position and results of operations. We also
experienced fluctuations in other exchange rates. Hedging against foreign exchange risks - 86 -




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We manage currency exchange rate exposure through the use of hedging transactions and natural
hedging strategies through our treasury planning function, and it is anticipated that we will
continue to do so. During 2004 the Company entered into three hedging contracts. These contracts allowed for the
conversion of US$6 million, US$6 million and US$10 million into Pounds Sterling at Protected
rates of US$1.8045, US$1.7975 and US$1.7885 respectively for delivery on July 1, 2004, October 1,
2004 and January 5, 2005. These conversion rates were dependent upon the GBP to USD spot rates at
the time of exercise being above these rates; if market rates had been lower, the actual conversion
rates would have been split between the Protected rate, and market rates, based on the proportion
of time during the contract period in which actual rates had been below the Protected rates. We have exposure to financial market risks, including changes in interest rates and foreign
exchange rates. At December 31, 2004 and 2003, the Companys financial instruments consisted of
short-term investments and money market deposits. At December 31, 2004 and 2003 all of our
investments were due to mature within three months and the carrying value of such investments
approximates fair value. Sensitivity analysis As mentioned above, at December 31, 2004 and 2003, we had Euro and Pound Sterling denominated
balances held by group entities with a functional currency in U.S. Dollars. Therefore, this exposes
the Company to foreign currency exchange rate risk in the Statement of Operations. At December 31,
2004, a 10 percent weakening of the U.S. Dollar against all other currencies in which the Groups
net earnings are denominated would have resulted in a decreased loss of US$3.4 million (2003 
US$2.1 million). A 10 percent strengthening of the U.S. Dollar against all other currencies in
which the Groups net earnings are denominated would have resulted in a further loss of US$3.1
million (2003  US$1.9 million). The change in exposure from year to year is related to the change
in the balance of the Euro and Pound Sterling denominated balances. Interest Rates In
connection with the April 2004 Financing
the Company issued convertible loan notes with a principal amount of
US$52.25 million, which bear interest at a fixed rate of 8% per annum to be compounded and payable semi-annually by way of additional Notes or, at the
Companys option, in cash. The loan notes are convertible into
common shares of the Company at a conversion price of
US$0.75 per common share on 21 April 2013 or earlier upon
the occurrence of certain specified liquidity events such
as a change of control or an initial public offering. The loan notes
are also puttable at a price of 101% of the principal should a change
of control of the Company be effected. Otherwise the loan notes are
repayable at par on 21 April 2014. Interest on the New Notes proposed to be issued upon completion of the June 2005 Financing is
to be initially 12% per annum, payable semi-annually with the interest rate increasing by 0.5% per
annum on each interest payment date, beginning January 15, 2006. For the first year of issue
interest will be payable on the New Notes by way of the issuance of additional New Notes. After the
first anniversary of the issuance of the New Notes, interest will be payable in cash only. 
 PART II 
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. - 87 -




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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES See Item 4. Information on the Company  Chapter 11 Reorganization. 
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Pursuant to the Plan of Reorganization, the Predecessors common shares, preferred stock and
warrants were cancelled and the holders of such securities did not receive any shares or other
securities in the Company. See Item 4. Information on the Company  Chapter11 Reorganization. 
 ITEM 15. CONTROLS AND PROCEDURES Following implementation of certain provisions of the U.S. Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley), companies such as ours that have a class of securities registered under Section
12 of the Exchange Act generally must maintain disclosure controls and procedures. Each such
companys management must evaluate, with the participation of the principal executive and principal
financial officers, or persons performing similar functions, the effectiveness of its disclosure
controls and procedures. In the case of a company that is, as we are, a foreign private issuer
under the relevant Exchange Act rules, the evaluation must be made as of the end of each fiscal
year. Each such companys management must also evaluate, with the participation of its principal
executive and principal financial officers, or persons performing similar functions, any change in
its internal control over financial reporting that occurred during its fiscal year that has
materially affected, or is reasonably likely to materially affect, its internal control over
financial reporting. For these purposes, under the relevant U.S. SEC rules the term disclosure controls and
procedures means controls and other procedures of a company that are designed to ensure that
information required to be disclosed by the company in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the U.S. SECs rules and forms. Under the rules, such disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the companys management, including its principal executive and
principal financial officers, or persons performing similar functions, as appropriate, to allow
timely decisions regarding required disclosure. Disclosure controls and procedures can provide only
reasonable, rather than absolute, assurance of achieving the desired control objectives. The term internal control over financial reporting is defined under the relevant U.S. SEC
rules as a process designed by, or under the supervision of, the companys principal executive and
principal financial officers, or persons performing similar functions, and effected by the
companys board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and includes those
policies and procedures that:  
    
    pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the company; - 88 -




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
    
    provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the companys assets that could have a
material effect on the financial statements. We have carried out the above-referenced evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2004, the end of the period
covered by this Form 20-F. This evaluation has been carried out under the supervision of, and with
the participation
of, our senior management, including our Chief Executive Officer (our principal executive
officer) and our Chief Financial Officer (our principal financial officer). Based upon this evaluation, we have concluded that as of December 31, 2004 our disclosure
controls and procedures were adequate and effective to ensure that material information is made
known to our management and that the information required to be disclosed in this Form 20-F and our
other reports to be filed under the Exchange Act is timely recorded, processed, summarized and
reported. The steps that have been taken to achieve this result include:  
    
    We have engaged an external law firm to review various aspects of our Exchange
Act disclosure procedures.
    
    We have established a Disclosure Committee operating under a written Disclosure
Committee Charter approved by our Board. The Disclosure Committee Charter was adopted
by our Chief Executive Officer and Chief Financial Officer and ratified by our Board.
The Charter enumerates the Committees responsibilities, including designing disclosure
controls, monitoring their effectiveness and supervising the preparation of our
disclosure documents. The members of the Disclosure Committee are General Counsel
Stuart Blythe, Chief Financial Officer Brian McArthur Muscroft and European Finance
Director Steve Garry. The Disclosure Committee oversees the gathering of information in
connection with the preparation of the reports that we file under the Exchange Act,
including this Form 20-F, and works to ensure the accuracy and completeness of our
disclosures in such reports.
    
    The members of our Disclosure Committee have been directly involved in the
preparation and review of this Form 20-F.
    
    Further, our Board has approved and adopted a written Code of Ethics. See
Item 16B. Code of Ethics. As of the date of this Form 20-F, we are still in the process of identifying, developing and
implementing other measures to improve the effectiveness of our disclosure controls and procedures
and - 89 -




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our internal controls, including plans to enhance our resources, systems and training with
respect to our financial reporting and disclosure responsibilities, and to review our actions with
our Audit Committee and our independent auditors. We have committed, and intend to continue to
commit, considerable resources to these efforts. Except as described above, there were no significant changes in our internal controls or in
other factors in the current year that could significantly affect our internal controls subsequent
to the date of our evaluation of our disclosure controls and procedures. 
 ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT Due
to anticipated short-term additions to the Audit Committee and the Board, no audit
committee financial expert has yet been designated. 
 ITEM 16B. CODE OF ETHICS In 2003, the Board adopted a written Code of Ethics. The principles set forth in our Code of
Ethics are intended to promote the honest and ethical conduct of all our employees and compliance
with all applicable rules and regulations that apply to us. This code has been filed as Exhibit 11
to the 2002 Form 20-F and is incorporated by reference in this Annual Report on Form 20-F. It is
available on the U.S. SECs website at www.sec.gov. Since the adoption of the Code of Ethics, there have been no amendments to any of its
provisions. During 2004, the Company did not grant any waiver, including any implicit waiver, from any
provision of the Code of Ethics to the principal executive officer, the principal financial
officer, the principal accounting officer or controller, or persons performing similar functions. 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES At the annual meeting of the Company held on December 8, 2004, our shareholders re-appointed
Deloitte & Touche LLP, London, England, to serve as our Independent Registered Public Accounting
Firm for the 2005 fiscal year. See Item 6. Directors, Senior Management and Employees  Board
Practices  Committees of the Board of Directors. Aggregate fees billed and billable to the Company for the fiscal years ended December 31,
2004, 2003, and 2002 by the Companys principal accounting firm, Deloitte & Touche LLP, the member
firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, Deloitte) were: Year ended December 31,US$000(1)
    
    2004
    
    
    2003
    
    
    2002Audit Fees (2)
    
    
    321
    
    
    
    425
    
    
    
    518Audit-Related Fees (3)
    
    
    
    
    
    
    16
    
    
    
    Total audit and audit-related fees
    
    
    321
    
    
    
    441
    
    
    
    518Tax Fees (4)
    
    
    27
    
    
    
    20
    
    
    
    18All Other Fees
    
    
    
    
    
    
    
    
    
    
    Total Fees
    
    
    348
    
    
    
    461
    
    
    
    536
 - 90 -




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(1)
    
    Predominantly all fees are billed in Pounds Sterling. The exchange rates used in preparing
this table are GBP:US$ 1:1.833, 1:1.633 for 2003 and 1:1.571 for 2002.(2)
    
    Consists of fees rendered for professional services for the audit of our annual financial
statements and services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years. The 2003 figure
excludes £45,000 (approximately US$73,000) of fees in respect of the audit of an acquired
entity for the period prior to the acquisition by the Company. Of the 2002 audit fees,
£70,000 (approximately US$114,000) relate to the audit of the Predecessor.(3)
    
    Consists of fees for financial due diligence.(4)
    
    Consists of fees for UK tax compliance services. Audit Committees pre-approval policies and procedures Our Audit Committee nominates and engages our independent auditors to audit our financial
statements. See also Item 6. Directors, Senior Management and Employees  Board Practices 
Committees of the Board of Directors. In 2003, our Audit Committee also adopted a policy requiring
management to obtain the Committees approval before engaging our independent auditors to provide
any other audit or permitted non-audit services to us or our subsidiaries. Pursuant to this
policy, which is designed to assure that such engagements do not impair the independence of our
auditors, the Audit Committee pre-approves annually specific audit and non-audit services in the
categories Audit Service, Audit-Related Services, Tax Consulting Services, and Other Services that
may be performed by our auditors, subject to any de minimis threshold of $25,000. Our Chief Financial Officer reviews all individual management requests to engage our auditors
as a service provider in accordance with this policy and, if the requested services are permitted
pursuant to the policy, approves the request accordingly. We inform the Audit Committee about
these approvals at the following Audit Committee meeting. Services that are not included in this
pre-approval process require pre-approval by the Audit Committees chairman on a case-by-case
basis. The chairman of our Audit Committee is not permitted to approve any engagement of our
auditors if the services to be performed either fall into a category of services that are not
permitted by applicable law or the services would be inconsistent with maintaining the auditors
independence. 
 PART III 
 ITEM 17. FINANCIAL STATEMENTS The registrant has responded to Item 18 in lieu of responding to this item. 
 ITEM 18. FINANCIAL STATEMENTS The financial statements listed in the Index to Financial Statements are filed or incorporated
by reference as a part of this Form 20-F. 
 ITEM 19. EXHIBITS - 91 -




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ExhibitNumber
    
    
    
    Description of Exhibit
    
    Page1.1
    
    -
    
    Certificate of Incorporation of Viatel Holding (Bermuda)
Limited. (Previously filed as Exhibit 1.1 to the
Companys Form 20-F for the year ended December 31, 2002
dated March 22, 2004 and incorporated by reference
herein.)1.2
    
    -
    
    Memorandum of Association of Viatel Holding (Bermuda)
Limited. (Previously filed as Exhibit 1.2 to the
Companys Form 20-F for the year ended December 31, 2002
dated March 22, 2004 and incorporated by reference
herein.)1.3
    
    
    
    Amendment to Memorandum of Association of Viatel Holding
(Bermuda) Limited. (Previously filed as Exhibit 1.3 to
the Companys Form 20-F for the year ended December 31,
2002 dated March 22, 2004 and incorporated by reference
herein.)1.4
    
    -
    
    Bye-laws of Viatel Holding (Bermuda) Limited effective
from April 21, 2004. (Amending and reinstating those
Bye-Laws previously filed as Exhibit 99.2 to the
Companys Form 6-K dated February 5, 2004.).2.1
    
    -
    
    Form of Registration Rights Agreement, among Viatel
Holding (Bermuda) Limited and the other parties thereto.
(Previously filed as Exhibit 2 to the Companys Form
20-F for the year ended December 31, 2002 dated March
22, 2004 and incorporated by reference herein.)2.2
    
    -
    
    Registration Rights Agreement, among Viatel Holding
(Bermuda) Limited and the other parties thereto.
(Previously filed as Exhibit 2 to the Companys Form 6-K
dated April 28, 2004 and incorporated by reference herein).4.1
    
    -
    
    Investment and Note Purchase Agreement, among Viatel
Holding (Bermuda) Limited and the other parties thereto.
(Previously filed as Exhibit 1 to the Companys Form 6-K
dated April 28, 2004 and incorporated by reference herein).4.2
    
    -
    
    Shareholders Agreement, among Viatel Holding (Bermuda)
Limited and the other parties thereto. (Previously filed
as Exhibit 3 to the Companys Form 6-K dated April 28,
2004 and incorporated by reference herein).4.3
    
    -
    
    Form of Note, due 2014. (Previously filed as Exhibit 4
to the Companys Form 6-K dated April 28, 2004 and incorporated by reference herein).4.4
    
    -
    
    Investment and Note Purchase Agreement among Viatel
Holding (Bermuda) Limited and the other parties thereto dated
June 23, 2005.4.5
    
    -
    
    Letter Agreement among Viatel Holding (Bermuda) Limited
and the other parties thereto dated
June 23, 2005.
 - 92 -




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##### Table of Contents



ExhibitNumber
    
    
    
    Description of Exhibit
    
    Page4.6
    
    -
    
    Form of Note, due 2007.4.7
    
    -
    
    Employment Agreement between Viatel Holding (Bermuda)
Limited and the Chief Executive Officer, dated April 21,
20048
    
    -
    
    List of subsidiaries of Viatel Holding (Bermuda) Limited.11
    
    -
    
    Code of Ethics. (Previously filed as Exhibit 11 to the
Companys Form 20-F for the year ended December 31, 2002
dated March 22, 2004 and incorporated by reference
herein.)12.1
    
    -
    
    Certification of the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.12.2
    
    -
    
    Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.13
    
    -
    
    Certification of the Chief Executive Officer and the
Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.15.1
    
    -
    
    Amended Disclosure Statement with Respect to the First
Amended Joint Chapter 11 Plan of Reorganization of
Viatel, Inc. and Certain of its Subsidiaries (Previously
filed as Exhibit 2.1 to the Companys Form 8-K dated
January 22, 2004 and incorporated by reference herein.)
 - 93 -




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf. Viatel Holding (Bermuda) LimitedBy:
    /s/ Lucy WoodsLucy WoodsChief Executive Officer Date: June 30, 2005 - 94 -




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2004 and December 31, 2003
    
    
    F-4Consolidated Statements of Operations for the years ended December 31, 2004 and 2003, and the periods ended December 31, 2002 and June 7, 2002
    
    
    F-5Consolidated Statements of Shareholders Equity for the years ended December 31, 2004 and 2003, and the periods ended December 31, 2002 and June 7, 2002
    
    
    F-7Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003, and the periods ended December 31, 2002 and June 7, 2002
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-9
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of
Viatel Holding (Bermuda) Limited
Hamilton, Bermuda We have audited the accompanying consolidated balance sheets of Viatel Holding (Bermuda) Limited, a
Bermudan Company and subsidiaries (the Company) as of December 31, 2004 and December 31, 2003 and
the related consolidated statements of operations, comprehensive (loss)/income, shareholders
equity and cash flows for the years ended December 31, 2004 and December 31,2003, and for the
periods from June 7, 2002 to December 31, 2002 (Successor Company operations) and January 1, 2002
to June 7, 2002 (Predecessor Company operations). These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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. As discussed in Note 1 to the consolidated financial statements, the Bankruptcy Court entered an
order confirming the Plan of Reorganization, which became effective after the close of business on
June 7, 2002. Accordingly, the accompanying financial statements for the periods subsequent to June
7, 2002 have been prepared in conformity with AICPA Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code for the Successor Company as a new entity with
assets, liabilities and a capital structure having carrying values not comparable with prior
periods as described in Note 3 to the consolidated financial statements. In our opinion, the Successor Company consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company as of and for the years ended
December 31, 2004 and December 31, 2003 and the consolidated results of their operations and their
consolidated cash flows for the period from June 7, 2002 to December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America. Furthermore, in our
opinion, the Predecessor Company consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of their operations and their
consolidated cash flows for the period from January 1, 2002 to June 7, 2002, in conformity with
accounting principles generally accepted in the United States of America. F-2




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##### Table of Contents



The accompanying consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial statements, the Companys
recurring losses from operations and its difficulty in generating sufficient cash flow to meet its
obligations and sustain its operations raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans concerning these matters are described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ DELOITTE & TOUCHE LLP
London, England
June 30, 2005 F-3




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
  31 December
    
    
    31 December2004
    
    
    2003ASSETSCurrent Assets:Cash and cash equivalents
    
    
    22,820
    
    
    
    30,378Restricted cash
    
    
    486
    
    
    
    Amounts receivable from exchange contracts
    
    
    10,552
    
    
    
    Accounts receivable (net of allowance for doubtful debts of $1,567, 2003  $1,648)
    
    
    3,167
    
    
    
    4,026Amounts receivable from bankruptcy estates within one year
    
    
    5,320
    
    
    
    7,257VAT receivable
    
    
    3,676
    
    
    
    3,469Prepaid expenses and other current assets
    
    
    5,845
    
    
    
    6,427Total current assets
    
    
    51,866
    
    
    
    51,557Property and equipment, net
    
    
    37,986
    
    
    
    39,899Intangible assets, net
    
    
    2,198
    
    
    
    3,330Other assets
    
    
    
    
    
    
    96Deferred financing costs
    
    
    7,630
    
    
    
    Total assets
    
    
    99,680
    
    
    
    94,882LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    
    9,322
    
    
    
    5,135Accrued administrative and priority claims
    
    
    
    
    
    
    1,868Accrued expenses
    
    
    7,937
    
    
    
    9,209Accrued interest
    
    
    1,955
    
    
    
    Accrual for French VAT payable
    
    
    
    
    
    
    6,076Deferred revenue
    
    
    4,626
    
    
    
    3,853Deferred income tax liability
    
    
    47
    
    
    
    Future performance obligations
    
    
    
    
    
    
    4,600Other current liabilities
    
    
    3,784
    
    
    
    2,374Total current liabilities
    
    
    27,671
    
    
    
    33,115Longterm liabilities:Deferred income tax liability
    
    
    
    
    
    
    304Convertible loan notes
    
    
    36,617
    
    
    
    Total longterm liabilities
    
    
    36,617
    
    
    
    304Total liabilities
    
    
    64,288
    
    
    
    33,419Commitments and contingencies (Note 10)Shareholders equity:Common stock, $.01 par value: 2004  250,000,000 shares authorised; 10,630,000 shares
issued and outstanding, 2003  100,000,000 shares authorized; 10,730,000 shares
issued and outstanding
    
    
    106
    
    
    
    107Additional paidin capital
    
    
    116,045
    
    
    
    98,494Accumulated other comprehensive income
    
    
    18,459
    
    
    
    14,914Deferred stock compensation
    
    
    
    
    
    
    (13
    )Accumulated deficit
    
    
    (99,218
    )
    
    
    (52,039
    )Total shareholders equity
    
    
    35,392
    
    
    
    61,463Total liabilities and shareholders equity
    
    
    99,680
    
    
    
    94,882
 See accompanying notes to consolidated financial statements. F-4




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
  Successor
    
    
    Successor
    
    
    Successor
    
    
    
    PredecessorFrom June 7,Year Ended
    
    
    Year Ended
    
    
    2002 to
    
    
    
    From JanuaryDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    
    1, 2002 to June2004
    
    
    2003
    
    
    2002
    
    
    
    7, 2002Revenue:Communication services revenues
    
    
    26,962
    
    
    
    17,205
    
    
    
    2,793
    
    
    
    
    1,216Operations and maintenance fee revenue
    
    
    1,828
    
    
    
    1,707
    
    
    
    1,371
    
    
    
    
    1,451Total revenue
    
    
    28,790
    
    
    
    18,912
    
    
    
    4,164
    
    
    
    
    2,667Operating expenses:Cost of sales
    
    
    (16,538
    )
    
    
    (10,015
    )
    
    
    (1,506
    )
    
    
    
    (1,518
    )Selling, general and administrative
(including noncash stock compensation
(income) / expense of $(48), $(27), $75
(Successor), $4,567 (Predecessor)
    
    
    (67,797
    )
    
    
    (51,225
    )
    
    
    (30,840
    )
    
    
    
    (26,502
    )Gain on amounts due from bankruptcy estates
    
    
    3,105
    
    
    
    358
    
    
    
    25,003
    
    
    
    
    Restructuring and impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (908
    )Depreciation and amortization
    
    
    (9,140
    )
    
    
    (7,181
    )
    
    
    (2,458
    )
    
    
    
    (1,736
    )Total operating expenses (net)
    
    
    (90,370
    )
    
    
    (68,063
    )
    
    
    (9,801
    )
    
    
    
    (30,664
    )Other operating income
    
    
    17,780
    
    
    
    
    
    
    
    
    
    
    
    
    Operating loss before reorganization items
    
    
    (43,800
    )
    
    
    (49,151
    )
    
    
    (5,637
    )
    
    
    
    (27,997
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,662,669Operating (loss) / income
    
    
    (43,800
    )
    
    
    (49,151
    )
    
    
    (5,637
    )
    
    
    
    2,634,672Other income / (expense):Interest and other income
    
    
    775
    
    
    
    1,557
    
    
    
    986
    
    
    
    
    1,007Interest expense
    
    
    (4,395
    )
    
    
    
    
    
    
    (11
    )
    
    
    
    (63
    )Net (loss) / income before taxation
    
    
    (47,420
    )
    
    
    (47,594
    )
    
    
    (4,662
    )
    
    
    
    2,635,616Taxation
    
    
    241
    
    
    
    217
    
    
    
    
    
    
    
    
    Net (loss) / income
    
    
    (47,179
    )
    
    
    (47,377
    )
    
    
    (4,662
    )
    
    
    
    2,635,616Net (loss) / income per common share, basic and
diluted
    
    
    (4.42
    )
    
    
    (4.43
    )
    
    
    (0.44
    )
    
    
    
    51.72Weighted average common shares outstanding,
basic and diluted
    
    
    10,680
    
    
    
    10,705
    
    
    
    10,560
    
    
    
    
    50,963
 See accompanying notes to consolidated financial statements. F-5




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME
(United States Dollars, in thousands, unless specifically stated) Successor
    
    
    Successor
    
    
    Successor
    
    
    
    PredecessorYear Ended
    
    
    Year Ended
    
    
    From June 7, 2002
    
    
    
    From January 1,December 31,
    
    
    December 31,
    
    
    to December 31,
    
    
    
    2002 to June 7,2004
    
    
    2003
    
    
    2002
    
    
    
    2002Net (loss) / income
    
    
    (47,179
    )
    
    
    (47,377
    )
    
    
    (4,662
    )
    
    
    
    2,635,616Foreign currency translation adjustment
    
    
    3,545
    
    
    
    11,279
    
    
    
    3,635
    
    
    
    
    7,009Comprehensive (loss) / income
    
    
    (43,634
    )
    
    
    (36,098
    )
    
    
    (1,027
    )
    
    
    
    2,642,625
 See accompanying notes to consolidated financial statements. F-6




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES 
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
  ForeignNumber of
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    CurrencyShares of Common
    
    
    Common
    
    
    PaidIn
    
    
    Deferred Stock
    
    
    Translation
    
    
    AccumulatedStock
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Adjustments
    
    
    Deficit
    
    
    TotalBalance at January 1, 2002
    
    
    50,962,868
    
    
    
    510
    
    
    
    1,123,380
    
    
    
    (3,966
    )
    
    
    (95,962
    )
    
    
    (3,570,391
    )
    
    
    (2,546,429
    )Foreign Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,009
    
    
    
    
    
    
    
    7,009Stock options issued
    
    
    
    
    
    
    
    
    
    
    2,569
    
    
    
    (2,569
    )
    
    
    
    
    
    
    
    
    
    
    Earned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,567
    
    
    
    
    
    
    
    
    
    
    
    4,567Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,635,616
    
    
    
    2,635,616Impact of Fresh Start
Adjustments :Elimination of Accumulated
losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    934,775
    
    
    
    934,775Elimination of foreign
currency translation reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,953
    
    
    
    
    
    
    
    88,953Cancellation of shares in
predecessor
    
    
    (50,962,868
    )
    
    
    (510
    )
    
    
    (1,125,691
    )
    
    
    1,710
    
    
    
    
    
    
    
    
    
    
    
    (1,124,491
    )Issuance of common shares in
connection with plan of
reorganization
    
    
    10,560,000
    
    
    
    106
    
    
    
    98,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,636Successor Company balance,
June 7, 2002
    
    
    10,560,000
    
    
    
    106
    
    
    
    98,788
    
    
    
    (258
    )
    
    
    
    
    
    
    
    
    
    
    98,636Earned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75Foreign Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,635
    
    
    
    
    
    
    
    3,635Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,662
    )
    
    
    (4,662
    )Balance at December 31, 2002
    
    
    10,560,000
    
    
    
    106
    
    
    
    98,788
    
    
    
    (183
    )
    
    
    3,635
    
    
    
    (4,662
    )
    
    
    97,684Earned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    68Stock options exercised
    
    
    170,000
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Shares exchanged for One World
    
    
    
    
    
    
    (1
    )
    
    
    (97
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (98
    )Stock options forfeited
    
    
    
    
    
    
    
    
    
    
    (197
    )
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    (95
    )Foreign Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,279
    
    
    
    
    
    
    
    11,279Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,377
    )
    
    
    (47,377
    )Balance at December 31, 2003
    
    
    10,730,000
    
    
    
    107
    
    
    
    98,494
    
    
    
    (13
    )
    
    
    14,914
    
    
    
    (52,039
    )
    
    
    61,463Shares cancelled
    
    
    (100,000
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Stock options forfeited
    
    
    
    
    
    
    
    
    
    
    (61
    )
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    (48
    )Beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    17,612
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,612Foreign Currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,545
    
    
    
    
    
    
    
    3,545Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,179
    )
    
    
    (47,179
    )Balance at December 31, 2004
    
    
    10,630,000
    
    
    
    106
    
    
    
    116,045
    
    
    
    
    
    
    
    18,459
    
    
    
    (99,218
    )
    
    
    35,392
 See accompanying notes to consolidated financial statements F-7




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VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASHFLOWS
  Successor
    
    
    Successor
    
    
    Successor
    
    
    
    PredecessorYear Ended
    
    
    Year Ended
    
    
    From June 7, 2002
    
    
    
    From January 1,December 31,
    
    
    December 31,
    
    
    to December 31,
    
    
    
    2002 to June 7,2004
    
    
    2003
    
    
    2002
    
    
    
    2002Cash flows from operating activities:Net (loss) / income
    
    
    (47,179
    )
    
    
    (47,377
    )
    
    
    (4,662
    )
    
    
    
    2,635,616Adjustments to reconcile net (loss) / income to net
cash used in operating activities:Depreciation and amortization
    
    
    9,140
    
    
    
    7,181
    
    
    
    2,458
    
    
    
    
    1,736Loss on disposal of property and equipment
    
    
    344
    
    
    
    256
    
    
    
    
    
    
    
    
    Accreted interest expense on long-term debt
    
    
    2,930
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred financing costs
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of loan note discount
    
    
    1,003
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred income tax liability
    
    
    (257
    )
    
    
    (217
    )
    
    
    
    
    
    
    
    Reorganization adjustments, net of cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,660,786
    )Stock-based compensation (income) / expense
    
    
    (48
    )
    
    
    (27
    )
    
    
    75
    
    
    
    
    4,567Noncash exchange of common shares
    
    
    
    
    
    
    (97
    )
    
    
    
    
    
    
    
    Changes in operating assets and liabilities, net of
effect of acquisitions:Decrease / (increase) in accounts and notes
receivable and accrued interest
    
    
    859
    
    
    
    1,869
    
    
    
    (540
    )
    
    
    
    8,200(Increase) in restricted cash
    
    
    (486
    )
    
    
    
    
    
    
    
    
    
    
    
    (Increase) in amounts receivable from exchange
contracts
    
    
    (10,552
    )
    
    
    
    
    
    
    
    
    
    
    
    Decrease / (increase) in prepaid expenses and other
receivables
    
    
    374
    
    
    
    (6,074
    )
    
    
    2,843
    
    
    
    
    6,180Decrease / (increase) in amounts receivable from
bankruptcy estates
    
    
    1,937
    
    
    
    13,628
    
    
    
    (15,622
    )
    
    
    
    13,737Decrease / (increase) in other assets
    
    
    96
    
    
    
    859
    
    
    
    (374
    )
    
    
    
    195(Decrease) / increase in accrued telecommunications
costs, accounts payable, and other accrued expenses
    
    
    (7,446
    )
    
    
    4,883
    
    
    
    2,057
    
    
    
    
    (1,589
    )Net cash (used in) / provided by operating activities
    
    
    (48,824
    )
    
    
    (25,116
    )
    
    
    (13,765
    )
    
    
    
    7,856Cash flows from investing activities:Capital expenditures
    
    
    (3,847
    )
    
    
    (2,180
    )
    
    
    (1,667
    )
    
    
    
    (8,721
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    2,697
    
    
    
    
    
    
    
    
    2,051Cash paid for acquisitions, net of cash acquired
    
    
    
    
    
    
    (3,469
    )
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (3,847
    )
    
    
    (2,952
    )
    
    
    (1,667
    )
    
    
    
    (6,670
    )Cash flows from financing activities:Proceeds from exercise of stock options
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    Proceeds from preferred loan note offering
    
    
    52,250
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred financing costs associated with loan note
offering
    
    
    (8,092
    )
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    44,158
    
    
    
    2
    
    
    
    
    
    
    
    
    Effects of exchange rate changes on cash
    
    
    955
    
    
    
    5,036
    
    
    
    605
    
    
    
    
    1,116Net (decrease) / increase in cash and cash equivalents
    
    
    (7,558
    )
    
    
    (23,030
    )
    
    
    (14,827
    )
    
    
    
    2,302Cash and cash equivalents at beginning of period
    
    
    30,378
    
    
    
    53,408
    
    
    
    68,235
    
    
    
    
    65,933Cash and cash equivalents at end of period
    
    
    22,820
    
    
    
    30,378
    
    
    
    53,408
    
    
    
    
    68,235Supplemental disclosure of cash flow activityInterest paid
    
    
    (2
    )
    
    
    
    
    
    
    8
    
    
    
    
    63Interest received
    
    
    775
    
    
    
    848
    
    
    
    906
    
    
    
    
    1,007Taxes paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Receipts from bankruptcy estates
    
    
    5,612
    
    
    
    13,628
    
    
    
    10,030
    
    
    
    
    13,737
 See accompanying notes to consolidated financial statements F-8




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (
 (1) Nature of Business, Background And Basis of Presentation Viatel
Holding (Bermuda) Limited (the Company) operates a panEuropean telecommunications network (the European Network)
comprised of advanced fiberoptic cable systems and interfaces that are owned by, leased to, or
otherwise available to the Company. Over its network, the Company offers a variety of
telecommunications products and services, IP transit, leased line services, managed hosting,
colocation services and rights of use in capacity. Viatel Holding (Bermuda) Limited was incorporated on January 4, 2002 under the laws of
Bermuda, as a subsidiary of Viatel, Inc. and in anticipation of the consummation of the First
Amended Joint Chapter 11 Plan of Reorganization (the Plan of Reorganization) of Viatel, Inc. and
certain of its subsidiaries. As contemplated under the terms of the Plan of Reorganization, and
commencing as of the close of business on June 7, 2002 (the Effective Date), a series of share
transfers were made whereby various subsidiaries that had been previously held, directly or
indirectly, by Viatel, Inc. became whollyowned direct or indirect subsidiaries of Viatel Holding
(Bermuda) Limited. The
Company has adopted fresh start reporting in accordance
with the American Institute of
Certified Public Accountants Statement of Position 907, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code (SOP 907). Under fresh start reporting, a new, viable
entity with a going concern value is created for financial reporting purposes and the consolidated
financial statements have been prepared for that new entity on that basis. Viatel Holding
(Bermuda) Limited and its subsidiaries is therefore considered the Successor Company to Viatel,
Inc., which is considered the Predecessor Company on the date of consummation of the Plan of
Reorganization. Accordingly, the results that are presented in the consolidated financial
statements of the Successor are those from the close of business on the Effective Date to December
31, 2002 and then for the fiscal years 2003 and 2004. In
March 2003, the Company acquired the business and assets of
Cybernet (Schweiz) AG (Cybernet) and the
share capital of Netcom Internet Limited (Netcom). Both of these companies provide business ISP services in
their respective geographical locations; further information on these acquisitions is included in
Note 10 to these financial statements. References in these consolidated financial statements to The Group, Viatel, the Successor
Company, the Successor, we or us refer to Viatel Holding (Bermuda) Limited and its
subsidiaries. Any references in these financial statements to the Predecessor Company or the
Predecessor refer to Viatel, Inc. and its subsidiaries prior to the Effective Date. The accompanying consolidated financial statements have been prepared assuming that the
Company will continue as a going concern. The Company currently has limited financial resources
available to support ongoing operations, fund its operating business plan and pay ongoing
operational obligations as they become due. On April 21, 2004, the Company executed binding documentation with a group of investors for
the issuance of US$52.25 million of senior convertible debt securities (the Existing Notes).
Interest, at the rate of 8% per annum, is compounded and payable semiannually by way of additional
Existing Notes or, at the Companys option, in cash; the Existing Notes are due in 2014. The
Existing Notes are, at the option of the Noteholder, convertible into common shares of the Company
upon the occurrence of certain specified liquidity events, such as a change in control or public
offering, or upon the request of the holders of a majority of the Existing Notes. This is
discussed in further detail in Note (8). F-9




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) On June 23, 2005, the Company entered into further financing documentation with two of
the Investors, Morgan Stanley and Värde under which Morgan Stanley and Värde have conditionally
committed to invest a further US$16 million in the Company by way of the purchase of, respectively
US$12.9 million and US$3.1 million 12% increasing rate senior secured notes due 2007 (the New
Notes)  the June 2005 Financing. Such investment is conditional upon customary conditions for transactions of this nature
and upon the filing of this Form 20-F in a form satisfactory to Morgan Stanley and Värde. Interest on the New Notes is to be initially 12% per annum, payable semi-annually with the
interest rate increasing by 0.5% per annum on each interest payment date, beginning on January 15,
2006. For the first year of issue interest will be payable on the New Notes by way of the issuance
of additional New Notes. After the first anniversary of the issuance
of New Notes, interest will be payable in
cash only. The New Notes are to have a 2 year maturity and will rank senior to all subordinated debt of
the Company (including the Existing Notes) and pari passuwith all senior debt of the Company.
Under the terms of the June 2005 Financing, the holders of the Existing Notes have agreed to
subordinate their Existing Notes to the New Notes. The
Company expects to pursue the
[further financing (Further Financing)] and Morgan Stanley and Värde have advised
the Company they will consider providing such Further Financing and/or additional financing. It is
currently contemplated that any such Further Financing would involve an investment of an additional
US$16 million, with such additional amount being reduced by the proceeds of any asset sales by the
Company entered into prior to the Further Financing, and to be further reduced to the extent that
the Companys then performance against budget does not demonstrate a need for such additional
financing. No assurance can be given that the proposed Further
Financing will be consummated or that alternative sources of
financing would be available or attractive terms, or at all. Neither Morgan Stanley nor Värde is under any obligation to participate in the
Further Financing or any other financing, other than the
June 2005 Financing to the extent
contemplated by the terms and conditions thereof. If
the Company does not obtain acceptable funding, the Directors will be forced to reduce dramatically
cash requirements or to raise cash, by discontinuing or disposing of existing development
programmes or business operations, by selling assets or otherwise. These consolidated financial
statements do not include any adjustment that might result from the outcome of this uncertainty.
If these measures were to be inadequate to cover the Companys cash needs, the Company would likely
become insolvent. If the proposed Further Financing is consummated, the Directors believe that the amount of the
financing will be sufficient to fund the Companys operating plan. However, should the operating
performance not meet that contemplated in the operating plan, the Company will require additional
funding. (2) Significant Accounting Policies These consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP) and are expressed in
U.S. Dollars. The significant accounting policies are summarized as follows: F-10




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) (a) Basis of Consolidation The financial statements consolidate the Company and its majorityowned and controlled
subsidiaries from their respective dates of acquisition. All acquisitions are accounted for by the
purchase method, with the excess of the purchase price over the fair value of the assets and
liabilities acquired being recorded as goodwill. Further details of acquisitions are given in Note
10. All intercompany balances and transactions have been eliminated in consolidation. As at
December 31, 2004, and 2003, there were no equity method investments. (b) Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingencies at the date of the financial statements, as well as the reported amounts of
revenue and expenses during the reporting period. The most significant estimates include accounts
receivable reserves, impairment charges, useful lives of fixed assets and performance obligations
under longterm contracts. Actual amounts and results could differ from those estimates. (c) Statement of Position 907, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code On June 7, 2002, the Company adopted fresh start reporting in accordance with SOP 907, Under fresh start reporting, a new, viable entity is created for financial reporting purposes;
the Companys consolidated financial statements have been prepared for that new entity on that
basis applying the following main principles:  
    
    the reorganization value of the entity should be allocated to the entitys assets in
conformity with the procedures specified by Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS No. 141) for transactions reported on the
basis of the purchase method; and
    
    each liability existing as at the Effective Date, other than deferred taxes, should
be stated at present values of amounts to be paid determined at appropriate current
interest rates. The reorganization value was primarily determined on a discounted cash flow analysis utilizing
both recent operating results and future projected cash flows over the estimated lives of the
network assets and a discount rate of 20%. The reorganization value was allocated to individual
assets and liabilities based on the work of outside financial advisors as well as internal
valuation estimates using the discounted cash flow analysis referred to above. F-11




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) Included in the balance sheet at the Effective Date are amounts considered to be pre
confirmation contingencies in accordance with AICPA Practice Bulletin 11, Accounting for
PreConfirmation Contingencies in Fresh Start Reporting. Subsequent revisions to the
preconfirmation contingencies are reported in the statement of operations. In our case
preconfirmation contingencies include amounts realized and to be realized from the claims made by
the Predecessor in the bankruptcy proceedings of certain subsidiaries. An estimate was made as at
the Effective Date of the certain recoveries and to the extent actual recoveries are in excess of
those estimated at the Effective Date we have recorded a gain through the statement of operations. (d) Revenue and Cost of Sales The Company records communication services revenue as earned at the time services are
provided. The related cost of communication services is reported in the same period. Revenues relating to operations and maintenance charges are recognized over the period in
which the service is provided. Deferred revenue also includes amounts invoiced for standby
maintenance applicable to future periods. Operations and maintenance costs are expensed over the period to which the expenditure
relates. (e) Advertising Costs Advertising costs are expensed as incurred. Such costs are included in selling, general and
administrative expenses in the accompanying consolidated statements of operations and amounted to
US$1,376 for the year ended December 31, 2004 and US$184 for the year ended December 31, 2003. For
the period from June 7, 2002 to December 31, 2002, the period from January 1, 2002 to June 7, 2002,
advertising costs amounted to US$1, and US$nil respectively. (f) Income Taxes Income taxes are accounted for under the liability method. Deferred taxes are determined
based on the difference between the tax basis of an asset or liability and its reported amount in
the financial statements. A deferred tax liability or asset is recorded using the enacted tax
rates expected to apply to taxable income in the period in which the deferred tax liability or
asset is expected to be settled or realized. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period in which the change is enacted. Future
tax benefits attributable to these differences, if any, are recognizable to the extent that
realization of such benefits is more likely than not. A valuation allowance is applied to deferred
tax assets in order to reduce them to the amount that is more likely than not to be realised. (g) Net (loss)/income per Common Share Basic net (loss)/income per common share is computed by dividing net (loss)/income applicable
to common shareholders by the weighted average number of common shares outstanding during the
period. Diluted net (loss)/income per common share is computed by dividing net (loss)/income by
the weighted average number of common shares and common share equivalents outstanding during the
period. For the years ended December 31, 2004 and 2003, the periods from June 7, 2002 to December
31, 2002 and from January 1, 2002 to June 7, 2002, no outstanding stock options have been included
in the calculation of diluted net loss per share as the effect would be antidilutive. F-12




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) (h) Property and Equipment At December 31, 2004 and December 31, 2003 property and equipment included property and
equipment acquired from the Predecessor, which is stated at fair value upon acquisition. All
acquisitions of capital equipment thereafter, principally comprising telecommunications-related
equipment, are stated at cost. Depreciation is calculated on a straightline basis over the assets estimated useful lives,
which are determined based on historical usage with consideration given to technological changes,
trends in the industry and other economic factors that could impact the network architecture and
asset utilization. Amortization of equipment held under capital leases and of leasehold
improvements is included in the Consolidated Statement of Operations as Depreciation and
amortization, and is calculated on a straightline basis over the estimated useful lives of the
assets, or the related lease term, whichever is shorter. The estimated useful lives of the other
assets are as follows: Communications systems and network infrastructure
    
    5 to 18 yearsFurniture, office and computer equipment
    
    2 to 5 yearsLand
    
    Not depreciated
 (i) Intangible Assets Intangible assets purchased, including customer relationships, are capitalised at fair value
and are amortised over their expected useful lives on a straight line basis. The expected useful
lives of the intangible assets acquired during 2003 were 2 years. During 2004 the expected useful
life of the intangible assets arising from the acquisition of Cybernet were reassessed, and
increased from 2 years to 5 years. This re-assessment reflected the fact that actual customer
churn experienced subsequent to the acquisition was lower than originally anticipated. The
re-assessment of the useful economic life of Cybernet resulted in the total amortization expense
for the year ended December 31, 2004 being US$1,637 lower than it would otherwise have been. It is
estimated that the impact of this change on charges in future years will be to increase annualized
future charges through to February 2008 by approximately US$470 each year. Negative goodwill arises where the sum of the amounts assigned to assets acquired and
liabilities assumed exceeds the consideration for the acquired entity. Negative goodwill is
allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of
the acquired assets except (a) financial assets other than investments accounted for by the equity
method, (b) assets to be disposed of by sale, (c) deferred tax assets, (d) prepaid assets relating
to pension or other postretirement benefit plans, and (e) any other current assets. The Company has no indefinite lived intangible assets or goodwill. (j) Impairment of Longlived Assets The Company has material customer relationships capitalized in its balance sheet as a result
of its acquisition of Cybernet and Netcom. The Company periodically reviews the carrying values of
intangible assets subject to amortization and other longlived assets to determine whether there
has been any impairment of these assets and the appropriateness of their remaining useful lives.
Should events or circumstances indicate that the carrying value may not be recoverable based on
undiscounted future cash flows, an impairment loss measured by the difference between the fair
value and the carrying value of F-13




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) longlived assets would be recognized. Fair value is generally determined based upon an
estimate of the discounted future net cash flows to be generated by the assets. Under the testing for impairment, estimates of future cash flows are used to test the
recoverability of a longlived asset, and are based on the existing service potential of the asset.
These estimates exclude cash flows associated with future capital expenditures that would increase
the service potential of the longlived asset. There is an inherent uncertainty in
estimating future cash flows which can have a material affect on the amount of any impairment. (k) Cash and Cash Equivalents Cash equivalents include highly-liquid debt instruments purchased with an original maturity of
three months or less. The company had restricted cash as at December 31, 2004 of US$486 and US$nil
as at December 31, 2003. (l) Amounts
Receivable From Exchange Contracts Amounts due under currency options straddling the year end are recorded as Amounts receivable
from exchange contracts (see note 14). (m) Convertible Notes In connection with the April 21, 2004 Financing, the Company issued US$52.25 million of
convertible loan notes (the Existing Notes). The embedded put option is bifurcated and recorded at fair value along
with the carrying value of the note. Changes in fair value of the put
option are recorded in the statement of
operations. The beneficial conversion feature, representing the difference between the conversion price
and the share price on the issuance date, is recorded within Additional Paid in Capital in
Shareholders Equity. The corresponding discount on the loan notes is being amortized using the
effective interest method over their term. Direct
costs associated with the issuance of the Existing Notes are recorded as deferred financing costs
and amortized over their term. (n) Foreign Currency Translation The functional currency of each of the Companys subsidiaries is the local currency of the
country in which each subsidiary is located. Transactions in currencies other than the functional
currency are translated into the functional currency at the rates of exchange at the date of each
transaction. Differences in exchange rates during the period between the date a transaction denominated in
a foreign currency is recorded and the date on which it is either settled or translated at
periodend exchange rates are recognized in the statement of operations. The foreign exchange gain
recognized in the statement of operations and included in Selling, general and administrative
expenses amounted to US$1,611 for the year ended December 31, 2004 and US$3,256 for the year ended
December 31, 2003. For the period from June 7, 2002 to December 31, 2002, there was an exchange
transaction loss of US$1,421. For the F-14




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated) period from January 1, 2002 to June 7, 2002, the Predecessor experienced exchange transaction
gains of US$441. The financial statements of foreign subsidiaries are translated into United States Dollars
using the currentrate method. Accordingly, assets and liabilities denominated in foreign
currencies are translated at rates of exchange in effect at the balance sheet date and the
statements of operations of overseas subsidiaries are translated into United States Dollars at
average exchange rates. Exchange differences arising from retranslation at periodend exchange
rates of the opening net investments and results for the period are charged or credited directly to
the cumulative translation adjustment in shareholders equity. (o) Financial Instruments, Derivatives and Concentration of Credit Risk At December 31, 2004 the Companys financial instruments included cash and cash equivalents,
accounts receivable, accounts payable, accrued expenses and
convertible loan notes (the Existing Notes). It is not
practicable to estimate the fair value of the convertible loan notes as a quoted market price is
not available. As at 31 December 2004, the face value of the Existing Notes was US$52.3 million and
the face value of the Existing Notes issued on 15 July 2004 in lieu of interest was US$1.0 million.
These Existing Notes have a fixed interest rate of 8% which is
payable semi annually. The Existing Notes
mature on 21 April 2014. The fair values, at December 31, 2004 and at December 31, 2003, of cash
and cash equivalents, receivables, accounts payable and accrued interest approximated their
carrying values because of the shortterm nature of these instruments. Financial instruments that potentially subject the Company to concentration of credit risk
consist primarily of temporary cash investments and trade receivables. The Company restricts
investment of temporary cash investments to financial institutions with high credit standing. The Company does not have any derivative instruments at December 31, 2004 and did not enter
into any activities resulting in derivative instruments during the year then ended other than the
embedded derivatives related to the put option on the loan notes. The Company records all derivative instruments on the balance sheet at fair value. Changes in
a derivatives fair value are recognized in income unless specific hedge criteria are met. If the
derivative is designated as a fair value hedge, the changes in the fair value of the derivative and
of the hedged item attributable to the hedged risk are recognized as a charge or credit to income.
If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair
value of the derivative are recorded in other comprehensive income (loss) and are recognized in the
consolidated statement of operations when the hedged item affects income and the cash flows are
classified consistent with the underlying hedged item. For purchased foreign currency options
the entire change in fair value
is included in the measurement of hedge effectiveness for cash flow hedges. Ineffective portions of
changes in the fair value of cash flow hedges are recognized as a charge or credit to income. The Company designates and assigns derivatives as hedges of forecasted transactions, specific
assets or specific liabilities. When hedged assets or liabilities are sold or extinguished or the
forecasted transactions being hedged are no longer expected to occur, the Company recognizes the
gain or loss on the designated hedging financial instruments. The Company has a diverse customer base, but does have a concentration within the
telecommunications industry. Current industry conditions have adversely affected other
telecommunications providers, some of whom are customers of the Company. Such adverse effects
could F-15




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) result in an inability to fulfil their obligations to the Company, including payment of
amounts owed for services provided. (p) Stock Option Plan The Company has adopted the disclosure only provision of SFAS 123 Accounting for StockBased
Compensation. The Company applied APB Opinion 25 Accounting for Stock Issued to Employees and
related interpretations in accounting for the stock option plans that it operates. At December 31, 2004, and 2003 the Company had a stock-based employee compensation plan which
is more fully described in Note 9. The Company recognizes stockbased compensation in the statement
of operations over the vesting period for each award. The intrinsic value of the option is the
difference between the market value of the stock on the measurement date, and the amount required
to be paid for the stock. The difference, if any, is charged to expense over the vesting period of
the options. Any award of options to nonemployees is accounted for under SFAS 123 and the fair
value of the option is expensed over the vesting period. Under APB 25, the effect of any forfeiture
is recognized in the period in which the options are forfeited. No options were granted in the
years ended December 31, 2004 or 2003. The table below shows the pro forma net income of the Company if SFAS 123 had been adopted,
calculated using the BlackScholes option pricing model. The following assumptions were applied in
calculating the fair value of options awarded by the Predecessor Company during 2002 prior to the
Effective Date: (1) a risk-free interest rate of 4.48%; (2) an expected life of the options of 5
years; (3) volatility of approximately 48.13%; and (4) an annual dividend yield of 0%. Successor
    
    
    Successor
    
    
    Successor
    
    
    
    PredecessorYear Ended
    
    
    Year Ended
    
    
    From June 7, 2002
    
    
    
    From January 1,December 31,
    
    
    December 31,
    
    
    to December 31,
    
    
    
    2002 to June 7,2004
    
    
    2003
    
    
    2002
    
    
    
    2002Net (loss) / income as reported
    
    
    (47,179
    )
    
    
    (47,377
    )
    
    
    (4,662
    )
    
    
    
    2,635,616Add: noncash stockbased compensation
expense/(income)
    
    
    (48
    )
    
    
    (27
    )
    
    
    75
    
    
    
    
    4,567Less: SFAS 123 stockbased compensation charge /
(credit)
    
    
    69
    
    
    
    38
    
    
    
    (106
    )
    
    
    
    (4,029
    )Pro forma net (loss) / income
    
    
    (47,158
    )
    
    
    (47,366
    )
    
    
    (4,693
    )
    
    
    
    2,636,154Proforma basic and diluted (loss) / income per share
    
    
    (4.42
    )
    
    
    (4.42
    )
    
    
    (0.44
    )
    
    
    
    51.73Basic and diluted net (loss) / income per common
share, as reported
    
    
    (4.42
    )
    
    
    (4.43
    )
    
    
    (0.44
    )
    
    
    
    51.72
 (q) Segment Information The Company reports segment information in accordance with SFAS 131, Disclosures about
Segments of an Enterprise and Related Information, (SFAS 131). Under SFAS 131 all
publicly-traded companies are required to report certain information about the operating segments,
products, services and geographical areas in which they operate and their major customers. The
Company presents segment information externally the same way management uses financial data
internally to make operating decisions and assess performance. F-16




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) (r) Comprehensive (Loss)/Income The Company reports comprehensive (loss)/income in accordance with Statement of Financial
Accounting Standard 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes
guidelines for the reporting and display of comprehensive (loss)/income and its components in
financial statements. Comprehensive (loss)/income includes charges and credits to equity that are
not the result of transactions with shareholders. Included in other comprehensive income for the
Company are foreign currency translation gains and losses. (s) Recent Accounting Pronouncements Not Yet Adopted On November 24, 2004, the FASB issued SFAS 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The amendments made by SFAS 151 clarify that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges require the allocation of fixed production overheads to inventory based on
the normal capacity of the production facilities. SFAS 151 is the result of a broader effort by the
FASB to improve the comparability of cross-border financial reporting by working with the
International Accounting Standards Board (IASB) toward development of a single set of high-quality
accounting standards. The FASB and the IASB noted that ARB 43, Chapter 4 and IAS 2, Inventories,
are both based on the principle that the primary basis of accounting for inventory is cost. Both of
those accounting standards also require that abnormal amounts of idle freight, handling costs,
and wasted materials be recognized as period costs; however, the Boards noted that differences in
the wording of the two standards could have led to the inconsistent application of those similar
requirements. The FASB concluded that clarifying the existing requirements in ARB 43 by adopting
language similar to that used in IAS 2 is consistent with its goals of improving financial
reporting in the United States and promoting convergence of accounting standards internationally.
The guidance is effective for inventory costs incurred during fiscal years beginning after June 15,
2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning
after November 23, 2004. We do not anticipate that the adoption of SFAS 151 will have a material
impact on our results of operations, financial position or cash flows. In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payments or SFAS
123R. This statement eliminates the option to apply the intrinsic value measurement provisions of
APB 25, Accounting for Stock Issued to Employees to stock compensation awards issued to
employees. Rather, SFAS 123R requires companies to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award.
That cost will be recognized over the period during which an employee is required to provide
services in exchange for the award-the requisite service period (usually the vesting period). SFAS
123R applies to all awards granted after the required effective date and to awards modified,
repurchased, or cancelled after that date. For public entities that do not file as small business
issuers, standard is effective for the annual reporting period that begins after June 15, 2005. We
are currently evaluating the impact of SFAS 123R on our results of operations, financial position
and cash flows. In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets  an amendment of
APB Opinion No. 29, which amends APB 29, Accounting for Nonmonetary Transactions to eliminate
the exception for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. We are currently evaluating the impact of SFAS 153 on our results of operations, financial
position and cash flows. F-17




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) (3) Fresh Start Reporting The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting
entity and adoption of fresh start reporting in accordance with SOP 907. The consolidated
financial statements for the period ended June 7, 2002 reflect adjustments for the discharge of
debt and adoption of fresh start reporting. The Reorganization Value set out in the Plan of Reorganization was US$87.8 million before
current liabilities of US$7.8 million, and was determined by the Company with the assistance and
analysis of its financial advisors. The Reorganization Value was primarily determined on a
discounted cash flow analysis utilizing both recent operating results and future projected cash
flows over the estimated lives of the network assets and a discount rate of 20%. The estimated
Reorganization Value of the Company is consistent with the basis for the Plan of Reorganization
approved by the United States Bankruptcy Court for the District of Delaware. The business plan within the Plan of Reorganization was based upon a number of assumptions
including general macroeconomic conditions and in particular the state of the wholesale
telecommunications market in Europe and the Companys competitive position. Between the presentation of the Plan of Reorganization and its confirmation by the Bankruptcy
Court the Company was able to realize additional net assets of US$18.6 million, principally in
additional cash and cash equivalents. The following table reflects the fresh start reporting adjustments to the Companys Condensed
Consolidated Balance Sheet position as of emergence from bankruptcy: Balance Sheet at June 7, 2002Fresh StartReporting Settlement ofClaims, DebtPredecessor
    
    
    discharge and
    
    
    
    SuccessorCompany Balance
    
    
    Equity
    
    
    
    Company BalanceSheet
    
    
    Restructuring
    
    
    
    SheetCash and cash equivalents
    
    
    70,118
    
    
    
    (1,883
    )
    
    
    
    68,235Amounts receivable from bankruptcy estates
    
    
    5,263
    
    
    
    
    
    
    
    
    5,263Trade receivables
    
    
    4,028
    
    
    
    
    
    
    
    
    4,028Other current assets
    
    
    6,131
    
    
    
    
    
    
    
    
    6,131Property and equipment
    
    
    35,708
    
    
    
    
    
    
    
    
    35,708Deferred financing costs
    
    
    61,865
    
    
    
    (61,865
    )
    
    
    
    Other assets
    
    
    581
    
    
    
    
    
    
    
    
    581Total assets acquired
    
    
    183,694
    
    
    
    (63,748
    )
    
    
    
    119,946Current liabilities
    
    
    (51,533
    )
    
    
    30,223
    
    
    
    
    (21,310
    )Liabilities subject to compromise
    
    
    (2,357,935
    )
    
    
    2,357,935
    
    
    
    
    (2,409,468
    )
    
    
    2,388,158
    
    
    
    
    (21,310
    )Preferred stock
    
    
    (338,259
    )
    
    
    338,259
    
    
    
    
    Shareholders equity
    
    
    (2,564,033
    )
    
    
    2,662,669
    
    
    
    
    98,636
 F-18




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) Fresh start reporting adjustments in these consolidated financial statements result
primarily from the following:  
    
    Elimination of the deferred financing costs balance of the Predecessor relating to
Predecessors liabilities subject to compromise.
    
    Elimination of the deferred revenue balances of the Predecessor and recognition of
the performance obligations under longterm contracts that were entered into by
Predecessor to reflect fair value.
    
    Elimination of Predecessors liabilities subject to compromise.
    
    Cancellation of Predecessors common stock and the elimination of accumulated deficit. The Reorganization Value was allocated to individual assets and liabilities based on the
work of outside financial advisors, as well as internal valuation estimates using discounted cash
flow analyses. In accordance with and pursuant to the Plan of Reorganization of Viatel, Inc., all
prepetition liabilities of the Predecessor were discharged and creditors received a prorata
distribution of 10,560,000 common shares issued by the Company. Additionally, the Predecessors
entire deficit was eliminated. There were no other adjustments to individual assets and
liabilities (4) Amounts receivable from exchange contracts As of December 31, 2004 there were amounts receivable from exchange contracts of US$10,551.
This balance arose due to the execution by the Company of a forward foreign exchange contract to
convert US$10 million into pounds sterling on December 31, 2004. Proceeds of £5,591 (US$10,551)
from this transaction were not received until January 4, 2005, and consequently, and in accordance
with Statement of Financial Accounting Standards No. 95 Statement of cashflows this amount did
not fall to be recognized as cash or cash equivalents as of December 31, 2004, but as an amount to
be received from exchange contracts. There was no equivalent amount as of December 31, 2003. (5) Property and Equipment Property and equipment consists of the following as of December 31: 2004
    
    
    2003Land and buildings
    
    
    500
    
    
    
    500Communications systems and network infrastructure
    
    
    53,072
    
    
    
    46,226Furniture, office and computer equipment
    
    
    2,314
    
    
    
    1,98055,886
    
    
    
    48,706Less accumulated depreciation
    
    
    (17,900
    )
    
    
    (8,807
    )Net book value
    
    
    37,986
    
    
    
    39,899
 Depreciation on property and equipment, and included in depreciation and amortization in
the accompanying consolidated statements of operations, amounted to US$7,696 for the year ended
December 31, 2004 and US$4,802 for the year ended December 31, 2003. For the periods from June 7, F-19




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VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) 2002 to December 31, 2002, and from January 1, 2002 to June 7, 2002, depreciation amounted to
US$2,458 and US$1,736 respectively. (6) Intangible Assets Intangible assets consist of the following as of December 31: 2004
    
    
    2003Customer Relationships (see Note 11)
    
    
    6,244
    
    
    
    5,709Less amortization
    
    
    (4,046
    )
    
    
    (2,379
    )Net Book Value
    
    
    2,198
    
    
    
    3,330
 Amortization on intangible assets, and included in depreciation and amortization in the
accompanying consolidated statements of operations, amounted to US$1,445 for the year ended
December 31, 2004 and US$2,379 for the year ended December 31, 2003. The expected annualized
amortization charge for future years will be approximately US$470 each year through to February
2008, and nil thereafter. (7) Deferred financing costs Deferred financing costs consist of the following as of December 31: 2004
    
    
    2003Financing costs
    
    
    8,092
    
    
    
    Less amortization
    
    
    (462
    )
    
    
    Net Book Value
    
    
    7,630
    
    
    
    
 (8) Convertible notes In
connection with the April 2004 Financing, the Company issued
convertible loan notes (the Existing Notes) with a
principal value of US$52.25 million. There are two embedded derivatives within the convertible loan note host contract, a change
of control put option and an equity conversion feature. The put option allows the loan note holder
to put back the loan notes to the Company for cash equal to the value of 101% of the principal of
the loan notes, should a change of control of the Company be effected. The equity conversion
version feature allows the loan note holder to convert the loan notes into equity, upon the
occurrence of a Liquidity event, at a conversion price linked to the equity value of the Company,
which in turn is related to the share price of the Company. The
change of control put option is separately accounted for pursuant to
Statement of Financial Accounting Standards No. 133
Accounting for Derivative Instruments and Hedging
Activities. The fair value of the embedded derivative is deemed
to be nil at both the loan note issuance date, April 21, 2004,
and the balance sheet date, December 31, 2004 as the likelihood
of the loan note holder exercising the put option, should be a change
of control occur, has been assessed by management as being remote. The
convertible feature within the loan notes is not required to be
separately accounted for pursuant to the Statement of Financial
Accounting Standards No. 133 Accounting for Derivative
Instruments and hedging Activities. The feature has therefore
been accounted for in accordance with the Emerging Issue Task Force,
Issue 98-5 Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion
Ratio and Issue 00-27 Application of Issue
No. 98-5 to Certain Convertible Instruments. These Issues
require that an intrinsic value is assigned to the convertible
feature at the date of the issuance of the loan notes, based on the
difference between the conversion price and share price multiplied by
the number of shares issued upon conversion. The
beneficial conversion feature embedded within these notes was valued
at US$17,417, and this amount has been recorded at a discount against
the principal value. This discount is then amortised over the term of
the loan notes based on the effective yield method (the imputed
interest notes is 4.13%) resulting in a reduction of the discount of
US$995 by December 31, 2004. On July 15, 2004, interest
accumulated to date on principal value of the loan notes of US$976 was
converted into additional notes. These notes had a beneficial
conversion feature of US$195 on issuance, which had amortised by US$8
by December 31, 2004. F-20




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) There are two embedded derivatives within the convertible loan note host contract, a change
of control put option and an equity conversion feature. The put option allows the loan note holder
to put back the loan notes to the Company for cash equal to the value of 101% of the principal of
the loan notes, should a change of control of the Company be effected. The equity conversion
version feature allows the loan note holder to convert the loan notes into equity, upon the
occurrence of a Liquidity event, at a conversion price linked to the equity value of the Company,
which in turn is related to the share price of the Company. Interest
on the loan notes is 8% per annum, to be compounded and payable semi-annually by
way of additional notes or, at the Companys option, in cash. The Existing Notes have a 10 year maturity, and are convertible, at the option of the holder,
into the Companys common shares upon the occurrence of certain specified liquidity events, such
as a change of control or an initial public offering, or if not previously converted, after the
ninth anniversary of issuance. The
convertible loan note holders (and their transferees) effectively have
the right, at any time, to increase the size of the Board and to
approve a majority of the Board to be designees of the convertible
loan note holders. The
convertible loan notes do not include any financial covenants but do
contain covenants that significantly limit or prohibit the
Companys ability to, interalia, incur indebtedness, engage in
certain transactions and change the Chief Executive Officer. Upon
conversion of all or a large portion of the convertible loan notes, persons previously holding
such convertible loan notes will hold a significant majority of our common shares, assuming that the
Company has not issued shares other than on a conversion of the convertible loan notes. Both prior to and
following conversion, and until such time as the Investors directly or indirectly together hold, on
a fully diluted basis, 25% or less of the Companys common shares, material corporate actions will
effectively require the consent of the Investors or their transferees. (9) Stock Incentive Plans As of December 31, 2001, the Predecessor had 567,299 options outstanding. Pursuant to the
Predecessors Plan of Reorganization, all outstanding common stock and stock options were cancelled
on the Effective Date. During 2002, the Company adopted, with stockholder approval, an Equity Incentive Plan (the
Incentive Plan). Pursuant to the Incentive Plan, nonqualified stock options to acquire shares
of common stock may be granted to the Companys employees, officers, directors, independent
contractors and consultants. The Incentive Plan also provides for the grant of Stock Appreciation
Rights, either separately or in tandem with options, entitling holders to cash compensation
measured by appreciation in the value of the shares, and Limited Stock Appreciation Rights, that
are exercisable upon the occurrence F-21




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) of specified events. The Incentive Plan also authorizes the grant of any other sharebased
awards, such as restricted stock and bonus stock, as deemed appropriate. The Incentive Plan is currently administered by the Remuneration Committee of the Companys
Board of Directors. The Incentive Plan allows for the issuance of up to a maximum of 1,440,000
shares of common stock of which 696,000 shares remained available for grant at December 31, 2004
(2003  696,000; 2002  696,000). Prior to the Effective Date, the Company issued 744,000 options
as described below. During the period from the Effective Date to December 31, 2002, no options were
issued or exercised. During the year ended December 31, 2003, 170,000 options were exercised and
384,000 options were forfeited as a result of employee terminations. The exercise price of the
share covered by each nonqualified stock option shall be as determined by the Compensation
Committee of the Board of Directors. Should an incentive stock option be granted to a person
possessing more than 10% of the combined voting power of the Company, the exercise price shall not
be less than 110% of the fair market value of the share on the date of grant. Options are subject
to various vesting conditions as disclosed below and have a maximum term of 10 years from the grant
date. Each option granted pursuant to the Incentive Plan is evidenced by a written agreement, 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. As at December 31, 2004, no stock
options had been granted to nonemployees (2003  none). Stock option activity is shown below: Weighted Average
    
    
    
    Number of Shares
    
    
    
    Number of ExercisableExercise Price
    
    
    
    (in thousands)
    
    
    
    options at end of each yearOutstanding at December 31, 2001
    
    $
    25.11
    
    
    
    
    567
    
    
    
    
    567Granted at below market price before Effective Date
(at a weighted average fair value of $6.02)
    
    
    5.65
    
    
    
    
    744Forfeited
    
    
    25.11
    
    
    
    
    (567
    )At June 7, 2002
    
    $
    5.65
    
    
    
    
    744
    
    
    
    
    408Outstanding at December 31, 2002
    
    $
    5.65
    
    
    
    
    744
    
    
    
    
    408Forfeited
    
    
    8.33
    
    
    
    
    (384
    )Exercised
    
    
    0.01
    
    
    
    
    (170
    )Outstanding at December 31, 2003
    
    $
    5.26
    
    
    
    
    190
    
    
    
    
    150Forfeited
    
    
    8.33
    
    
    
    
    (120
    )Exercised
    
    
    0.01
    
    
    
    
    (70
    )Outstanding at December 31, 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
 The vesting of the US$0.01 options was 100% on the earlier of (1) one year from May 21,
2002 (the date of grant); (2) a Change of Control as defined in the underlying employment contract,
pursuant to which the options were granted; (3) termination of employment of the recipient of the
options; and (4) consummation of the Plan of Reorganization. Consequently, all such options vested
on June 7, 2002. The vesting of the US$8.33 options was 33.4% on the consummation of the Plan of
Reorganization; 33.3% on the first anniversary of the Effective Date and 33.3% on the second
anniversary of the Effective Date. (10) Other operating income The
Company had certain claims against Easynet Telecommunications Limited
(Easynet) in which the Company alleged breach of contract
under an Indefeasible Right of Use Agreement dated May 30, 2000 and certain related agreements
(together, the Agreements). The claims were formally commenced in the High Court of Justice in
England as of February 11, 2003 and proceeded to a full trial commencing on November 19, 2003. The
Company has now accepted, as full and final settlement of its claims under the Agreements, payment by Easynet of £6.9 million (US$13.0 million approximately) which was paid in two equal
instalments in March 2004 and September 2004, the second instalment having accrued interest at an
annual rate of 4%. These settlement amounts, other than the interest income received, were recorded within other operating income during 2004. The settlement also served to dismiss certain related counterclaims brought by
Easynet against the Company. As at December 31, 2003 and 2002 the Company had a liability for
future performance obligations of $4.6 million under the contract with Easynet. Under the terms of
the settlement, the Company was relieved of this obligation and accordingly recognized the release
of the liability in the statement of operations in 2004 upon receipt of the final settlement
payment. F-22




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) (11) Acquisitions In furtherance of our expansion of our target customer base into Small and MediumSized
enterprises, in March 2003, we acquired two recognized business ISPs, Cybernet (Schweiz) AG
(Cybernet) in Switzerland, and Netcom Internet Limited (Netcom) in the United Kingdom. Netcom On March 7, 2003, the Company acquired 100% of the outstanding common shares of Netcom
Internet Limited (Netcom) from its parent, Net Access Limited (Net Access). Netcoms business
is the leasing of circuits and lines used for internet connectivity. The acquisition has been
accounted for using the purchase method of accounting and the results of operations have been
consolidated since the date of acquisition. The Companys interest in the net assets acquired at
fair values is as follows: Current Assets
    
    
    1,063Property and Equipment
    
    
    775Intangible assets
    
    
    1,737Deferred income tax liability
    
    
    (521
    )Current Liabilities
    
    
    (2,168
    )Net assets
    
    
    886ConsiderationCash
    
    
    722Expenses
    
    
    164Total consideration
    
    
    886
 The intangible asset relates to the Customer Relationship acquired in the purchase of
Netcom. The estimated useful life of this Customer Relationship is 2 years. In calculating the fair value of the assets acquired and the liabilities assumed negative
goodwill of $1.2 million arose. This negative goodwill has been allocated pro rata to the value of
the property and equipment and the Customer Relationship. Cybernet On February 5, 2003, the Company acquired certain assets and assumed certain liabilities of
Cybernet (Schweiz) AG (Cybernet) from its parent, Cybernet Internet Services International.
Cybernets business is the provision of internet services to small and medium sized enterprises.
The acquisition has been accounted for using the purchase method of accounting and the results of
operations have been consolidated since the date of acquisition. The Companys interest in the net
assets acquired at fair values is as follows: Cash
    
    
    331Current Assets
    
    
    843Property and Equipment
    
    
    942Intangible assets
    
    
    3,539Current Liabilities
    
    
    (2,697
    )Net assets
    
    
    2,958ConsiderationCash
    
    
    2,908Expenses
    
    
    50Total consideration
    
    
    2,958
 F-23




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) The intangible asset relates to the Customer Relationship acquired in the purchase of the
assets and liabilities of the Cybernet entity. The following unaudited proforma data summarizes the results of operations for the year ended
December 31, 2003 and for the period from June 7, 2002 to December 31, 2002 as if the acquisitions
of Cybernet and Netcom had been completed as of June 7, 2002. The pro forma amounts are presented
for illustrative purposes and do not purport to be indicative of the results that would have been
actually achieved if the acquisitions had occurred as of June 7, 2002 of that may be achieved in
the future. The principal pro forma adjustment relates to the depreciation and amortization expense
of long-lived assets. Year ended
    
    
    From June 7, 2002December 31,
    
    
    to December 31,2003
    
    
    2002Revenue
    
    
    21,006
    
    
    
    11,466Net loss
    
    
    (47,520
    )
    
    
    (5,294
    )Basic and diluted net loss per share
    
    
    (4.44
    )
    
    
    (0.50
    )
 (12) Income Taxes The
Companys operations were undertaken in foreign jurisdictions
for the years ended December 31, 2004 and 2003. The Company is organized and tax resident in Bermuda. At the present time, no income,
profit, capital or capital gains taxes are levied in Bermuda. In the event that such taxes are
levied in the future, the Company and all its subsidiaries registered in Bermuda have received an
undertaking from the Bermuda Government exempting them from all such taxes until March 28, 2016. The statutory Bermuda tax rate for the year ended December 31, 2004 was zero (2003  zero) and
the statutory rates in the jurisdictions in which the Company operates range from 23% to 40.2%
(2003  23% to 42.4%). The effective tax rate was (0.5)% for the years ended December 31, 2004 and
2003 due to the Company amortizing a deferred tax liability through the Statement of
Operations in both years. No tax benefit has been recorded in respect of net taxable losses
incurred. The only significant reconciling items between pre-tax income at the statutory tax rate and the
tax charge reflected in the income statement are the movement in the valuation allowance as a
result of current year losses for which no benefit is being recorded, and the write off of prior
year gross deferred tax assets (against which a full valuation allowance had also been recorded) as
described below. The tax effect of temporary differences that give rise to significant portions of the deferred
tax assets are as follows as of December 31, 2004 and 2003: F-24




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) Deferred Income Tax Assets
    2004
    
    
    2003US net operating loss carryforwards
    
    
    
    
    
    
    2,119Foreign net operating loss carryforwards
    
    
    43,756
    
    
    
    54,531Foreign property and equipment
temporary differences
    
    
    7,914
    
    
    
    7,219Total gross deferred tax assets
    
    
    51,670
    
    
    
    63,869Less valuation allowance
    
    
    (51,670
    )
    
    
    (63,869
    )Net deferred tax assets
    
    
    
    
    
    
    
 The Company has unused net operating loss carryforwards of approximately US$154.1 million
(2003  US$183.9 million). Of this amount, US$nil million (2003  US$5.3 million) represents US
net operating losses expiring in 2007 through 2021 and US$57.4 million (2003  US$52.2 million) of
these losses represent French net operating losses which will expire by 2009. Other net operating
losses have no expiration. Certain losses arising in foreign jurisdictions are expected to
continue to be available to the Company, although their use may be subject to restrictions in the
US and elsewhere. Foreign net operating loss carryforwards were US$43,756 as of December 31, 2004, US$10,775
lower than as of December 31, 2003. This reduction is attributed to a re-assessment during 2004 of
the carrying value of certain foreign property and equipment, which in turn reduced the operating
losses available for carryforward in those foreign jurisdictions The Company also has potentially significant deferred tax assets as a result of the
consolidated book value of the European Network being considerably less than its original cost and
tax basis. Further, any realization would be dependent upon the disposal of the European Network
assets. As a consequence of its bankruptcy proceedings in various jurisdictions there is
significant uncertainty as to the quantum of the potential deferred tax asset and accordingly no
estimate has been made. 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 in the respective tax jurisdiction 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. Management
believes that it is more likely than not that the tax benefit from the deferred tax assets will not
be realized. Accordingly, management has recorded a full valuation allowance against the net
deferred tax assets. The unremitted earnings, if any, of the Companys foreign subsidiaries are considered by Management to be indefinitely reinvested and accordingly no
income taxes have been provided thereon. Upon distribution of those earnings in the form of
dividends or otherwise, the Company could be subject to income taxes (subject to an adjustment for
foreign tax credits, where applicable) and withholding taxes payable to the various foreign
counties. Determination of the amount of unrecognized foreign deferred income tax liability is not
practicable because of the complexities associated with its hypothetical calculation. F-25




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) (13) Commitments and Contingencies (a) Leases and long-term contracts At December 31, 2004, the Company was committed under noncancellable operating leases for the
rental of network locations, office space, motor vehicles and long-term contracts for standby
maintenance. These leases expire at various times through May 2029. The Companys future minimum operating lease and long term contract payments are as follows: Network
    
    
    Standby
    
    
    Office Space
    
    
    Motor
    
    
    TotalLocations
    
    
    Maintenance
    
    
    
    
    
    Vehicles2005
    
    
    4,452
    
    
    
    3,678
    
    
    
    912
    
    
    
    30
    
    
    
    9,0712006
    
    
    3,310
    
    
    
    52
    
    
    
    862
    
    
    
    14
    
    
    
    4,2382007
    
    
    2,730
    
    
    
    
    
    
    
    855
    
    
    
    
    
    
    
    3,5852008
    
    
    2,337
    
    
    
    
    
    
    
    772
    
    
    
    
    
    
    
    3,1092009
    
    
    2,185
    
    
    
    
    
    
    
    772
    
    
    
    
    
    
    
    2,957Thereafter
    
    
    18,771
    
    
    
    
    
    
    
    1,929
    
    
    
    
    
    
    
    20,700Total minimum payments
    
    
    33,785
    
    
    
    3,730
    
    
    
    6,101
    
    
    
    44
    
    
    
    43,660
 Total rent expense amounted to US$12.2 million for the year ended December 31, 2004,
US$12.0 million for the year ended December 31, 2003, US$6.1 million for the period from June 7,
2002 to December 31, 2002, US$4.6 million from January 1, 2002 to June 7, 2002. (b) Litigation On
May 2, 2001 the (Filing Date), the Debtors filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code. The Plan of Reorganization was consummated on
June 7, 2002, (the Effective Date). Commencing as
of the Effective Date, a series of share transfers were made whereby the European Subsidiaries
became wholly-owned, direct or indirect, subsidiaries of the Company. Additionally, under the
terms of the Plan of Reorganization, VTL, Inc. (VTL) was authorized to serve as disbursing agent
(with the right to designate other disbursing agents) with respect to distributions required under
the Plan of Reorganization. Accordingly, on or after the Effective Date and to the extent not
otherwise disposed of pursuant to the Plan of Reorganization, the Debtors Property vested in VTL.
Ownership of VTL was transferred to the Successor in January 2003. Except as otherwise set forth
in the Plan of Reorganization, all claims and liabilities of the Debtors were discharged as of the
Effective Date. F-26




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) In September 2003, the Company filed a claim for approximately 7.7 million (US$9.35
million approximately) in the Tribunal of Lille, France against Voies Navigables de France (VNF),
the owner of certain French waterways to whom the Company currently pays in excess of 2 million
(US$2.4 million approximately) annually for ROW charges. The claim principally asserts that the ROW
charges are discriminatory and should conform more closely to the charges levied by the highway and
road authorities in France. On the basis that this claim was filed by way of an opposition
procedure, the Company is entitled to withhold payment of ongoing charges as they fall due. On
this basis the Company has withheld its ROW charges for 2004 and it is anticipated that payment of
the ROW charges for 2005 will be withheld on the same basis. If the Company is unsuccessful in its
claim, it will likely be required to pay all outstanding fees together with interest, the interest
being estimated to amount to as much as approximately 120,000 (US$150,000 approximately).
Judgement is not expected until the end of 2005 at the earliest. Similar claims in respect of ROW charges have been filed against each of; (1) Compagnie
Nationale du Rhône (CNR); (2) Ville de Paris (VDP); and (3) SAGEP. The amounts of the claims
being, respectively, approximately 1.16 million (approximately US$1.4 million) against
CNR; approximately 1.4 million (approximately US$1.75 million) against VDP; and approximately
1.18 million (approximately US$1.43 million) against SAGEP. In the case of both CNR and SAGEP,
the Company has again withheld payment of fees currently due  should the Company lose the relevant
proceedings, this could yield a liability to repay (including applicable interest) an amount of
approximately 900,000 (approximately US$1.1 million) to CNR and an amount of approximately
430,000 (approximately US$530,000) to SAGEP. It should be noted that the outcome of the legal claims with respect to the ROW charges could
be substantially influenced by the enactment by the French government of a proposed regulation
intended to provide for a limit on the fees payable with respect to the grant and use of ROWs on
the public domain. Under a current draft decree  dated April 14, 2005  the proposed limit would
not require any decrease in the amounts currently charged by VNF and CNR; the limit would however
have the effect of requiring the fees charged by both VDP and SAGEP to be substantially reduced.
The Company is currently lobbying the French government and other public bodies to argue for a
lower limit to be prescribed. The Companys French subsidiary Viatel Operations SA (Viatel Operations) is engaged in a
dispute which arose as a result of the early termination of a lease agreement dated 29 September
1999. The lessor is claiming payment of: (a) an early termination indemnity in the amount of
30,489.40 (approximately US$37,000); and (b) the cost of fit-out works which, according to the
lessor, Viatel Operations was under an obligation to perform under the lease. When the dispute
first arose, the lessor F-27




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) chose to quantify the amount of the fit out works as 855,514.20 (approximately US$1.1
million). Viatel Operations denied that it was under any obligation to carry out the fit-out
works, the lease being permissive in this regard, not obligatory. In February 2005, the lessor
issued proceedings requesting payment of the early indemnity, a provisional payment from Viatel
Operations of 69,510.20 (approximately US$84,400) for reinstating the property and, finally,
the appointment of an expert by the French court whose duty will be to assess the cost of
reinstating the property on the basis of the schedule of fit-out works appended to the lease.
The initial hearing in this matter was scheduled for April 2005 but following two postponements,
made at the lessors request, the hearing is now scheduled for September 2005. Viatel Operations is also currently in dispute regarding a second lease termination  this
time with respect to the termination of a lease agreement dated May 4, 2000 relating to premises in
St. Denis, France (the St. Denis Lease). The lessor is claiming the termination to be both
procedurally and substantively defective, and is consequentially claiming the balance of all
payments due under the lease, amounting in aggregate to 12,678,366 (approximately US$17.3
million). Viatel Operations has received strong advice in support of its position. The Companys UK subsidiary VTL (UK) Limited (VTL (UK)) is in dispute with a company which
previously provided it with financial advice, in particular with respect to its employee benefits
programme. The financial advisor is claiming an unlawful termination of its engagement with VTL
(UK) and has indicated a potential related damages claim of over £100,000 (approximately
US$182,000). VTL (UK) has been advised that it has strong grounds both to defend any such claim and
to bring a counterclaim in respect of the breach by the financial advisor of various express and implied
contractual terms relating to its former engagement. Fibrelac a company acting on its own behalf has filed claims against three Swiss Cantons in
relation to the build of a telecommunications network. The principal basis of the claim is that,
in return for allowing the build to proceed, the cantons of Bern, Basle and Aargau insisted that
they be given a duct in such build, either for free or for a consideration lower than the market
value, the claim being based on provisions of the Swiss Telecommunications Act including those
dealing with the absence of compensation in case of access to public domain. The claims also seek
to obtain a declaration of ownership of the ducts rather than indefeasible rights of use. Claims
have been filed against all 3 cantons. Were the claims to be successful, Viaphone AG would be
entitled, based on various agreements, on a pro rata basis (allocated pro rata by duct) to
approximately CHF 10,000,000 (approximately US$8 million) together with interest at 5% per annum
from late 2000. As previously noted, any adverse decision in all or any of the proceedings summarised above
regarding ROW charges in France could render the operation of all or part of the Companys network
in France uneconomical. An adverse decision in the litigation regarding the St. Denis Lease could
also have a material effect on the Companys French subsidiarys financial position. Subject to
this, the Company does not believe that any adverse outcome from litigation would have a material
adverse effect on its financial position or results of operations. The Company is not aware of any
other material litigation against it. The Company does, however, have various other legal
proceedings pending against it or its subsidiaries which, if adversely determined, would not have,
in the Companys view, individually or in F-28




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) the aggregate, a material adverse effect on its business, financial condition or results of
operation. (c) Amounts due from Liquidators of bankruptcy estates As a result of the Plan of Reorganization, the Company has claims against the bankruptcy
estates of certain subsidiaries of Viatel, Inc. As at June 7, 2002, December 31, 2002, December
31, 2003, and December 31, 2004, estimates were made as to the expected recoveries of US$5,300,
US$20,900, US$7,257 and US$5,320 respectively based upon all available information. Actual
recoveries will vary depending upon the success of the liquidators in realizing the value . (d) The Employee
Benefit Trust Under
the terms of the EBT, which is in the process of being formally
established, amounts will be paid, in either cash or equity, for the
benefit of these individuals (and their families) in connection with
specified liquidity events. The value of such awards
could potentially, in aggregate, equal 5% of the equity value of the
Company (as such term as defined in the EBT) where the equity value
is at least $100 million and potentially up to 10% of the equity
value, where the equity value is $350 million or more (with
interpolated values in between $100 million and
$350 million on a pro rata basis). Awards
under the Plan will vest in 3 tranches (one third effective
21 April 2005 and one third on each of the subsequent
anniversaries) subject to the individuals continued employment
through each applicable resting date. Based upon the current value of
the Company no accrual has been made under the terms of the EBT. (14) Segment and Geographic Data The Companys sole operational activity relates to the provision of telecommunications
services. The Companys management uses financial data internally to make operating decisions and
assess performance based upon this one principal activity of the Company. Following the adoption
of the New Viatel Business Plan in August 2003 the Company has captured revenue data for 2
segments, wholesale and retail. It has not been possible to allocate certain costs of sales, nor
selling, general and administration costs between the segments. The Companys accounting systems
did not distinguish between these two segments prior to August 2003 and accordingly only
broad-based allocations were possible for the earlier part of 2003. It is not practicable to
restate any earlier periods, during which the Company had only one reportable segment. For 2004 the revenue for the retail segment was US$24.4 million (2003  US$14.3 million) and
for the wholesale segment was US$4.4 million (2003  US$4.6 million). For the years ended December 31, 2004 and 2003, no individual customer accounted for greater
than 10% of revenues. Revenues for the period from June 7, 2002 to December 31, 2002 from three
principal customers of the Companys European Network represent approximately 40%, 28% and 16% each
of consolidated revenues. For the period from January 1, 2002 to June 7, 2002, and the years ended
December 31, 2001 and December 31, 2000, no individual customer accounted for greater than 10% of
revenues. The revenue generated by geographic location of customers is as follows: Successor
    
    
    Successor
    
    
    Successor
    
    
    
    PredecessorYear Ended
    
    
    Year Ended
    
    
    From June 7, 2002
    
    
    
    From January 1,December 31,
    
    
    December 31,
    
    
    to December 31,
    
    
    
    2002 to June 7,2004
    
    
    2003
    
    
    2002
    
    
    
    2002United Kingdom
    
    
    10,560
    
    
    
    7,998
    
    
    
    1,497
    
    
    
    
    2,301Switzerland
    
    
    15,188
    
    
    
    9,041
    
    
    
    
    
    
    
    
    Other Western Europe
    
    
    2,366
    
    
    
    397
    
    
    
    531
    
    
    
    
    North America
    
    
    676
    
    
    
    1,476
    
    
    
    2,136
    
    
    
    
    366Consolidated
    
    
    28,790
    
    
    
    18,912
    
    
    
    4,164
    
    
    
    
    2,667
 In the year ended December 31, 2004 revenue from customers located in the United Kingdom
represented 37% (2003  42%) of total revenue, and revenue from customers located in Switzerland
represented 53% (2003  48%) of total revenue. No other country represented greater than 10% of
total revenue. F-29




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) The information below summarizes longlived assets by geographic area as of December 31: Successor
    
    
    Successor
    
    
    Successor
    
    
    
    Predecessor2004
    
    
    2003
    
    
    2002
    
    
    
    2002France
    
    
    15,208
    
    
    
    14,904
    
    
    
    14,009
    
    
    
    
    15,095United Kingdom
    
    
    4,257
    
    
    
    6,450
    
    
    
    7,420
    
    
    
    
    343Belgium
    
    
    5,194
    
    
    
    5,514
    
    
    
    5,213
    
    
    
    
    5,376Germany
    
    
    5,560
    
    
    
    5,888
    
    
    
    5,022
    
    
    
    
    5,179Switzerland
    
    
    5,617
    
    
    
    6,813
    
    
    
    3,205
    
    
    
    
    1,586The Netherlands
    
    
    3,000
    
    
    
    3,051
    
    
    
    2,844
    
    
    
    
    2,933North America
    
    
    8,978
    
    
    
    205
    
    
    
    234
    
    
    
    
    262Consolidated
    
    
    47,814
    
    
    
    43,325
    
    
    
    37,947
    
    
    
    
    30,174
 (15) Valuation and Qualifying Accounts Reserves and allowances deducted from asset accounts: Successor
    
    
    Successor
    
    
    Successor
    
    
    
    PredecessorYear Ended
    
    
    Year Ended
    
    
    From June 7, 2002
    
    
    
    From January 1,December 31,
    
    
    December 31,
    
    
    to December 31,
    
    
    
    2002 to June 7,2004
    
    
    2003
    
    
    2002
    
    
    
    2002Allowances for doubtful debtsBalance at beginning of period
    
    
    (1,648
    )
    
    
    (790
    )
    
    
    
    
    
    
    
    Additions charged to costs and expenses
    
    
    (883
    )
    
    
    (1,034
    )
    
    
    (790
    )
    
    
    
    Utilizations
    
    
    964
    
    
    
    176
    
    
    
    
    
    
    
    
    Balance at end of period
    
    
    (1,567
    )
    
    
    (1,648
    )
    
    
    (790
    )
    
    
    
    
 (16) Authorized Share Capital At the April 2004 SGM the Company resolved, among other things, that: (a) the authorized
share capital of the Company be increased to US$2,500,000 by the creation of an additional
150,000,000 common shares; and (b) one unissued common share of the Company be redesignated as a
new special share (the Special Share). (17) Related Party Transactions Morgan
Stanley was considered to be a related party throughout 2004 by
virtue of its significant shareholding in the issued share capital of
the Company. In April 2004, following the Companys issuance of convertible loan notes, the Company
entered into three hedging contracts with Morgan Stanley. These contracts allowed for the
conversion of US$6 million, US$6 million and US$10 million into Pounds Sterling at Protected
rates of US$1.8045, US$1.7975 and US$1.7885 respectively for delivery on July 1, 2004, October 1,
2004 and January 5, 2005. These conversion rates were dependent upon the GBP to USD spot rates at
the time of exercise being above these rates; if market rates had been lower, the actual conversion
rates would have been split between the Protected rate, and market rates, based on the proportion
of time during the contract period in which actual rates had been below the Protected rates. In connection with the April 2004 Financing, Morgan Stanley, Varde and our CEO Lucy Woods
purchased Existing Notes in the principal amounts of $36.0 million, $10.0 million and $250,000
respectively. In connection with the June 2005 Financing Morgan Stanley and Varde have committed,
subject to customary conditions and the filing of the Form 20-F in a form satisfactory to Morgan
Stanley F-30




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##### Table of Contents



VIATEL HOLDING (BERMUDA) LIMITED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(United States Dollars, in thousands, unless specifically stated ) and Värde, to purchase New Notes in the principal amounts of $12.9 million and $3.1 million,
respectively. During
the year, additional loan notes to the value of US$665,564,
US$186,667 and US$4,667 were issued to Morgan Stanley, Varde and Lucy
Woods, respectively, in lieu of the interest accumulated to
July 15, 2004. As of December 31, 2004 Morgan Stanley,
Varde and Lucy Woods held total loan notes of US$36.7 million,
US$10.2 million and US$254,667, respectively. During 2003, the Company purchased 100,000 shares of Common Stock from the former Chairman and
Chief Executive Officer, Michael Mahoney. Consideration for the purchase of these shares was the
transfer to Michael Mahoney of all of the issued stock of a subsidiary of the Company, One World
Telecommunications Corp. (One World), which had a book value of $97,000, approximating its fair
value on the date of the transaction. The stock was cancelled during 2004. No gain or loss was
recognized on this transaction. (18) Subsequent events F-31